Analysis of the most important tax measures proposed in Spain
The draft General State Budget Act for 2023 (“GSBA 2023”) was published recently by the Spanish Government, including several tax measures that will likely come into force on January 1, 2023, the most noteworthy of which are summarized below.
Value Added Tax ("VAT")
- Spanish VAT regulations (transposing article 90.2 of the VAT Directive) allow taxpayers to recover VAT payments corresponding to transactions the payments of which are in default by amending their VAT base, but this option is subject to certain temporary and formal requirements.
The draft GSBA 2023 is expected to provide greater flexibility to some of these requirements so that accrued tax amounts associated with irrecoverable debt or insolvency claims can be recovered from the tax authorities. Specifically, (i) it extends the term to amend invoices and the means to demand payment from the debtor (the demand must be made previously); (ii) it reduces the minimum tax base (from €300 to €50) that may be modified on transactions with final customers (B2C); and (iii) it allows amounts associated with insolvency claims to be recovered, even when the debtor is not established in the territory where the tax applies, if that claim is undergoing insolvency proceedings in another Member State in which Regulation (EU) 2015/848 of the European Parliament and of the Council applies.
- The draft GSBA 2023 amends article 70.2 of the Spanish VAT Act (transposing article 59.a of the VAT Directive), which sets out the final regulation on the place where services are provided when they are effectively used or exploited in the territory where VAT is applied. The proposed wording will significantly reduce how this rule currently affects taxpayers entitled to a VAT deduction, as it will apply exclusively to transactions between entrepreneurs (B2B) when the transactions involve the provision of insurance, reinsurance and capitalization services, as well as financial services and hiring means of transport.
- Finally, it is also expected to modify cases where the reverse charge mechanism for VAT applies (i.e., cases where the taxpayer charging and bearing VAT is the recipient of the transaction). More specifically, the draft GSBA 2023 includes new cases of this reverse charge applicable to B2B involving (i) the delivery of waste, parings and scrap of plastics; and (ii) the delivery of waste and unusable rags, scrap twine, cordage and rope. Moreover, it would exclude the reverse charge rule in cases involving (i) real estate rental services subject to and not exempt from VAT, and (ii) real estate rental services offered by intermediaries, if in either case the services are provided by entities or individuals established outside the territory where the tax applies.
Taxes on income and capital
- The draft GSBA 2023 reduces corporate tax (from 25% to 23%) for entities with a net turnover below €1 million in the previous financial year.
- It introduces a special tax system in the Balearic Islands, which includes a new reserve for investments. This will make it possible to reduce the tax base, in a way similar to the investment reserve in force in the Canary Islands, as well as applying an allowance on the part of the total tax liability corresponding to income received for the sale of tangible property produced in the Balearic Islands, which is also structurally similar to the allowance in force in the Canary Islands.
- As regards personal income tax, the draft GSBA 2023 increases the tax rate from 26% to 27% for income exceeding €200,000 included in the savings taxable income (such as dividends, interest and capital gains), and from 26% to 28% for income exceeding €300,000.
On a separate note, the Spanish government has announced other tax measures, such as imposing new taxes for energy companies, banks and high net worth individuals. However, they will be included in another draft bill. We will analyze these measures once the text has been published.
The draft GSBA 2023 still needs to go through the parliamentary process, so we can not rule out changes being made to some of the measures described above.