Spanish Taxation Fundamentals and Key Concepts

Main Taxation Principles

(Based on Article 31.1 of the Spanish Constitution)

• Equality
• Economic Capacity
• Generality
• Proportionality (Own the same, pay the same)
• Progressivity (Earn more, higher percentage)
• No Confiscation (Not allowed to pay nearly all; 75% might be too much)
• Legal Reserve (Created by law)

Tax Authorities

(Article 5 of the Spanish General Tax Law)

Encompass all public authorities that:

• Levy taxes
• Impose penalties
• Interpret tax law
• Review tax issues in economic-administrative disputes

Important Concepts in Taxation

• Retroactivity Principle: Tax laws do not benefit from it.
• Analogy: Prohibited to extend terms of taxable events, exemption, or other benefits.
• Abuse or Conflict of Tax Law: Occurs when taxes have been avoided or tax liability reduced improperly.
• Simulation: If fraud is involved, simulation of the real taxable event carried out.
• Tax Obligation: Payment of tax due.
• Accrual: Moment when the tax event has occurred.
• Exemption: No obligation to pay.
• Prepayment: Advance payment of a future tax obligation.
• Tax Liability: Principal obligation and additional interest on arrears and surcharges.
• Arrears and Surcharges: Accessory liability charged to the taxpayer for paying or declaring a tax liability after the deadline.

  Interests for late payment:

  • Up to 3 months: 5%
  • Up to 6 months: 10%
  • More than 12 months: 20%
• Tax Return: Declaration of income from the taxpayer.
• Tax Assessment: Documents resulting from a tax audit.

Tax Infringements and Penalties

You may have to pay a penalty for:

• Not paying the tax debt resulting from a self-assessment.
• Failure to fill in the tax return correctly and completely.
• Wrongfully obtaining tax refunds.
• Wrongfully applying for tax refunds or tax benefits.

Infringement Procedure

If you have bad intentions and pay less taxes, you may face penalties:

• Penalties can range from 50% to 150% of the tax due that was not paid.
• Severe cases may constitute a criminal offense (not an administrative procedure).

Procedures of Taxation

• Self-Assessment: Declaration of the taxes you have to pay. Failure to do so may lead to a tax inspection (partial or total).
• Refund: If you pay too much, you can ask for a refund.
• Limited Review: Conducted at the taxpayer's request.
• Tax Inspections: Examples include partial computation or total inspection (deep review).
• Tax Audit Procedure: Period of audit is typically 12-24 months (may result in an acceptance agreement or disagreement).
• Collection Proceedings: Includes the voluntary payment period, enforcement, or administrative collection.

Tax Residency and Domicile

If resident, you are taxed on your worldwide income (all types of income).

Double Taxation Agreements

Agreements exist to share taxes between countries. Without an agreement, income may be double taxed.

Individuals Criteria for Residency

1. Reside more than 183 days in the tax year (evidence required).
2. Have the main economic interest (source of worldwide income) in Spain.
3. Where your family (spouse and children) live.
4. Where your main assets are located.

Company Criteria for Residency

1. Place of incorporation.
2. Registered domicile.
3. Location of management or permanent establishment.