NEWS ABOUT PERSONAL INCOME TAX

NEWS ABOUT PERSONAL INCOME TAX IN SPAIN

This royal decree introduces modifications basically to adapt its text to modifications incorporated in other legal texts that regulate this tax. They include those added to legislation via Act 14/2013, of 27 September, to support entrepreneurs and their international presence. With effect from 1 January 2013 the following modifications have been introduced in the Regulations governing Personal Income Tax specified in Royal Decree 439/2007, of 30 March..

* Changes in the circumstances excluding taxpayers from the objective assessment method:

With effect from 1 January 2013 there are changes in the circumstances excluding taxpayers from the objective assessment method according to their total income, when they are engaged in activities subject to 1 per cent withholding tax. The changes confirm the new limits already introduced in the Tax Act. 

1. In order to do so, letter a) is modified and a letter d) is added to article 32.2 of the Income Tax Regulation.

2. Therefore, this Regulation, effective as of 1 January 2014, creates the obligation to maintain a register of sales or revenue for taxpayers that are included in the new letter d) of article 32.2. Section 3 of the Regulations modifies section 6 of Article 68 of the Regulations governing Personal Income Tax, adding a final paragraph.

* Modification of regulations as a result of the suppression of the deduction for investment in main residence

As a result of the suppression of the deduction for investment in the taxpayer's main residence from 1 January 2013, Chapter I of Part IV of the Regulations governing Personal Income Tax, i.e. Articles 54 to 57 inclusive, has been eliminated. Consequently, for the purposes of certain exemptions to allow such deductions to continue, the concepts necessary for their application are defined below.

1. The exemption for reinvestment set out in article 41 now includes the requirements that must be fulfilled by construction carried out in a principal residence in order to be considered renovation of the residence. As a new feature, this now includes, as part of the first possible requirement to be met, that such refurbishment work must be subsidised in accordance with Royal Decree 233/2013, of 5 April.

2. An article 41 bis is added, in which the concept of principal residence is defined for the purpose of the specific exemptions set out in the Income Tax Law. This is, the exemptions in article 7.t) for income derived from the application of the instruments of coverage of mortgage loans used to acquire the principal residence, as well as the exemption set out in 33.4.b) for the transfer of a principal residence for individuals over 65 years old, and that of article 38 for reinvestment in the transfer of a principal residence, are all still applicable.

The concept of main home is still the same, but an additional requirement is that, if the taxpayer effectively occupied the property within 12 months of its purchase, the minimum period of three years during which it must be effectively and permanently occupied will be counted from the date at which it was occupied and not from the date of purchase.

3. The regularisation of deductions for noncompliance with requirements, article 59.2, changes the reference that it made to article 68.1 on the deduction for a principal residence applicable to the total tax due, given the transitional configuration that this deduction now has.

4. The regulatory references to the deduction for investment in the principal residence are eliminated in terms of the obligation to declare.

5. The articles related to on-account payments that take into account the deduction for a principal residence acquired with external financing, to determine its amount, are modified (MINOPAGO), maintaining the reduction of the rate by two integers, when the taxpayer will qualify for the deduction for investment in the principal residence regulated by the 18th Transitional Provision of the Tax Law. Article 86, Withholding rate, Article 87, Adjustment of the rate and Article 88 Statement of data by the recipient of income to the payer, Article 108.2 h) and 110.3 d). For the purpose of this reduction by two percentage points in the withholding rate, if the worker reported the situation before 1 January 2013, it need not be reported again.

6. A new twelfth transitional provision is added, in which it is determined that the deduction for principal residence which is now regulated as temporary, will be applied according to its current writing as of 31 December 2012. It also establishes that taxpayers who exercise the right to this deduction must present a tax declaration.

* Modifications with respect to new or recently established companies.

1. Article 41 of the regulation now includes the exemption for reinvestment from article 38.2 of the Income Tax Act, of the capital gains obtained in the transfer of shares or stocks for which the deduction set out in article 68.1 of the Income Tax Act would have been practiced. It establishes that the amount obtained must be reinvested in one or a series of transactions within 1 year from the date on which the equity participations or shares were sold.

2. Section 1 is added to article 69 on informative tax returns that new or recently created companies must submit to provide information on the purchasers.

* Update of references to the autonomous region finance system Article 59.2.b) now reflects the 50% reduction in the entitlement to apply deductions and adjustments for the change. 

* Adjustment of the lower limit requiring taxpayers to submit a declaration when earned income is received from several payers. Article 61.3.a) now fixes the amount at 11,200 euros.

* Partial payment of tax due as a result of change of place of residence.

Article 63.2 has been modified as a result of the previous modification of Article 14.3 of the Act; the regulations now determine only the conditions for paragraph one of the above article. With effect from 1 January 2014 the following modifications have been introduced in the Regulations governing Personal Income Tax (Royal Decree 439/2007, of 30 March).

* Modifications concerning capital gains derived from transfers or reimbursements of equity participations and shares in collective investment institutions.

1. In the first place, a point 2 is added to article 97 of the Income Tax Regulation, on calculating the withholding tax base when dealing with reimbursements of stocks in investment funds regulated by Law 35/2003, dated 4 November, on Unit Trust Institutions, in which specific conditions of simultaneity with homogeneous titles occur:

a) The participant must simultaneously be the holder of homogeneous stocks registered in another entity.

b) Or, this reimbursement is due to the deferral in article 94.1.a) and in one of the previous reimbursements or transmissions that simultaneity took place. The withholding base will be calculated using the cost price registered by the unit holder in the institution with which the holder carried out the reimbursement, which will correspond to the first securities acquired. If it arises from a deferral, the date and value recorded on said transfer will be used. The unit holder will inform the institution of these circumstances and said institution will retain the information for as long as the simultaneous holding condition is met and at least for the limitation period. This calculation will also apply in the following cases:

• Shares and collective investment institutions registered abroad, but marketed, placed or distributed in Spain.

• Shares in investment trusts as specified in Act 35/2003.

2. With regard to the previous point, those net gains whose withholding tax base has been adjusted to the same, shall not be included to calculate the limit of 1,600 Euros of net gains and liquid capital with withholding, for the duty to declare, set out in article 61.3.b).  

* Other modifications in articles regarding withholding tax

1. The reimbursement of shares in collective investment institutions which are registered in the name of a marketing company on behalf of the unit holder must be retained or paid into the account of the marketing company and not that of the management company. Article 76.2.d).

1 now makes it compulsory for the companies marketing investment funds to withhold tax.

2. For the purposes of calculating the amount to be withheld, it is no longer obligatory to submit to the employer a copy of the transcript of the court sentence fixing alimony or child support payments. Articles 83 and 85. A statement to the relevant effect is sufficient.

3. The payer no longer needs to keep the documents submitted by taxpayers to justify their personal and family situation available for inspection by the tax authorities.

4. For those who present monthly withholding statements there is no longer an extended period for filing returns and making payments for July. Previously they could do this throughout August and during the first 20 calendar days of September.