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On 30th March the recently elected Spanish Government issued Royal Decree 12/2012 with the purpose of reducing the public deficit by drastically cutting expenditure and increasing tax receipts.
A summary of the main taxation measures is as follows:
The Government has introduced a measure which they were strongly against whilst in opposition – a tax amnesty in respect of Income Tax, Corporation Tax and Non-Resident Tax for resident individuals, resident entities and non-residents.
The thrust of the amnesty is that undeclared assets are reported on a particular return (yet to be issued) to a Special Unit within the Spanish Tax Authorities, together with payment of the tax. The reason that a Special Unit is being created is to ensure confidentiality.
Points to consider are:
Apart from this general amnesty above, the Government has also introduced a camouflaged amnesty for resident companies holding shares in overseas subsidiaries, in particular subsidiaries based in tax havens or low-tax jurisdictions.
If the subsidiary pays a dividend, the resident company has the option to pay a Special Tax of 8% of the gross amount of the dividend (as opposed to including the dividend in taxable income and paying 30% Corporation Tax).
Similarly, if the resident company sells the shares in the subsidiary at a profit, it has the option to pay a Special Tax of 8% of the gain (as opposed to inclusion in taxable income and paying 30% Corporation Tax).
It should be noted that the Special Tax is only applicable in circumstances where the resident company holds a minimum 5% shareholding in the foreign subsidiary and held this stake for an uninterrupted period of at least 1 year before the dividend is paid or shares sold, plus at least 85% of the profits of the subsidiary must have arisen from economic activities.
As with the general amnesty, the Special Tax has to be reported and paid before 30th November 2012.
It should be noted that any overseas withholding taxes cannot be offset against the Special Tax and the Special Tax is not a taxdeductible expense for the resident company.
Finally, it should be mentioned that the Socialist Party have challenged the legality of the Fiscal Amnesty and the outcome is awaited.
There are many questions unanswered by the law and, in the end, will be resolved by the Special Unit. It is strongly recommended that taxpayers considering making any declaration referred to above take tax and legal advice beforehand; the Spanish office at STM Nummos S.L. is perfectly equipped to give impartial advice on this and any other Spanish tax issue.
For an individual trading in their own name it is possible, for tax purposes, to accelerate the depreciation on new fixed assets. This tax advantage has been modified and effectively reduced.
A. Changes which apply for accounting periods starting in 2012 and 2013 only
4.1. Goodwill: the tax-deductible amortization rate falls from 5% to 1%.
4.2. Tax deductions to incentivize certain activities (e.g research and development, exports etc): currently deductions allowable in a given tax year are capped at 35% or 60% - depending on the activity - of taxable profits. This cap is now reduced to 25% or 50%. However unused amounts can now be carried forward for 15 years instead of the current period of 10 years (18 years instead of 15 years in the case of research and development).
4.3. Companies with a turnover of more than €20 million in the previous year are subject to minimum interim Corporation Tax payments, being generally 8% of taxable profits (4% in limited circumstances).
B. Changes of a permanent nature
3.4 Limitation of tax-deductible interest arising from debts with group companies: interest is not deductible on that part of the loan used for the following purposes
However there is a caveat that interest will be deductible if the purchase of shares or increase in share capital are bona-fide transactions.
3.5 The subcapitalisation rules have also been changed to reduce the amount of interest payable to another group company treated as tax deductible. In general the effect is to reduce tax deductible net interest to 30% of taxable income (after adjusting for certain items).
However, yet again the negative effects of this change are alleviated because
3.6 Profit obtained on disposal of shares in a non-resident company: under current law this profit is not subject to Spanish Corporation Tax providing the following conditions are met:
3.7 Freedom of depreciation for large companies (those with a turnover in excess of €10 million in the previous year): basically with effect from 31st March 2012 this tax-advantageous incentive is repealed. However investments made prior to this date can still take advantage of the revoked law but the amount in excess of the “normal” depreciation which can be charged against taxable profits during 2012 and 2013 is limited.
For small and medium-sized companies, whilst the tax incentive has been repealed any outstanding depreciation from investments made prior to 31st March 2012 can be charged against profits with no limitation (note: small and medium-sized companies still have accelerated depreciation advantages which have not been amended by this law but are much less generous than the repealed incentive).
The draft law was approved by the Council of Ministers on 13th April and contains various measures, the most important of which are:
On 13th April 2012 a tax treaty between Spain and Hong Kong came into force.
With regards to dividends the withholding tax rate is zero provided the effective beneficiary is a company holding at least 25% of the company paying the dividend. In all other cases the withholding tax is 10%.
With regards to interest, the withholding tax rate is 5%.