MODIFICATIONS OF PERSONAL INCOME TAX IN 2023

 

As the year 2023 is about to close and in order to think about the tax declaration that we will have to deliver to the Spanish Inland Revenue between April and June 2024, it is worth taking into account some new features introduced in the Spanish tax regulation since January 2023.

Probably one of the most striking ones is the reduction for freelancers (businessmen or professionals) who determine their net income tax return by the direct estimation method.

Indeed, the Law No. 31/2022, of December 23rd of 2022, establishes that those freelancers who have obtained net returns of less than €19,747.50 from their economic activity within 2023, may reduce these returns by the following amounts:

• Freelancers with a net income from economic activities not exceeding €14,047.50 (inclusive) might apply an annual reduction of €6,498.
• Freelancers with a net income from economic activities between €14,047.50 and €19,747.50 might apply an annual reduction of €6,498 less the result of multiplying by 1,14 the difference between the net income obtained and €14,047.50 (for instance: if the net income obtained were €18,000 the applicable reduction would be €6,498-(1,14 x €3.952,5)= €1.992,15

Anyway, this reduction is only applicable as long as the freelancer has not obtained other income (different from that of economic activities). (1)

This reform levels the tax treatment of income obtained by a self-employed with labour income (which has traditionally obtained a more favorable treatment).

(1) With the exeption of exempt income

CHANGES IN INCOME TAX REGULATION REGARDING ARTIST’S WITHHOLDINGS

Withholding rates applicable to artists have been reduced by the Royal Decree No. 31/2003, published on January 24th 2023. This Royal Decree has modified the administrative regulations applicable to artist’s Income Tax withholdings by means of modifying the Royal Decree No. 439/2007, of March 2007.

The referred Royal Decree No. 31/2003 reducts the minimum 15% withholding rate, applicable since 2007 to artists dedicated to performing, audiovisual, musical arts (including technical or auxiliary activities which are necessary to carry out those activities):

 

1. into 2%, provided that those artists have been engaged by a labour contract ¹ and
2. into 7% when those artists carry out an economic activity as freelancers (activities included in groups 851, 852, 853, 861,862, 864 and 869 of second section and groups 01, 02, 03 and 05 of third section).

 

In order to be entitled to such reduction, the taxpayer must fulfill the following three requirements:

 

1. The artist must have obtained an income of less than 15.000€ for their artistical activity in the previous tax period.
2. Their artistical activity must represent more than 75% of the total sum of their full income.
3. The artist must communicate these circumstances to the payer of the returns subjected to withholding.

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¹  Special employment relationship

 

INCOME TAX REDUCTION FOR FARMING AND LIVESTOCK

On 05.10.2022, the Spanish Ministry of Finance has published the Order No. HFP/413/2022, which reduces the net yield index and modifies the corrective index applicable to farming and livestock in 2021, if the farming or livestock have been affected by exceptional circumstances provided in the Order (e.g.: drought):

• when the farmer or stockman has pruchased feed from third parties and

• when the farmer or stockman has used electricity for irrigation due to exceptional circumstances, includedn in the Order No. HAC/11552020.

The reductions are listed in an annex to the referred Ministerial Order and are spplicable only in the regions, provinces, territorial areas and activities considered by the aforementioned regulation.

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THE AMOUNTS RECEIVED BY A LESSOR IN A DEMAND FOR EVICTION ARE TAXED AS INCOME ON REAL ESTATE

 

On 14.12.2021 the Supreme Court declared that all the amounts obtained by a landlord in a demand of eviction are real estate capital yields and not capital gains.

The situation that leads to this sentence is the following:

The owner of a premises filed an eviction claim against a tenant who did not pay the rent. This claim was fully upheld and sentenced the defendant to:

• eviction from the premises plus

• payment of the amount owed on the date of the sentence and

• payment of the future amounts that would accrued up to the total eviction of the premises.

Some months afterwards, the landlord declared the referred amounts as a compensation, thus, as a capital gain, and integrated them into the taxable savings base.

Well, the Spanish Supreme Court has been very clear considering that the amounts recognized by the eviction sentence are income on real estate in any case, since:

• a lease contract can only terminated by a sentence recognizing the non-payment and

• this sentence does not have retroactive effects.

• In addition, article 22.1 of Personal Income Tax Law considers that any income derived from a lease must be considered real estate capital yields, regardless the name or nature of the income.

The rents paid by the evicted tenant are always income from real estate capital, regardless whether these rents are present or future.

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THE COUNCIL OF EUROPE REVIEWS THE LIST OF NON-COOPERATIVE COUNTRIES IN THE TAX FIELD

 

On 02.04.2022 the Council of Europe revised the list of non-cooperative countries and territories for tax purposes, keeping the following countries on it: Fiji, Guam, Virgin Islands, Palau, Panama, Samoa, American Samoa, Trinidad and Tobago and Vanuatu.

The list includes only the following countries and territories:

• those who have not started a dialogue on tax matters with the European Union or

• those who have failed to fulfill their commitment to introduce tax criteria of the Council of Europe into their regulations. These criteria, introduced by the Council of Europe in 2016, are aimed at fiscal transparency, fiscal equity and application of international standards aimed at avoiding erosion of tax base.

The list of non-cooperative countries and territories was created in December 2017. It is part of the European Union’s external strategy on taxation and aims to contribute to the work being done to promote good tax governance worldwide.

Finally, the list is a dynamic document that is updated twice a year. Next revision is scheduled for October 2022.

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CALCULATION OF PENALTIES FOR LATE SUBMISSION OF TAX STATEMENTS

 

Since 07.11.2021 and according to Law 11/2021, of 09.07.2021, a new system of surcharges for late submission of tax statements to the Spanish Tax Office is in force. The system can only be applied if the taxpayer has not been requested by the Spanish Tax Administration to comply with tax obligations.

The system consists of:

1. the application of an initial surcharge of 1% on the amount to be paid resulting from the liquidation, plus
2. an additional 1% for each full month of delay, up to the lapse of 12 months from the deadline of voluntary submission of the correspondent tax statement.

Within these first 12 months, late payment interest is not paid.

Once 12 months have elapsed from the deadline of voluntary submission period, a surcharge of 15% plus default interest will be applied. Namely:

• Less than 1 month late………surcharge of 1%

• 1 month late..…………..surcharge of 2%

• 2 months late…………...surcharge of 3%

• 3 months late…………… 4%

• 4 months late…………… 5%

• 5 months late…………… 6%

• 6 months late…………… 7%

• 7 months late…………… 8%

• 9 months late…………… 10%

• 10 months late………….. 11%

• 11 months late…………...12%

• 12 months late…………...15% + default interest

This changes the surcharge calculation system that existed until 07.11.2021, which consisted of a percentage of 5%, 10%, 15% or 20% on the amount to be paid resulting from the liquidation, depending on whether the statement was:

• less than 3 months late

• more than 3 and less than 6 months late

• more than 6 and less than 12 months late or

• more than 12 months late

A transitory regime is also established, according to which the new system of surcharges will also be applicable to surcharges prior to 07.11.2021, provided that there is no final resolution.

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OFFSET OF INCOME TAX STATEMENTS BETWEEN SPOUSES

 

Article 97.6 of the Spanish Income Tax Law gives married taxpayers who are not legally separated the possibility of compensating

• the amount to be paid correspondent to the Income Tax declaration of one of the spouses

• with the amount to be returned correspondent to the Income Tax declaration of the other.

However, this compensation can only take place if he following requirements are fulfilled:

1. The spouse who is entitled to the refund must have accepted the aforementioned compensation expressly and in writing.

2. Both spouses must be up to date in compliance with their tax obligations.

3. None of the taxpayers can be included in a tax current account system.

4. Both statements must correspond to the same period (e.g.: 2021)

5. Both statements have to be delivered simultaneuosly.

The request of compensation has to be resolved within six months by the Spanish Tax Office.

If the resolution decides that the request is merit, the credit and the debt will be reduced to the extent of the smallest one; if the amount to be returned to one spouse is greater than the amount to be paid by the other, the Spanish Tax Office will return the difference between both amounts.

Finally, if the requirements for the compensation are not met, the Tax Office will carry out a provisional liquidation to the taxpayer, asking him to pay the debt together with the interest due.

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