The minister for the Treasure and Public Administration Services, Cristóbal Montoro, highlighted that the tax reform will help boost economic growth and job creation, thanks to the 9 billion euros that will be made available to taxpayers as of January 2005.
The
minister stressed that this is the ideal moment for the tax reform,
now that "the public accounts are coming under control, the
forecasted budgetary income is being met" and the public deficit
reduction agreed with Brussels is assured. This is the perfect moment
to do this, by fairly sharing tax burdens and by combating fraud. We
will lower taxes, thereby strengthening economic activity and
growth", he stated in the Lower House during the debate on the
amendments on the full package of draft laws under the tax reform.
Cristóbal
Montoro stressed that this tax reform fosters a new tax system which
increases "progressiveness, equity and justice", when
compared with the last tax reform approved in 2006. In this regard,
he indicated that the average reduction in personal income tax will
be 12.5% for all taxpayers but that this will mainly benefit those on
medium and low incomes. 72% of taxpayers with an annual income below
24,000 euros per annum can expect to enjoy an average reduction of
23.47%. Some 1.6 million taxpayers will no longer have to pay
personal income tax. Those on salaries below 12,000 euros (known in
Spain as 'mileuristas') will not even have to make a tax return and
will receive their gross salary in full as of next year.
The
minister stated that this reform pays society back, in a fair manner,
for the major efforts made in the fight to exit the crisis. The
reform will increase salaries; higher salaries will help stimulate
the economy", he said. Added to which this will help improve the
competitiveness of the economy by boosting measures to encourage
salaried workers, the self-employed and companies to save, as well as
helping to reduce debt. All of this, he stated, will be possible,
while guaranteeing levels of social protection, without prejudicing
the Welfare State.
With
respect to corporate income tax, the minister highlighted the
improvements introduced to boost the capitalisation of companies and
reduce their debts. As regards VAT, Cristóbal Montoro insisted that
to avoid harming consumption, VAT rates will not be increased. He
went on to reveal that up to August this year, VAT revenue has risen
at a rate of 7.1%, as a result of the improved economic situation and
the fight against tax fraud.
Cristóbal
Montoro stressed the effort made by the Committee of Experts in
drafting this tax reform, presided over by Professor Manuel Lagares,
and the fact that their report included dozens of recommendations.
Among these recommendations are those received from families and
taxpayers with dependent children.
The
reform introduces a sizeable rise in the minimum personal income tax
base for families, of up to 32%, and the three new 'negative taxes'
or categories of social benefits for families and individuals with
disabilities. These apply to families with dependent children with
disabilities, families with dependent ascendants and large families
(three or more children, or with two children, one of which is
disabled).
In
each of the above cases they will receive 1,200 euros per annum,
which can be paid out in advance in instalments of 100 euros per
month. These "negative taxes" are compatible with others
and with the same amount (100 euros per month) as currently received
by working mothers with children under the age of three.
In
the case of a family with two children, with a combined income of
25,000 euros per annum (example with average income), the reduction
will amount to 13.9% of their net income.
Self-employed
The
personal income tax reduction will result in a reduction in
withholdings in general. The self-employed will feel the greatest
benefit from this. The withholding rate for a self-employed
professional earning less than 15,000 euros per annum will fall to
15% from 21%. This move has been implemented on a fast-track basis by
Royal Decree-Law as from July 2014. Furthermore, the withholding for
the self-employed in general will be reduced from 21% to 20% in 2015,
and to 19% in 2016. Similarly, the reduced tax rate of 15% for
newly-created companies, included in the Entrepreneur Act, will be
maintained.
Limitation
on 'module' system
The
new personal income tax law simplifies the objective estimate system
(known as 'modules' in Spain). In this regard, the exclusion
threshold is reduced from 450,000 euros to 150,000 euros for revenue,
and from 300,000 to 150,000 euros for expenses. Companies that
invoice less than 50% of revenue to individuals are excluded
therefrom. Activities that apply a withholding of 1%, such as
manufacturing and construction, are also excluded therefrom.
Activities such as restaurants, taxi services, farming and livestock
breeding will continue to use the 'module' system.
Neutrality
of savings
The
personal income tax reform also includes a reduction in the tax on
savings. This will be gradually introduced in the higher tax
brackets. The new rate consists of 3 brackets: the first up to 6,000
euros, with reduced taxation from 21% to 20% in 2015 and to 19% in
2016; from 6,000 euros to 50,000 euros, the rate will be reduced to
22% in 2015 and to 21% in 2016; for over 50,000 euros the rate will
stand at 24% in 2015 and 23% in 2016.
The
reform also includes new instruments to foster savings in the medium
and long term. For small and medium savers, the Government will
create a new instrument to give them tax breaks as an alternative, or
even to complement pension plans and other forms of saving. These new
'Ahorro 5' plans may be implemented in the form of a bank account or
insurance policy, whereby at least 85% of the return on investment is
guaranteed. Any return generated will be exempt from tax if
maintained for a minimum of 5 years.
Furthermore,
any capital gains for those over the age of 65 will be tax exempt if
converted into an annuity scheme. Furthermore, the minimum term for
an individual systematic savings plan is reduced from 10 years to 5.
In
the case of pension plans, the tax regime remains the same but a
one-off, maximum contribution per annum is set at 8,000 euros. It
will be possible to withdraw funds after a 10-year period.
Capturing
talent
EFEThe
tax regime is also modified for incoming talent. The objective of
this to attract talented people to Spain who are highly qualified in
fields such as science or economics, in order for them to work for
established companies in Spain. To ensure that this regime is not
taken advantage of in an undesired manner, professional athletes are
expressly excluded. A specific tax rate of 24% is fixed for the first
600,000 euros of salary, above which the maximum marginal tax rate is
applied as for any other taxpayer.
Lowering
of taxes for companies
Corporate
income tax includes a tax reduction and measures to boost the
competitiveness of companies and simplify deductions. With the aim of
establishing a tax regime similar to our peer countries, the general
tax rate will be reduced from 30% to 28% in 2015, and to 25% in 2016.
A
capitalisation fund will be created (reduction of 10% on taxable
income for increasing own funds) which replaces the present deduction
for reinvestment of profits.
SMEs
will have access to a new alignment reserve. This means a reduction
in taxable income of 10% with a ceiling of one million euros. This
amount will be offset by negative taxable income for a period of 5
years. Furthermore, this special regime will be maintained for
smaller institutions offering other benefits to SMEs such as freedom
of amortisation.
Reordering
of deductions and better incentives
The
new corporate income tax offers a reordering of deductions, while
maintaining those existing for job creation and to boost R&D+i.
Those companies that invest amounts in excess of 10% of their revenue
to R&D can increase the cash convertible amount from 3 to 5
million euros of the deduction for R&D.
Furthermore,
the tax base is increased to narrow the gap between the effective
rate and the nominal rate. To achieve this, and with the aim of
continuing to foster financial deleveraging (control of company debt
burden) the deductibility of expenses for impairment is capped, the
ceiling for financial expenses is maintained and a general limit of
60% is set for taxable income, which come into force in 2016. These
are tax measures that are comparable with our peer countries,
introduced with a view to cleaning up the balance sheets of Spanish
companies.
In
order to maintain tax revenue in 2015, the temporary measures
currently in force will be extended to next year (increased partial
payments, capping on offsetting negative taxable income and
goodwill), which essentially affect larger companies. Furthermore,
tax on shareholdings for resident and non-resident companies will be
treated similarly to bring this in line with the system at an
international level.
Greater
incentives for industry
The
tax reform introduces new tax incentives to very specific economic
activities that foster economic growth and a change to the productive
model, e.g. for industrial companies. In order to improve the
competitiveness of productive processes that heavily rely on
electricity, the partial exemption (85%) of the tax on electricity
will be extended to all processes where the cost of electricity
represents in excess of 50% of total production costs.
Legal
certainty
Measures
to improve the fight against fraud and to provide greater legal
certainty include prohibiting tax deductible expenses that enjoy
different treatment in other countries. To this end, it will not be
possible to deduct returns from financial instruments when the
recipient in another country is not taxed for these operations
(hybrid instruments). Furthermore, the documentary obligations are
simplified in related operations (parent company and subsidiaries).
Patronage,
cinema and theatre
The
tax reform includes an incentive for patronage. The personal income
tax reduction for donations is increased from 25% to 30%. To
incentivise stability in the contribution of these resources, this
percentage is raised a further 5 percentage points if this donation
is extended for personal income tax or corporate income tax purposes
for a period of three years.
To
increase social participation in these activities, a deduction of 75%
for donations of less than 150 euros is established in two phases.
Donations in excess of this amount will enjoy other incremental tax
rates.
The
draft law on the reform of corporate income tax includes new
incentives for cinematographic productions. In this regard, a fixed
rate will be applicable to producers and financial co-producers
indistinctly, set at 20% for the first million euros, and at 18% for
any additional amount. For the financial co-producer, this results in
a four-fold increase on the current rate, from 5% to 20%.
Furthermore, in order to attract cinematographic productions from
overseas there will be a 15% deduction on expenses incurred abroad.
These are the best tax breaks ever for the production of films and
shows in Spain.
Finally,
the draft law introduces a new deduction of 20% to support the
production and live performances of plays and musicals.
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