From González, Sánchez & Partners, legal expert Antonio Sánchez offers detailed information on the new tax introduced by the Spanish Government
Among the amendments to the “Proposed Law for the establishment of temporary energy taxes and taxes on credit institutions and financial credit establishments”, the creation of the Temporary Solidarity Tax on Large Fortunes was introduced on the 18th of November. A new tax rate which, according to its original proposal, will be “a complementary tax to the Wealth Tax, […] to levy an additional quota on the wealth of natural persons surpassing an amount of 3 million euros” and whose yield will be used to finance “policies to support the most vulnerable”.
Estimates made by the Ministry of Finance and Public Function are that it will tax 23,000 taxpayers throughout the country, raising 1.5 billion euros.
If it is published as a Law in the Official State Gazette before the 31 of December of 2022, as foreseen, the first payment of this new tax will have to be paid immediately in all Spain, except in the territories with their own tax regimes: Basque Country and Navarre, where its application is pending a possible subsequent agreement.
In any case, the tax will only be applied during the 2022 and 2023 financial years, with payment being implemented on the 31st of December of each year. At the end of this period, the Government will evaluate the results and propose its maintenance or abolition.
Scope of application
The applicable circumstances for this tax are that the taxable person (the taxpayer) has a net worth of more than 3 million euros, which may be:
- Individuals with habitual residence in Spain, for the totality of their assets regardless of where they are located (concept of assets), for the assets and rights of which they are the owner, wherever they are located, could or should be exercised in Spain.
- Non-resident taxpayers who are not resident in another European Union state will be required to appoint a representative at the Tax Administration.
The tax rate varies according to the wealth the taxpayer declares, namely 0% up to 3 million euros; 1.7% between 3,000,000 and 5,347,998.03 euros; 2.1% between 5,347,998.03 and 10,695,996.06 euros and 3.5% thereafter. Furthermore, in order to avoid double taxation, the regulation allows the Wealth Tax liability paid by the taxpayer to be deducted from the tax liability.
Exempted assets and rights
The exempted goods and rights already specified in the Wealth Tax will be exempt, those being:
- Main residence, subject to a limit of 300,000 euros.
- Assets used to carry out an economic activity.
- Shares in so-called “family businesses”.
- Pension plans, amongst others
Considering the exemptions provided for in the Wealth Tax, which sets a minimum exemption of 700,000 euros and which applies to net taxable income of over 3 million euros, it would mean that taxpayers with net wealth of over 4 million euros would be taxed if they are residents and are entitled to the exemption of 300,000 euros for their permanent residence. Non-residents are not entitled to the minimum exemption of 700,000 euros and will be taxed on net wealth exceeding 3 million euros.
It is important to note that with this law, properties held through foreign companies by non-residents will be subject to this tax. So far, these assets were exempt from the wealth tax, but are now subject to this new tax.
Prior to the tax’s final resolution, and as a preliminary recommendation to try and reduce its impact within the framework of legality, an exhaustive analysis of the personal, family, wealth and tax circumstances of each potential taxpayer should be carried out. Therefore, the necessary and personalised planning measures can be assessed and established for each case affected by the new state tax.
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This article has been published in SGPlus