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