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The new tax all workers in Spain will pay in 2023

From 2023, all salaried or self-employed in Spain will have to pay an extra tax to help fill up the country's pension fund. Find out how much it will be and why Spanish authorities are introducing it.

The new tax all workers in Spain will pay in 2023
From January 1st 2023, all workers in Spain whether salaried or self-employed who contribute to social security must pay a new tax to help fill up Spain's pension fund. Photo: Pixabay.

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. 

With Spain’s rapidly ageing population, declining birth rates, high levels of unemployment, the impending retirement of the baby boom generation and seriously scarce pension reserve funds, the Spanish state needs to recoup pension funds quickly in order to ensure the costs of future retirees.

READ ALSO: Older and more diverse – What Spain’s population will be like in 50 years

It is hoped that the MEI will bring in around €22 billion by 2032, when it is anticipated the new tax will be lifted. 

How much will the MEI tax be for contract workers?

The new MEI tax will be paid by all workers regardless of their income, and the percentage they pay on their salary will be the same for everyone.

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: Spain’s over 65s exceed 20 percent of the population for the first time

To give an example: say you’re employed in Spain and have a gross salary of €2,000 a month; 0.6 percent of €2,000 equals €12, of which your employer pays €10 (0.5 percent) and you would pay €2 per month (0.1 percent).

How much will the MEI tax be for self-employed workers in Spain?

What about if you’re self-employed a don’t earn a fixed monthly wage?

Autónomos will also have to pay this new tax, and trade unions estimate that the average monthly payment for self-employed workers will be around €5 per month.

It is unclear exactly self-employed workers will pay the tax – whether on their quarterly tax return or in the monthly autónomo fee – but Spanish media reports seem to suggest it will most likely be tacked on to the monthly fee.

READ ALSO: Self-employed in Spain: Do I have to register and pay tax if I earn below minimum wage?

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For members

TAXES

Spain’s deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain's Deputy Prime Minister and Labour Minister, has called for a freeze on variable mortgage rates amid news that Spain's biggest banks have enjoyed a bumper year of record profits.

Spain's deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain’s Labour Minister and the ideological force behind sweeping labour market reforms, has called for a freeze on variable rate mortgages following news that some of Spain’s biggest banks reported billions in record profits last year.

On Wednesday, BBVA reported a 2022 profit of €6.4 billion, the largest profit in its history. Driving this profit, the bank’s interest margin grew by a whopping 30.4 percent, commission income by 12.3 percent, and loans by 13.3 percent.

Banco Santander posted an annual net profit of €9.6 billion, up 18 percent from 2021 and higher than forecasted by analysts polled by financial data firm FactSet.

READ ALSO: Banco Santander posts record profit as rates rise

Given these record-breaking profits, especially against the backdrop of a prolonged cost of living and inflationary crisis in Spain, Díaz has said the government must act decisively to “freeze mortgages” and “moderate profits.”

“The crisis cannot be an excuse to earn more,” she said, adding that the rise in the Euribor rate is “very serious”, with the average increase (estimated to be €258 per month) “impossible to bear” for normal Spaniards.

Euribor is the interest rate most often used to work out mortgage payments and calculate both variable and fixed rates.

READ ALSO: What the Euribor rise means for property buyers and owners in Spain

It is anchored to the interest rate set by the European Central Bank (ECB), and, as we are now seeing, quite responsive to global economic events. By the end of January, the rate had risen to almost 3.4 percent, the highest level since December 2008.

“While the rise of the Euribor will increase the average mortgage payment by €250 per month, BBVA’s profits grow by 38 percent to reach €6.4 billion, the largest in its history. The crisis cannot be an excuse to earn more. Freeze mortgages, moderate profits,” Díaz wrote on Twitter on Wednesday January 31st.

Banks respond

Unsurprisingly, Spanish banks are not exactly keen on Díaz’s idea. BBVA President, Carlos Torres, said “I trust what will happen is that the benefits of a market economy continue to be defended”. 

Torres also tried to remind people of the “negative years” that BBVA has endured, with “many billions of negatives”. 

It remains to be seen how persuasive Spaniards or the Spanish government find this comparison, or whether Díaz’s Twitter idea will translate into policy.

Windfall tax

Díaz’s call for a mortgage rate freeze is in line with the Spanish government’s approach to the excess profits of banks and energy companies. In July, the Spanish government introduced a temporary windfall tax on excess profits in order to fund some of the extraordinary measures it was implementing to help the most vulnerable in Spanish society deal with the cost of living crisis.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures. Between the new taxes on banks and energy companies, they should generate around €7.0 billion for the state coffers in 2023 and 2024. 

However, in November the ECB published a non-binding legal opinion that suggested Madrid undertake a “thorough analysis of potential negative consequences for the banking sector” of the tax.

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