Re-establishment of the wealth tax (2011)
As we all know, Law 4/2008 of 23rd December suspended the Wealth Tax (IP, Impuesto de Patrimonio) in Spain. Only 3 years after and 15 days before the Houses’ dissolution, the Government has recovered it under a Royal Decree Law for taxpayers with wealth exceeding 700 thousand Euros. Then, under Royal Decree Law 13/2011, of 16th September, the Wealth Tax is re-established on a temporary basis.
The only regulatory change consists of the increase of the minimum exempted of 108,182.18 Euros to 700,000 Euros. Similarly, the exemption corresponding to the usual residence value has increased from 150,000 Euros to 300,000 Euros. This means that the same charge (see Table 2: 8 tranches with increasing rates from 0.2% to 2.5%) and the limit to the total tax liability established in 2007, remain unvaried. This limit restricted the Wealth Tax payable sum so that the same was not excessively confiscatory and basically consisted of the total tax liability of the Wealth Tax together with the one of the Income Tax could not exceed 60% of the tax base of the Income Tax (Income).
| Tax base | Rest | ||
|---|---|---|---|
| From | Tax liability | To | Rate |
| - | - | 167.129 | 0,20% |
| 167.129 | 334 | 167.123 | 0,30% |
| 334.252 | 836 | 334.427 | 0,50% |
| 668.500 | 2.507 | 668.500 | 0,90% |
| 1.337.000 | 8.523 | 1.337.000 | 1,30% |
| 2.673.999 | 25.904 | 2.673.999 | 1,70% |
| 5.347.998 | 71.362 | 5.347.998 | 2,10% |
| 10.695.996 | 183.670 | en adelante | 2,50% |
In other words, this limit indicates that taxpayers cannot pay jointly for the Income Tax and the Wealth Tax more than 60% of their income, provided that the tax liability unpaid for this reason is not higher than 80%. This limit was very important in high tranches and statistics prove that, in practice, it was applied mostly by tax payers with wealth exceeding 10 million Euros.
The quantitative effect of the re-establishment and reform can be seen in some examples:
| Wealth | Tax liability | Effective rate | ||
|---|---|---|---|---|
| Amount | 2007 | 2011 | 2007 | 2011 |
| 700.000 | 2.791 | 0 | 0,40% | 0,00% |
| 1.400.000 | 9.342 | 2.791 | 0,67% | 0,20% |
| 3.000.000 | 31.446 | 21.042 | 1,05% | 0,70% |
| 6.000.000 | 85.054 | 70.456 | 1,42% | 1,17% |
| 10.000.000 | 169.054 | 154.354 | 1,69% | 1,54% |
Other modifications that must be taken into account in some cases are:
- Non-residents operating under a permanent establishment must appoint a tax representative in Spain and give notice thereof to the Tax Authorities before the tax filing deadline (expected on 30th June 2012). For these purposes, we must take into account that tax representatives of non-residents’ permanent establishments acquire the condition of joint and several taxpayer before the Tax Authorities. Furthermore, a costly sanctioning regime is expected if this appointment obligation is breached.
- All wealth higher than 2,000,000 Euros must be declared, although no tax liability is paid because of the applicable rebates or exemptions.
We must remark that no modification has been applied on the exemption in the Business Tax of family businesses or family interests in companies carrying out business activities, so that the application rules until 2007 are still in full force and effect.
Finally, with respect to amendments, the statement of reasons mentions the provisional nature of the tax, it being limited to years 2011 and 2012, but we must bear in mind that this tax was established in 1978 as a provisional tax … and such provisional nature lasted until 2007.
Pablo Lázaro
Partner