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Thinking Beyond Borders Spain kpmg.com
Spain
Introduction A person’s liability for Spanish tax is determined by residence status for taxation purposes and the source of income derived by the individual. Income tax is levied at either progressive tax rates for residents (with flat rates for investment income and capital gains) or flat tax rates for nonresidents. In the case of residents, the individual’s taxable income for the year is calculated by subtracting allowable expenses and deductions from the total assessable income.
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Contact Rafael Nuñez KPMG in Spain Partner T: +34 914563411 E: rafaelnunez@kpmg.es
Extended business travelers could be taxed on employment income relating to their Spanish workdays unless exempt by treaty. Spain has a special regime for individuals who become Spanish tax residents as a consequence of their assignment to Spain and who meet certain requirements.
THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Income tax Liability for income tax A person’s liability for Spanish tax is determined by residence status. A person can be a resident or nonresident for Spanish tax purposes. A resident of Spain generally refers to an individual who remains in Spain for more than 183 days in any given calendar year or has business or economic interests located in Spain. Temporary absences from Spain are computed as days in Spain in order to calculate the number of days spent in Spanish territory, unless the individual can prove tax residency in another country. Nonresident taxpayers are taxed at the general rate of 24.75 percent for the years 2012 and 2013 on income obtained in Spanish territory or which arises from Spanish sources (21 percent for investment income and capital gains as of 1 January 2012). The Spanish Government has reinstated the Net Wealth Tax for the years 2011 and 2012. Tax regime for inbound expatriates According to a law enacted in early 2004, individuals who become Spanish tax residents as a consequence of their assignment to Spain may choose between being taxed as a Spanish tax resident (according to the personal income tax progressive rates scale with a general 52 percent top marginal rate for the years 2012 and 2013, which could vary depending on the autonomous community where the individual is a tax resident) or as a nonresident (according to the nonresident income tax rules, with flat rates for Spanish-sourced income at 24.75 percent for work income). This option is effective for the period in which the change of residence takes place and the five years that follow. The main requirements that must be met to be able to apply for the regime are summarized below. These requirements must continue to be met throughout the period during which the regime is applicable. • The expatriate has not been a Spanish resident during the 10 years prior to the assignment to Spain. • The assignment to Spain is derived from a labor contract and the taxpayer does not obtain income that would qualify as being obtained through a permanent establishment (PE) in Spain.
• The work income received for the services is not exempt from taxation under the rules of nonresident income tax. • As of 1 January 2010, the expected remuneration of the employee does not exceed the annual amount of 600,000 euros (EUR) in each of the tax years in which this regime will apply. This requirement applies to those employees that have been seconded to Spain later than 31 December 2009. Tax trigger points Technically, there is no threshold/minimum number of days that exempts a nonresident employee from the requirements to file and pay tax in Spain. To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there will be no tax liability. The treaty exemption might not apply if the Spanish entity is the individual’s economic employer. Types of taxable income For extended business travelers, the types of income that are generally taxed are employment income (both cash and inkind remuneration are considered), Spanish-sourced income, and gains from the sale of taxable Spanish assets (such as real estate). Tax rates The Spanish Government has approved an increase of the tax rates for both residents and nonresidents, in principle with temporary effects, for the years 2012 and 2013. For residents, tax is assessed on taxable income using graduated tax rate tables (combining general tables and autonomous community tables) ranging from 24.75 percent to a general 52 percent (which could vary depending on the autonomous community where the individual is a tax resident). Nonresidents are taxed at a general flat rate of 24.75 percent on gross Spanish-sourced income; no deductions or credits are allowed, except for certain expenses for those individuals who are tax residents in another European Union (EU) country. Investment income and capital gains for tax residents are taxed at a flat rate of 21 percent for annual amounts up to EUR6,000, 25 percent for amounts between EUR6,000.01 and EUR24,000, and 27 percent for income exceeding EUR24,000. Investment income and capital gains for nonresidents are taxed at a flat rate of 21 percent.
• The services are performed physically in Spain. • The services are rendered for a Spanish resident company or a PE in Spain of a nonresident company.
THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Social security
Other issues
Liability for social security In principle, all employees working in Spain, regardless of their nationality, must be registered with the Spanish social security administration, and the employer must make the corresponding contribution for both employer and employee. The contribution depends on the category of each employee and cannot exceed certain limits.
Work permit/visa requirements A citizen of any EU member country or a citizen of any of the members of the European Economic Area (EEA) or the Swiss Confederations may enter, leave, move, and/or remain freely in Spanish territory.
The rate for employers is 29.9 percent plus a percentage to cover labor accidents and illness (depending on the company activities) and the percentage depends on these activities. The employee rate (for indefinite contracts) is 6.35 percent. The minimum and maximum social security contributions vary depending on an employee’s category of employment and educational background. The current maximum monthly social security base is EUR3,262.50. Please note that expatriates, according to international social security agreements and EU applicable regulations, may continue with home-country social security contributions and regimes. By continuing with home-country contributions and obtaining the relevant certificate of coverage, therefore, expatriates are not required to make contributions to Spain’s social security system.
Compliance obligations Employee compliance obligations The due date for tax residents and individuals taxed under the special regime for assignees for filing tax returns and making payments is 30 June following the tax year-end, which is 31 December. Specific deadlines for filing tax returns apply to nonresidents, and Spain does not allow time extensions to the deadlines; if the return is not filed on time, penalties will be imposed. These penalties will vary depending on whether the tax return is filed after the deadline on a voluntary basis or whether it is filed as a result of a tax audit. Employer reporting and withholding requirements For residents, withholdings on employment income are calculated according to a progressive scale based on the amount of taxable income that is expected to be paid during the tax year (both cash and in-kind remuneration are considered) and the family status of the employee. For nonresidents, a flat 24.75 percent withholding is applied. These withholdings are paid to the Spanish tax authorities on a monthly or quarterly basis, depending on the level of turnovers of the company, and will be deducted from the final tax due on the Spanish tax return.
For any other citizens, a work visa must be applied for before the individual enters Spain. The type of visa required will depend on the purpose of the individual’s entry into Spain. Double taxation treaties Spain has entered into double taxation treaties with more than 80 countries to prevent double taxation and allow cooperation between Spain and foreign tax authorities in enforcing their respective tax laws. Permanent establishment implications There is the potential that a PE could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has. Indirect taxes There are two main indirect taxes in Spain that could be levied on sales transactions carried out within Spanish territory depending on the status of the individual/entity that performs said transactions: • Spanish value-added tax (VAT) – Spain imposes a VAT on taxable supplies of goods and services in mainland Spain and the Balearic Islands. The rates are 4 percent or a ‘superreduced rate’ for basic necessities; 8 percent or ‘reduced rate’ for certain food, dwellings, transportation, tourism, etc.; and 18 percent or ‘standard rate’ for everything else • Spanish transfer/transmission tax (ITP-TPO) – ITP-TPO is levied at a general rate of 7 percent on the second and any subsequent transfers of immovable property and rights thereon, except guarantees. Certain autonomous communities have established higher rates of up to 10 percent. No transfer tax is levied where the transaction is subject to, and not exempt from, VAT. Transfer pricing Spain has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed. Article 16 of the Spanish Corporate Income Tax Law (CITL), as modified by Law 36/2006, shifted the burden of proof to the taxpayer and introduced the obligation of transfer pricing documentation applicable for fiscal years commencing on or after 1 December 2006.
THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Although article 16 of the CITL established that relatedparty transactions should be priced under the arm’s-length principle, the formal documentation requirements were not published until 18 November 2008 in Royal Decree 1793/2008, which specifies the compulsory elements that Spanish transfer pricing documentation should contain. Subsequently, Royal Decree 897/2010, establishing the limits in volume of intragroup transactions with respect to the obligation of transfer pricing documentation, was published on 9 July 2010. Taxpayers will have to maintain and update evidence that the values applied in related-party transactions comply with the arm’s-length principle. The documentation requirements as set forth in Royal Decree 1793/2008 are applicable three months after the date of its publication. Since the official approval on 18 November 2008, these requirements are fully applicable as of 19 February 2009. The main elements to be included in a transfer pricing study are similar to those of the Organisation for Economic Cooperation and Development (OECD) guidelines and the EU Joint Transfer Pricing Forum (JTPF) with master file and country specific concepts. Based on the penalty regime introduced by Law 36/2006, and applicable from 19 February 2009 onwards, penalties linked to the formal requirements of the documentation are also enforceable and may apply to both: (i) the adjustments performed; and (ii) the lack of support of the related-party transactions performed by the taxpayer, thus establishing the following two types of penalties.
• When a transfer pricing adjustment is proposed by the tax authorities, a penalty of 15 percent of the additional tax base is applicable in addition to the tax due and the corresponding delay payment interest. Typical expatriate related-party transactions such as the provision of services to various entities by certain personnel of the group, the transfer of employees to an entity in a different jurisdiction, and in both cases the definition of which costs should be included within the allocation of costs related to those, must follow the arm’s-length principle and therefore are subject to careful analysis and included within the transfer pricing documentation. Local data privacy requirements Spain has data privacy laws. Exchange control There are no limits on the amount that an individual can bring into or take out of Spain; however, there are certain reporting requirements. Nondeductible costs for assignees The deductibility of expenses might depend on whether the assignee is taxed as a resident or a nonresident. Nonresidents do not have any allowable deductible expenses, except for certain expenses for those individuals who are tax residents in another EU country. For tax residents, deductible expenses are rather limited, one of the main ones being compulsory social security contributions.
• When there is no transfer pricing adjustment, a fixed fine of EUR1,500 per data and EUR15,000 per group of omitted, inaccurate or misleading data might be imposed on the taxpayer due to faults in the documentation provided.
THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Designed by Evalueserve. Publication name: Thinking Beyond Borders – Spain Publication number: 121073 Publication date: November 2012