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DRIVING IN SPAIN

How a new tax will affect people buying a car in Spain

A new tax on greenhouse gases coming into force in September 2022 will make buying vehicles in Spain more expensive. Here's what drivers need to know.

How a new tax will affect people buying a car in Spain

A new law in Spain in September will increase the price of buying new cars in Spain. 

The price hike in the car industry comes from a new tax coming into effect from September 1, 2022 on air conditioners, freezers and refrigeration equipment. Prices are, as a result, anticipated to be up to 10 percent more expensive as a result of Law 14/2022.

The bill is at its core a reform to taxes on fluorinated gas – a gas used in several components of car parts –  and is a tax that will inevitably be passed onto consumers.

Technically speaking, the tax did already exist: the Tax on Fluorinated Greenhouse Gases was regulated by Article 5 of Law 16/2013, but its scope has now been broadened as part of a raft of government measures to mitigate the impact of skyrocketing energy prices.

Whereas in the past only sellers of fluorinated gases paid taxes, according to the Association of Refrigeration Companies and their Technologies (AEFYT), the new reform applies tax to the manufacture and import of new refrigeration equipment and systems, air conditioning, heat pumps and other household appliances that use fluorinated gas.

This will have a knock-on effect on consumers, and it is anticipated the change will bring a price hike of 5-10 percent in a plethora of industries that rely on these types of appliances, including the food industry, hospitality, and supermarkets.

What is less known, however, is that the new tax will also have an effect on the car industry. 

The tax on fluorinated gases not only increases the cost of air conditioning, but also heat pumps – a key component of vehicles, in particular electric cars.

A 5-10 percent increase may not feel as stark as spiralling utilities bills, but it will be more pronounced in new car purchases. 

The unwelcome news comes at a time of crisis for the automobile industry in Spain, with a combination of supply and demand problems caused by the pandemic and a lack of microchips making (new, second-hand and even rental) cars much harder to come by in Spain.

While all of Spain is currently experiencing car rental shortages, the problem is particularly affecting areas of Spain with high numbers of tourists such as the Costa del Sol, the Balearic Islands and the Canaries.

READ MORE: Why you should think twice about buying a car in Spain, even if it’s second hand

According to the employers’ associations of the Balearic Islands, Aevab and Baleval, there are 50,000 fewer rental cars across the islands than before the pandemic.

The reforms have, unsurprisingly, not gone down well with businesses.

It is believed as many as 20 business associations have submitted their displeasure with the proposals, arguing that they “will have an impact on different sectors of the economy, but also on households or small businesses.”

And to further pour salt in the wound, the new law also obliges sellers to register in the Territorial Registry of the Tax on Fluorinated Greenhouse Gases, with fines as high as €1,500 for those who don’t.

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For members

TAXES

The tax changes in Spain in 2023 that you need to know about

The new year in Spain has brought with it a whole raft of new tax measures and changes that you should be aware of. Here's all you need to know.

The tax changes in Spain in 2023 that you need to know about

There are a number of new tax measures or changes to the existing system coming into force in Spain in 2023, while other temporary taxes from 2022 have been maintained.

Here are all the changes you need to know about and how they could affect you.

IRPF

This year, the Ministry of Finance will change the way they calculate the amount of Impuesto de la Renta para las Personas Físicas (IRPF) or personal income tax, you have to pay. 

In total, more than 250,000 workers will benefit from the changes and in some cases, will save more than €1,000 per year.

The government has also raised the minimum exemption from €14,000 to €15,000 to help the most vulnerable in Spanish society.

READ ALSO: Who in Spain will save €1,000 in 2023 thanks to income tax changes?

New pension fund tax

From January 1st 2023, all workers in Spain, whether salaried or self-employed, must pay a new tax through their social security contribution to help fill up Spain’s pension fund – a move that will affect over 20 million workers.

The Intergenerational Equity Mechanism (MEI), as it’s known, will be a small social security contribution intended to help balance pension financing between generations. It is hoped that the MEI will bring in around €22 billion by 2032, when it is anticipated the new tax will be lifted. 

In simple terms, if you work in Spain and thus contribute to social security, the new tax will represent 0.6 percent of your monthly salary, however, of this 0.6 percent your employer will pay 0.5 percent and you will only pay the other 0.1 percent.

READ ALSO: The new tax all workers in Spain will pay in 2023

Wealth tax

The Spanish government will maintain its so-called ‘wealth tax’, but there will be certain changes to it this year. The tax targets those with fortunes of €3 million or more.

Three brackets that have been established are a rate of 1.7 percent for fortunes between €3 and €5.3 million, 2.1 percent for wealth between €5.3 and €10.6 million, and 3.5 percent for fortunes over €10.6 million.

Savings tax

Large savings and capital income will also be taxed at a higher rate in Spain in 2023.

For taxable income over €200,000, the rate will be increased by one percent, from 26 percent to 27 percent. In addition savings of €300,000 or more will be taxed at 28 percent.

Self-employed workers

The Local covered the ongoing changes to tax system for autónomos (self-employed people) throughout 2022, including the main change that social security contributions will now be based on real income, instead of a set amount each month. 

The government has also rejigged the thresholds, but essentially anyone earning under €1,300 per month will be paying less in social security fees, with those earning €1166.70 to €1,300 a month paying just €3 less than they do now.

Those earning between €1,300 and €1,700 will pay the same amount as they do now – €294 per month, while anyone earning over €1,700 will be paying more.

According to the government, of the three million self-employed workers in Spain 2.4 million earn under €1,700 per month, meaning that the majority will see their social security contributions staying the same or reduced.

Self-employed workers in Spain will now have to choose an income bracket based on a projection of their annual net income according to a general table of base levels set by the government.

It’s as complicated as it sounds, with some accountants even unclear on exactly how this will work, but from what do know in 2023 there will be 15 different brackets of net income to calculate your social security contributions.

Tax breaks 

Several regions have announced various tax breaks for 2023, most notably Madrid. From Q1 2023, new autónomos in Madrid will have their social security fees paid for by the government for their first year of self-employed work in the region.

Recently the region also announced that it would offer tax breaks to draw foreign investment. Under the regional plan, foreigners or expatriate Spaniards will be able to deduct 20 percent of the value of their investments in real estate or financial assets from their income tax bill.

READ ALSO: Madrid region offers tax break to draw foreign investment

VAT

The Spanish government is also keeping its VAT cuts (known as IVA in Spanish) on various products. VAT on feminine hygiene and contraceptive products has been cut from 10 percent to 4 percent, as well as the temporary tax reduction on basic foods such as bread, flour, fruits or vegetables, which will be taxed at 0 percent, and to oils and pasta, which now have VAT rates of 5 percent.

These cuts are expected to last for six months.

READ ALSO: Spain axes VAT on basic foods to ease inflation pain

Banking and energy

The headline-grabbing tax measure in 2023 is a carry-over from 2022: a temporary windfall tax on banks and energy companies designed to bring €3.5 billion in extra revenue per year to help deal with the ongoing inflationary crisis.

Energy companies, whose profits have benefited hugely from the energy crisis, will have their excess profits taxed. This will generate around €2 billion per year for state coffers, and the tax will be levied at 1.2 percent on gross income for energy companies that make more than €1 billion a year.

Similarly, there is also a temporary 4.8 percent charge on banks’ net interest income and commissions in 2023 and 2024 to fund measures to ease cost of living pressures.

READ ALSO: Spain to slap windfall taxes on banks, energy firms

Plastic tax

A new tax on non-reusable plastics is also being introduced, approved at a rate of €0.45 per kilo of single-use plastic. A study by International Financial Analysts (AFI) estimates the plastic tax could generate €300 million for the Spanish state coffers.

The tax comes as part of Spain’s Waste and Contaminated Soils Law being brought in to try and decrease the use of single-use plastics, and to reduce the waste produced in landfills by 15 percent compared to 2010 levels.

READ ALSO: How Spain’s new tax on plastics will affect you

The Spanish government hopes to cut the use of food containers and single-use plastic cups by up to 70 percent by 2030.

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