Personal Income Tax in Spain: A Comprehensive Guide

1. Revenue Allocation

The Personal Income Tax Law defines a specific group of income within the tax base, distinct from other yields. This aims to align the tax base with the taxpayer’s economic capacity.

This special category requires taxpayers to include income not yet received but considered relevant to their economic capacity due to its connection to the income source.

Imputation of income includes:

1. Income from Immovable Property: Rental income that taxpayers must include if they own or hold enjoyment rights to urban properties meeting specific criteria:

• Urban property
• Not the taxpayer’s primary residence
• Designated for economic activities
• Income generation not required
• Includes properties under construction or unusable properties

Generally, 2% of the rateable value is charged, or 1.1% in certain exceptions.

2. Allocation of Income: Income received by entities not liable for corporation tax, taxed via the personal income tax of their members. Income attribution is determined by Income Tax regulations. This includes civil societies, unclaimed estates, jointly-owned properties, and other economic units.
3. Imputation of Income from EIG, Spanish and European Units, and Other Ventures
4. Allegations of Revenue Transparency in the International Tax Regime: Includes positive income from non-resident entities meeting specific criteria and taxation levels. Excludes EU countries except those residing in tax havens.
5. Imputed Income for Transfer of Image Rights: The amount charged is the consideration received upon hiring.
6. Imputation of Income by Partners in Collective Investment Schemes in Tax Havens: The charge is the positive difference between the liquidation value at closing and the purchase price.

Personal Income Tax

The income tax is a direct, personal tax based on equality, universality, and progressiveness, considering individuals’ income, nature, and personal/family circumstances. Its features are:

1. Direct: Taxes income directly.
2. Personal: Considers family and personal circumstances, allowing for deductions.
3. Taxes Income: Encompasses all income, capital gains, and imputed income.
4. Progressive: The tax rate increases with income.
5. Periodic: Assesses income over a given period (calendar year).
6. Self-Assessed: Taxpayers calculate their tax liability.

The income tax applies throughout Spain. Special territories include:

1. Basque Country and Navarra
2. Regions with regulatory powers over the autonomic rate and tax credits (since 1997)
3. International treaties governing taxation with other countries

Taxable Event

The taxable event is the collection of income by the taxpayer, excluding income subject to inheritance and gift tax. Revenues include:

• Earned income
• Capital gains (movable and immovable)
• Income from economic activities
• Capital gains and losses
• Established revenue allocations

Presumption of Payment

Article 6 presumes income from property, rights, or services capable of generating labor or capital performance unless proven otherwise. The Act assumes compensation, regardless of its existence. Taxpayers can prove the absence of compensation. If not, the market value is considered. For loans and capital raising, the legal interest rate applies (2008: 5.5%). Admissible evidence includes legally recognized forms like notary publics.

1. Exempt Income

Not all income is taxable. Exempt income includes:

1. Terrorist Benefit: Must be state-approved.
2. Disability Benefits:
   • Social Security: Permanent total or severe disability.
   • Officials: Injury/illness completely disabling for any profession.
3. Severance Pay: Exempt up to the mandatory amount defined by:

• Statute of Workers
• Regulations
• Judgment enforcement rules

• Compensation for personal injury liability (statutory or judicially recognized).
• Compensation from accident insurance.

• Random (Lotteries, State/Autonomous Gambling, Red Cross, ONCE)
• Literary, artistic, or scientific (granted without consideration). Includes Prince of Asturias awards.

• Scholarships from public non-profits
• Court-ordered parental support
• Amounts from public institutions for placement of disabled persons (65+ or younger)
• Benefits for dependent children, orphans, and births
• Lump-sum unemployment benefits (if the situation persists for five years)
• Transfer of primary residence for those over 65, and since 1/1/2007, for those with severe or high dependency.

Taxpayer

Article 8 defines taxpayers as individuals ordinarily resident in Spain. The tax applies to Spanish or foreign residents for all income, regardless of origin. Ordinarily resident means:

• Over 183 days in Spain during the calendar year
• Main activity/interest base in Spain
• Non-separated spouse and dependent minor children residing in Spain

Non-residents considered taxpayers:

• Spanish diplomats/officials abroad
• Residents of tax havens

Non-residents with income in Spain are taxed by IRNR. Special arrangements allow individuals to opt for taxation by one or the other:

• Workers displaced to Spain
• EU residents

Revenue Allocation Scheme

Article 8.3 outlines the taxation of income generated by specific entities, allocated to their members based on participation. Entities include:

• Civil societies (with or without legal personality)
• Unclaimed estates
• Community property
• Foreign entities with similar legal status to Spanish entities

These entities are not liable for income tax or IS, but the income is allocated to partners, heirs, or members, who include it in their personal income tax base.

Tax Base

Concept

The tax base is the total taxable income received during the taxable period. Income categories:

• Earned income
• Capital gains (movable and immovable)
• Real estate rent allocation and other charges
• Income from economic activities
• Capital gains and losses

Tax base quantification order:

1. Qualify and quantify income by origin:
   • Net income (revenue minus expenses)
   • Capital gains (transmission value minus acquisition value)
2. Apply tariff reductions per income class
3. Integrate and net incomes based on origin and classification (general income and savings)

This results in the general and savings parts of the tax base.

Schemes of Determination

Different methods for determining the tax base:

1. Direct Estimation: Based on taxpayer-reported data. Tax base = income – deductible expenses.
2. Objective Estimation: For small economic activities.
3. Indirect Subsidiary Estimation: Used when other schemes fail due to:
   • Non-submission, incomplete, or inaccurate declaration
   • Taxpayer resistance or obstruction
   • Failure to meet accounting obligations
   • Missing or destroyed records
   The base is determined using signs, indices, modules, or background information.