In an attempt to help people in Spain weather the economic storm of the cost-of-living crisis, the country's left-wing government is set to slap a new tax on people with net fortunes of more than €3 million.
Coming into effect in 2023 and remaining in place in 2024, the so-called 'solidarity tax' (impuesto solidario) has been labelled "temporary" and will be paid by just 23,000 people, or 0.1 percent of total taxpayers in Spain.
According to the government, it will raise €1.5 billion in revenue.
The tax is not a tax on income, but rather on assets and holdings.
In the Spanish press, the new tax has been described as a tax on "big fortunes", and it will be deductible from Spain’s pre-existing wealth tax.
“Since we began governing, we have been working to make our fiscal system more progressive, efficient and strong enough to support social justice,” Minister María Jesús Montero explained to the Spanish press last Thursday.
The new tax on assets is about "asking for a greater effort" from taxpayers with higher incomes, Montero said.
How will Spain's new millionaire tax work?
The new solidarity tax is not a flat rate but a progressive one based on the level of wealth. Those with assets worth between €3 and €5 million net will pay 1.7 percent; those with assets worth between €5 million and €10 million will pay 2.1 percent; and those with assets over €10 million will have a tax rate of 3.5 percent.
The Spanish government has not clarified exactly what that percentage will be applied to, but if the pre-existing wealth tax is anything to go on, the millionaire tax applies to the amount above the aforementioned thresholds.
For example, if an individual who is a resident in Spain has €3.5 million in worldwide assets, then they will likely pay 1.7 percent on the €500,000 which is above the €3 million threshold. If they have €7 million, then they will pay 2.1 percent on the €2 million extra that's above the €5 million threshold.
According to government sources, as the new solidarity tax is deductible from the wealth tax, in practice it will only be included in the tax calculations of regions where the wealth tax has been scrapped or cut, ensuring that no taxpayers pay twice on the same assets.
Why is Spain's millionaire tax really being implemented?
In Spain, regional governments have the power to increase or decrease certain tax rates.
In right-wing controlled regions, tax cuts have been made for the wealthy in recent weeks.
This approach, Montero said, amounts to unfair ‘tax dumping’ and fiscal ‘populism’ made with an eye on upcoming elections, and many in Spain feel that the new millionaire tax aims to cancel out such regional tax cuts for the rich, as in the case of Madrid and Andalusia where wealth tax has been scrapped entirely.
READ MORE: How Spain’s politicians are waging a tax war ahead of 2023 elections
What does the new millionaire tax mean for wealthy foreigners in Spain?
Spain is one of only a few countries in the world that has a wealth tax for both residents and non-residents, with the threshold set at €700,000 and the tax rising progressively from 0.2 percent to 3.5 percent.
In Spain, residents with this level of wealth pay tax on their worldwide income and assets, whereas wealthy non-residents pay tax on their Spanish assets.
Keep in mind again that Spain's regional governments are at liberty to reduce this wealth tax or exclude certain assets such as primary homes from the calculation. Non-residents who are either EU or non-EU nationals are also able to use more favourable regional wealth tax cuts.
So, will this new millionaire tax apply to residents and non-resident second homeowners in Spain with assets above €3 million?
For residents, it will likely depend on where they live in Spain. If they reside in a region which has cut or slashed wealth tax (such as Madrid, Andalusia, Galicia and Murcia) the new solidarity tax will be factored into their tax responsibilities. If they live in a region where the pre-existing wealth tax is the same as Spain's national wealth tax, they will not pay the new millionaire tax.
For non-residents, it is unclear yet whether the new tax will apply to them as the law is not in force yet and Spain's state bulletin, together with all the details, has not been published yet. The pre-existing wealth tax does apply to non-residents with properties and other Spanish assets with a value above €700,000, so if they have said assets in a region such as Andalusia or Madrid that's scrapped the pre-existing wealth tax, they may well have to pay the new solidarity tax.
Other measures
The millionaire tax is just one measure implemented by the government to achieve more progressive taxation outcomes. There are also plans to increase the income tax rate from 26 percent to 27 percent for people earning more than €200,000 per year.
Capital gains tax for incomes above €300,000 will also be increased by 2 percent, rising to 28 percent.
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