Understanding the Spanish Tax System: Key Concepts and Processes

**Treasury**

The Treasury refers to the set of institutions responsible for raising the income needed to fund public services. Several institutions manage tax funds, including:

• State Treasury or Inland Revenue: Manages corporate income tax, among others, and public customs tariffs.
• Treasury of Autonomous Communities: Manages, among other things, donations and special taxes on certain transportation and electricity.
• Public Council Treasury: Manages, among others, business tax and taxes on real estate.

Taxpayers

• Individuals: Natural persons.
• Corporate Entities: Groups of natural persons forming associations, foundations, or corporations that have a distinct legal personality from their members.

Other bodies raising public funds include the General Treasury of Social Security and publicly owned enterprises. These bodies are a result of the decentralized structure of the State established in the Constitution and meet criteria of self-sufficiency and autonomy.

**Liquidation of Tax Debt**

The tax debt, or the amount that taxpayers must pay, is determined by the law regulating the tax. In some cases, the very fact determines the amount to be paid, like the Motor Vehicle Tax, resulting in payments of a fixed amount depending on the type of vehicle. In other cases, quantification is more complex, as in the income tax, which takes into account not only the earnings of the taxpayer but also personal circumstances (disability, marital status, children, payments for the residence, etc.).

In general, to determine or settle the tax debt, we have to perform a set of operations:

1. Realize the taxable event, the fact that is subject to taxation (e.g., a sale of a property).
2. Calculate the taxable amount, which is the amount resulting from the measurement or valuation of the taxable event. For example, a price of €100,000.00 for the property.
3. After determining the tax base, we can apply certain reductions set forth in the law and get the tax base.
4. Calculate the tax base, apply the tax rate, and the result is the tax payable.
5. Subtract from the whole amount the deductions allowed by each tax law, and we get the tax liability.
6. Subtract the advance payments already made (withholding and fractional payments) from the tax liability, and we obtain the differential fee.

This differential fee may be:

• Positive: Gives rise to an obligation to pay.
• Negative: Gives rise to the right of return or compensation.

Sometimes, the administration itself makes the official review, or on its own initiative, rectifies errors and recovers sums received.

Finally, the tax shall consist of the positive differential fee plus the amount of default interest, late fees, and penalties that might occur.

**The Income Tax of Individuals (Income Tax)**

The tax on the income of individuals is a direct, personal, and progressive tax on the income earned by individuals residing in Spanish territory under the terms provided by law. This income may be derived from:

• Income from dependent work, such as salaries.
• Returns from capital, such as bank interest.
• Real estate income, such as rent.
• Income from economic activities.

Members of community property and civil societies are also required to declare the income they get from them. This tax is settled in the income statement each year by all individuals, either individually or as a family unit.

For employees, a monthly amount is withheld, taking into account the salary paid and personal circumstances on the monthly payroll. An individual entrepreneur or self-employed person must declare and pay this tax according to the net income obtained.

Assessment Schemes

The benefits of their activity can be determined by:

• Normal direct assessment scheme.
• Simplified direct estimation scheme.
• Objective estimation scheme.

Gains and losses derived from elements assigned to the business are integrated with the other gains and losses of the taxpayer. The implementation of one system or another depends on the type of activity and the characteristics of the company.

The employer may choose a system or give up using it until that moment. The waiver of this system should be made in December of the previous year in which it is to take effect and shall remain operative for a minimum period of three years.