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Spain to increase workers’ tax contributions to keep pensions afloat

The Spanish government and the country’s top unions have agreed to increase monthly social security tax contributions by 0.6 percent starting in 2023 as a means of protecting the pensions of Spain’s baby boom generation.

A worker checks glasses on the production line at a factory in spain
The rise in social security contributions will be paid mainly by employers - 0.5 percent - while 0.1 percent will correspond to the workers. Photo: GUILLAUME SOUVANT / AFP

From 2023 and over the course of the following decade, Spaniards will lose €1 to €2.5 of their net monthly income to extra social security tax contributions

The estimate comes after Spain’s Ministry of Inclusion and Social Security and top Spanish workers’ unions UGT and CCOO agreed that cotizaciones (tax contributions in Spanish) will increase 0.6 percent starting the year after next. 

This bolstering of Spain’s Social Security Reserve Fund will be paid mainly by employers – 0.5 percent – while 0.1 percent will correspond to the worker.

“The reform will come into force in a few months,” Social Security Minister José Luis Escrivá told journalists on Monday, where stressing that the rise in the taxes taken from workers’ salaries “won’t reach €2” for workers and “under €10” for companies.

The measure aims to strengthen Spain’s pension system with an extra €50 billion by 2032, in view of the upcoming retirement of millions of baby boomers, as the Spanish press refers also to them using the English term.

According to 2021 government statistics, there are 6.45 million people in Spain in the 55 to 64 age group, and 9.37 million above the age of 65. 

The reform will be included as an amendment to the bill that is being processed in Spain’s Congress and will act as “a safety cushion” for Spain’s ageing population, Escrivá said.

Spain’s Prime Minister Pedro Sánchez on Monday backed the reform, writing on Twitter that the agreement will serve to  “shield” Spain’s public pension system, an “indispensable tool” in a “more just and egalitarian” society.

However, for the Spanish Confederation of Business Organisations (CEOE) the tax hike will “have negative effects on employment and is the opposite of what the public pension system needs.”

The head of Spain’s opposition Popular Party Pablo Casado has also dismissed the increase in social security contributions as “employment tax” and “nonsense”.

From January 2022, Spain’s retirement age will be pushed back to 66 years and 2 months, meaning that to get a full state pension a worker will have to have worked for 37 years and six months. 

Life expectancy in Spain is the highest in Europe and by 2040 Spaniards are expected to live longer than any other nation in the world, on average 85.8 years.

In a recent report, the OECD recommended that countries push back the age of retirement of its citizens by two years for every three extra years of life expectancy. 

The same study found that in nations such as Spain, Italy, Belgium and France, most people were retiring before the legal retirement age.

READ ALSO: Spain’s self-employed workers to pay €8 more a month in 2022

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TAXES

La Renta: What items can you deduct on your Spanish tax return?

Find out what costs you can and can't claim back on your annual Spanish tax return or 'declaración de la renta'.

La Renta: What items can you deduct on your Spanish tax return?

Spain’s annual tax return is known as the declaración de la renta and completing it or knowing what you can claim back as an expense can be quite tricky, particularly because there are many regional differences too. 

Anyone residing in Spain for more than 183 days and earning over €22,000 a year, who is self-employed (autónomo), or moved here in the last year, must complete it. 

Your Spanish income tax return has to be filed by June 30th for the preceding year, in this case for 2021.

READ ALSO – La Renta: The important income tax deadlines in Spain in 2022

There are many different allowances or deductions that can be made on your tax return such as deductions for couples, children, single parents, elderly parents, disabilities and large families, may of which we have covered in previous articles such as this one here

This article, however focuses specifically on costs that you can claim back on your tax return. For example, can you deduct rental or mortgage expenses, property tax or private health expenses? Read on to find out. 

READ ALSO: How to complete Spain’s Declaración de la Renta tax return

Spanish pension contributions

Up to €2,000 can be deducted for contributions to pension plans or up to 30 percent of the tax base (total income).

Property tax

Those who own a property in Spain will pay the yearly Impuesto Sobre Bienes Inmuebles, better known as IBI. This is similar to council tax in the UK and one of the expenses you can claim back on your annual declaration.

The costs of renovating your main home

Keep in mind, that you can’t just deduct the cost of any renovations on your home, particularly if they’re just cosmetic, but you can deduct for any renovations which reduce the demand for heating and cooling by at least seven percent. In this case, you can apply a 20 percent deduction, with a maximum of €5,000. 

Buying or rental costs of your main home

This expense can only be deducted by those who bought their property and signed the mortgage before January 1st, 2013 and must have included it in previous declarations. In the case of those who are renting, the signing of the contract must have been made before January 1st, 2015.

The tax benefit is up to 15 percent with a maximum limit of €9,040, while the maximum deduction will be €1,356.  

Some regions will also allow you to deduct further expenses if you buy a house in a rural area or habitually live in an area at risk of depopulation, such as in Andalusia, Cantabria, Castilla La-Mancha, Extremadura, Galicia, La Rioja and Valencia.  You can also deduct expenses for the cost of buying a residence for a particular group of people, be it young people in need, victims of domestic violence, disabled people or large families.

Donations

Donations of many kinds can be deducted on your annual tax declaration, whether they’re charitable donations, donations to cultural institutions, donations for scientific advancement, innovative technologies or the environment.

Generally, you can deduct 80 percent of the first €150 and 35 percent of any donations after that. If you have any doubts as to whether the donations you made last year can be included, it’s best to check with your accountant or gestor.

For educational studies and textbooks

Many times, you can deduct the cost of education and the textbooks associated with them. In general, you can deduct 15 percent of school fees; 10 percent of language courses and; five percent of the cost of purchasing clothing for exclusively school use.

However, this does not include claiming back for all courses, unless you are autónomo (self-employed) and they are designed to help improve your business. If you’ve taken a course, it’s best to check with your gestor or accountant to see if the fees can be included on your declaration as there are slight variations between regions too.

Investments in environmental installations (some regions only)

Many regions in Spain allow you to deduct costs of investing in environmental installations such as solar panels, thermal installations, and water-saving devices. This category also includes improvements made to your habitual residence due to disability or adaptation because of technical or structural issues. Some of the main regions you can deduct these expenses include Valencia, Balearic Islands, Canary Islands, Murcia and Galicia. Unfortunately, these are not included for Madrid or Catalonia.

Domestic help (some regions only)

In some regions in Spain, you can even deduct expenses for domestic help, such as cleaners, nannies or au-pairs. This is true in Madrid, Andalusia, La Rioja and Castilla y León.

Electric cars (some regions only)

Those who make an investment in buying an electric car may also be able to deduct the cost of this, depending on where they live. This is true if you live in Valencia, La Rioja and Castilla y León.

Standout regional differences

  • The Canary Islands and Cantabria are the only two regions that allow you to deduct private health insurance and other health-related expenses, but make sure you contact your gestor to find out exactly which health costs can be claimed for.
  • Andalusia is the only region where you can deduct legal expenses.
  • Public transport costs can be deducted in Aragón and Asturias.

Please note, we at The Local are not financial experts. What we’ve learned, we’ve learned the hard way — by getting on the phone and listening to all those frustrating automated messages. 

The information above is designed to help, but if you are in doubt or unsure of exactly what you can claim back, seek professional advice.

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