Every country is special in some way and Spain is very special, famous for its sunshine, food and great people.
However, Spain is also special because it taxes personal wealth, one of the few remaining countries in the EU that has a Wealth Tax.
But Spain has gone one better, on top of Wealth Tax, for 2022 onwards there is also the new “Impuesto Temporal de Solidaridad de las Grandes Fortunas”. Translated literally by our machine translation software as the “Temporary Solidarity Tax for the Very Rich“.
It is accepted in the modern world that one should be taxed on the income you receive, but why should you pay tax for owning assets, assets that you have gathered during your life with income that tax was already applied to? Why does Spain have two taxes, ordinary Wealth Tax “Impuesto sobe el Patrimonio” plus this new tax. A little history is required…
Wealth Tax was introduced in Spain in 1978 as an emergency measure for a few years to help finance the new democratic state of Spain, post Franco. As is usual with emergency taxes, they tend to be a bit sticky and it was not until 2008 that the obligation to pay this tax was exempted. Another financial crisis arose and from 2011 it was reintroduced, although now the autonomous regions of Spain could decide what to do with this tax, i.e: change the tax rates, increase exemptions, etc. Madrid was the 1st autonomous region to cancel the payment of wealth tax for the residents of Madrid and in 2022 Andalucía became the 2nd autonomous region to provide full exemption.
The central government of Spain was not happy when Andalucía made this decision to follow Madrid. We can speculate why they did not act when Madrid made its move, and the more cynical might suggest that this could be because most the politicians live in Madrid, and they liked the idea of not paying Wealth Tax, but who cares about the rest of Spain? We will never really know why, but their reaction to Andalucía’s brave initiative to attract the wealthy to Southern Spain was unexpected and brutal. They created a new national tax to supplement the regional Wealth Tax – the Impuesto Temporal de Solidaridad de las Grandes Fortunas.
So, a tax that hardly exists anywhere else in the world, now in Spain it not only exists once, but it exists twice, once was not enough. What can I say: welcome to Spain.
What is the Impuesto Temporal de Solidaridad de las Grandes Fortunas?
Identical to the existing wealth tax, this is a personal tax that is applicable on the total value of your total net assets, once the total value is over 3 million €. Spanish resident taxpayers also have an additional general exemption of 700.000€.
For tax residents of Spain this tax is applicable on your world-wide assets, and you have an additional exemption of up to 300.000€ on the value of your home in Spain.
We emphasise that non-residents cannot claim the 700.000€ or the 300.000€ exemptions.
For non- residents of Spain, this tax is applicable only on the total value of your Spanish assets. The taxable table is as follows, which is identical to the standard autonomous communities wealth tax table, only that this one has a greater exemption.
|Taxable base – from €||Taxable base – next €||Applicable tax rate %||Cumulative tax payable €|
Some examples of tax payable would be:
1. For a wealth of 4.500.000€ in a tax payable amount of approximately 8.500€
2. For a wealth of 5.500.000€ would translate into a tax payable amount of about 25.500€.
Does this mean I am taxed twice? Do I pay wealth tax to the autonomous region and then great fortunes tax also to the state?
Fortunately, the answer is no. You pay the tax to your autonomous regions and then you pay the difference to the state. In other words, any amount payable in wealth tax to your autonomous region would act as a credit against the tax payable on the tax on great fortunes to the state government.
Is there anything else that is new that we should know about?
Yes, there is a very important change that causes the ownership of Spanish properties through foreign companies to be subject to both wealth tax and tax on great fortunes. In another piece of tax legislation, the ownership of shares of foreign entities that own directly or indirectly Spanish properties, has become subject to both wealth tax and tax on great fortunes, with effect from December 2022. To be more precise, it will apply to those non resident companies whose Spanish located assets exceed 50% of their total assets. Everyone reading this article will realise that the obvious way of walking around this problem is to have the company own financial investments outside of Spain that exceed 50% of the company assets.
Unfortunately, the very popular tax mitigation measure of owning Spanish property via a foreign company has finally, after 40+ years, been made ineffective. The tax office very quietly made this painful change to the law.
Also to to be taken account of is a peculiarity in law that involves Double Tax Treaties (DTTs). These take precedence over Spanish domestic legislation. Some DTTs specifically state that the shareholders of foreign companies whose main assets are properties in Spain, may be subject to wealth tax. This is the case, for example, for UK, Germany and Maltese DTTs so shareholders resident in these jurisdictions have been caught by the new legislation. Individuals resident in countries with DTTs that have not been signed or revised in recent years will have the joy of not suffering this problem, as is the case for Switzerland, Morocco and China, which have some of the oldest treaties, for example.
We can only hope for a new national Spanish Government later this year so that the country can appeal once again to wealthy foreigners who are currently exiting Spain in large numbers. They are by all accounts a very mobile and resourceful group.
It is worth mentioning that this tax has been approved to be applicable for 2022 and 2023 only, as it is meant to be a ‘temporary solidarity tax’, to help with the economic current situation. This could be another example of politicians being economical with the truth. Wealth tax was introduced in 1978 and lasted until 2008 and then in 2011 to date and in both cases was meant to be exceptional and temporary. As I have mentioned, with the exception of Madrid and Andalucia, wealth tax still exists in all the other autonomous regions of Spain.
For a compete guide to the Spanish tax system for 2023, click here