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TAX

Spain’s new tax hikes: Six key changes that affect you

The Spanish government is planning a fiscal reform which will increase personal income tax, wealth tax, inheritances, the price of diesel and more. Here’s the breakdown of a tax reform which affects all taxpayers in Spain to a greater or lesser extent.

Spain's new tax hikes: Six key changes that affect you
Spain's Prime Minister Pedro Sánchez. Photo: OSCAR DEL POZO / AFP

The Spanish government has sent a report to the European Commission listing the tax increases it is planning for the first quarter of 2023, which in a nutshell will “bring Spain’s tax levels closer to the average in neighbouring countries.” 

This “Recovery, Transformation and Resilience Plan” is one of the EU’s conditions for Spain to receive €79,5 billion in subsidies until 2023.

The report does not go into great detail about how the tax increases will work in practice, but it does state which taxes will change.

Which taxes will increase in Spain? 

More taxes for mid to high earners

The Spanish government wants there to be a “gradual increase of the tax system’s maximum contribution base”, which in practice will result in a greater tax burden for those with monthly earnings greater than €2,400 net per month . 

The contribution base –  la base de cotización – is the gross monthly remuneration, including prorated bonuses, that a worker receives.

Currently, the maximum contribution base is €4,070.10 gross per month.  Workers who earn more than that amount are exempt from paying tax on the remainder of their income. 

In other words, if a person has a contribution base of €5,000 per month, they are not taxed for the extra €929.90 they’ve earned. 

This modification of the maximum contribution bases, which the Spanish government states would be carried out gradually over the next 30 years, will also cause “a modification of the maximum pension so as not to alter the contributory nature of the tax system”.

Photo: stevepb/Pixabay

Wealth tax

This forms part of Pedro Sánchez’s government plans for the country’s “tax harmonisation”, which places a heavy emphasis on wealth (patrimonio), inheritance (sucesiones) and gift (donaciones) taxes. 

These tax rates are currently decided by the Spanish State but all of the country’s 17 regions have the right to apply exemptions or conditions to make them more beneficial or detrimental to taxpayers, with the general trend being towards the former. 

READ MORE: How choosing the right region in Spain can save you thousands in inheritance tax

This could soon change, however.

“In the area of ​​taxation on wealth, there are significant improvements to be made, both from a technical point of view and from the perspective of implementing a coherent redistributive policy at a national level,” reads the government document.

There is a “need to apply wealth taxation in a more coordinated way between the different regions to guarantee a minimum and coordinated level of taxation, avoiding harmful tax competition between the different autonomous communities”.

The end of couples’ joint tax return on personal income?

La declaración conjunta, which allows couples who are married or with children to file their personal income tax return together, has been making national headlines in recent days after the Spanish government hinted it would gradually scrap this tax choice.

The cancellation of this tax option would affect two million households in Spain but it would be particularly detrimental for divorced people and pensioners according to financial experts.

Such has been the negative reaction to the announcement that second Deputy Prime Minister and Economic Affairs Minister Nadia Calviño has since referred to the publication of the annulment of joint tax returns as a “misprint”. 

Registration tax and road tax

La Moncloa is planning to “revise the rates that tax the registration and use of vehicles in order to adapt them to environmental standards”. 

In other words, this will likely entail the amendment or cancellation of existing tax benefits for vehicle registration and road taxes, although this is yet to be confirmed. 

Currently, vehicles with CO2 emissions that don’t exceed 120 gr/km are exempt from paying vehicle registration tax, which is decided by the regions. 

All other vehicles pay el impuesto de matriculación (vehicle registration tax) according to their CO2 level, which is between 4.75 percent and 14.75 percent of their tax base (price before applying taxes).

Spain’s road tax (el impuesto de circulación) sees drivers having to pay an annual fee decided by their municipalities, which is usually calculated based on vehicle power and type.

Photo: Rudy and Peter Skitterians from Pixabay

Diesel bonus reduction

Although the Spanish government did not state it expressly in its report, it did write of the “review of the discounts on hydrocarbons used as fuel for the progressive levelling of tax rates based on their polluting power.” 

This suggests the end of the diesel bonus and would see its taxation closer to that of petrol, which will mean that drivers with diesel vehicles will pay more to fill up the tank, about €3.45 a month per driver.

Tolls on motorways

Spain has conceded to pressure from the EU to introduce more tolls on its roads.

The Spanish government had already drafted a project to present in Brussels in which it describes how it will introduce a toll system across its network of motorways and high-capacity roads to cover their huge maintenance costs. 

They’ve since hinted at the fact that the introduction of tolls – peajes – across the entire network could take place in 2024.

As things stand, Spain is one of the countries in Europe where drivers pay the least for the use of its high-capacity road network, spending 76 percent less on tolls than the average for EU countries.

Member comments

  1. This article is very confusing and probably needs to be corrected. In the section called “More taxes for mid to high earners” the base de cotización is referring to social security payments not income tax payments. You pay income tax on all income over the tax-free allowance you are entitled to i.e. you do pay tax on your income above €4,070,10. However, at the moment, you don´t pay social security when you go over that amount.

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MONEY

Rampant branch closures and job cuts help Spain’s banks post huge earnings

Spain’s biggest banks this week reported huge profits in 2021 and cheered their return to recovery post-Covid, but ruthless cost-cutting in the form of thousands of layoffs, hundreds of branch closures and the removal of many ATMs have left customers in Spain suffering, in this latest example of ‘Capitalismo 2.0’. 

A man withdraws cash from a Santander branch in Madrid.
More than 3,500 Santander workers lost their jobs in Spain in 2021 and a further 2,000 more employees working for Santander across Europe were also laid off. Photo: PHILIPPE DESMAZES / AFP

Spanish banking giant Santander on Wednesday said it has bounced back from the pandemic as it returned to profit last year, beating analyst expectations and exceeding its pre-COVID earnings.

Likewise, Spain’s second-largest bank BBVA said on Thursday that it saw a strong rebound in 2021 following the Covid crisis, tripling its net profits thanks to a recovery in business activity.

It’s a similar story for Unicaja (€137 million profit in 2021), Caixabank (€5.2 billion profit thanks to merge with Bankia), Sabadell (€530 million profit last year), Abanca (€323 million profit) and all of Spain’s other main banks.

This may be promising news for Spain’s banking sector, but their profits have come at a cost for many of their employees and customers. 

In 2021, 19,000 bank employees lost their jobs, almost all through state-approved ERE layoffs, meant for companies struggling financially.

BBVA employees protest against layoffs in May 2021 in Madrid. Spain’s second-largest bank BBVA is looking to shed 3,800 jobs, affecting 16 percent of its staff, in a move denounced by unions as “scandalous”. (Photo by GABRIEL BOUYS / AFP)

Around 11 percent of bank branches in Spain have also been closed down in 2021 as part of Spanish banks’ attempts to cut costs, even though they’ve agreed to pay just under €5 billion in compensation.

Rampant branch closures have in turn resulted in 2,200 ATMs being removed since the Covid-19 pandemic began, even though the use of cajeros automáticos went up by 20 percent in 2021.

There are now 48,300 ATMs in Spain, levels not seen since 2001.

READ MORE:

Apart from losses caused by the coronavirus crisis, Spain’s financial institutions have justified the lay-offs, branch closures and ATM removals under the premise that there was already a shift to online banking taking place among customers. 

But the problem has been around for longer in a country with stark population differences between the cities and so-called ‘Empty Spain’, with rural communities and elderly people bearing the brunt of it. 

 

Caixabank laid off almost 6,500 workers in the first sixth months of 2021. Photo: ANDER GILLENEA/AFP

Just this month, a 78-year-old Valencian man has than collected 400,000+ signatures in an online petition calling for Spanish banks to offer face-to-face customer service that’s “humane” to elderly people, spurring the Bank of Spain and even Spain’s Prime Minister Pedro Sánchez to publicly say they would address the problem.

READ MORE: ‘I’m old, not stupid’ – How one Spanish senior is demanding face-to-face bank service

It’s worth noting that between 2008 and 2019, Spain had the highest number of branch closures and bank job cuts in Europe, with 48 percent of its branches shuttered compared with a bloc-wide average of 31 percent.

Below is more detailed information on how Santander and BBVA, Spain’s two biggest banks, have reported their huge profits in 2021.

Santander

Driven by a strong performance in the United States and Britain, the bank booked a net profit of €8.1 billion in 2021, close to a 12-year high. 

It was a huge improvement from 2020 when the pandemic hit and the bank suffered a net loss of €8.7 billion after it was forced to write down the value of several of its branches, particularly in the UK. It was also higher than 2019, when the bank posted a net profit of €6.5 billion.

Analysts from FactSet were expecting profits of €7.9 billion. 

“Our 2021 results demonstrate once again the value of our scale and presence across both developed and developing markets, with attributable profit 25 per cent higher than pre-COVID levels in 2019,” said chief executive Ana Botin in a statement.

Net banking income, the equivalent to turnover, also increased, reaching €33.4 billion, compared to €31.9 billion in 2020. This dynamic was made possible by a strong increase in customer numbers, with the group now counting almost 153 million customers worldwide. 

“We have added five million new customers in the last 12 months alone,” said Botin.

Santander performed particularly well in Europe and North America, with profits doubling in constant euros compared to 2020. In the UK, where Santander has a strong presence, current profit even “quadrupled” over the same period to €1.6 billion.

Last year’s net loss was the first in Banco Santander’s history, after having to revise downwards the value of several of its subsidiaries, notably in the UK, because of COVID.

The banking giant, which cut nearly 3,500 jobs at the end of 2020, in September announced an interim shareholder payout of €1.7 billion for its 2021 results. “In the coming weeks, we will announce additional compensation linked to the 2021 results,” it said.

BBVA

The group, which mainly operates in Spain but also in Latin America, Mexico and Turkey, posted profits of €4.65 billion ($5.25 billion), up from €1.3 billion a year earlier.

The result, which followed a solid fourth quarter with profits of €1.34 billion, was higher than expected, with FactSet analysts expecting a figure of €4.32 billion .

Excluding non-recurring items, such as the outcome of a restructuring plan launched last year, it generated profits of 5.07 billion euros in what was the highest figure “in 10 years”, the bank said in a statement.

In 2020, the Spanish bank saw its net profit tumble 63 percent as a result of asset depreciation and provisions taken against an increase in bad loans due to the economic fallout of the virus crisis.

“The economic recovery over the past year has brought with it a marked upturn in banking activity, mainly in the loan portfolio,” the bank explained, pointing to a reduction of the provisions put in place because of Covid.

In 2021, BBVA added a “record” 8.7 million new customers, largely due to the growth of its online activities. It now has 81.7 million customers worldwide.

The group’s net interest margins also rose 6.1 percent year-on-year to €14.7 billion, said the bank, which is undergoing a cost-cutting drive.

So far, it has axed 2,935 jobs and closed down 480 branches as the banking sector undergoes increasing digitalisation and fewer and fewer transactions are carried out over the counter.

At the end of 2020, BBVA sold its US unit to PNC Financial Services for nearly 10 billion euros and decided to reinvest some of the funds in the Turkish market.

In November, it launched a bid to take full control of its Turkish lending subsidiary Garanti, offering €2.25 billion ($2.6 billion) to buy the 50.15 percent stake it does not yet own.

The deal should be finalised in the first quarter of 2022.

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