At the state level, taxes may be classified in two categories: direct and indirect taxes.
The most significant direct taxes are:
- Personal income tax (Impuesto sobre la Renta de las Personas Físicas or “IRPF”) which is applicable to natural persons resident in Spain for tax purposes. It taxes the total income these persons obtain regardless of the place in which it is produced.
- Corporate income tax (Impuesto sobre Sociedades or “IS”) which taxes the total earnings of entities (companies and other entities without legal personality) regardless of the place in which earning took place.
- Non-resident income tax (Impuesto sobre la Renta de No Residentes or “IRNR”) which taxes income obtained both by entities and by natural persons not resident in Spain for tax purposes.
- Inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones or “ISD”) which taxes acquisitions by natural persons produced by gifts, inheritance or certain life insurance policies.
- Capital gains tax (Impuesto sobre el Patrimonio or “IP”) which taxes the net, worldwide equity of natural persons resident in Spain for tax purposes and the equity located in Spain of non-resident natural persons.
Among indirect taxes, the following are worth noting:
- Value-added tax (Impuesto sobre el Valor Añadido or “VAT”) which taxes the delivery of goods and services by business owners or professionals. It is a “standardised” tax at the European Union level with little variation between Member States.
- Transfer tax and stamp duty (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados or “ITP”) which has three forms. It taxes the transfers that are not taxed by VAT, certain corporate operations (dissolutions, decreases in capital, etc.) and certain mercantile, notarial and administrative documents.
- Special taxes (Impuestos Especiales or “II.EE.”) which are levied on alcohol and alcoholic beverages, hydrocarbons, tobacco and the registration of means of transport.
The State transfers part of the collection from these taxes to the Autonomous Communities. Additionally, the State has transferred regulatory authority of these taxes to the Autonomous Communities (IRPF, IP, ISD or ITP), where the latter may regulate certain aspects of the taxes such as exemptions or tax credits.
As an example, in the Madrid Autonomous Community, estate tax is credited at a rate of 100% and inheritance and donation tax at 99% in certain cases. In other Autonomous Communities, these taxes are not credited or the tax credits are not as high.
The Autonomous Communities of the Basque Country and Navarra have their own tax regulations.
Autonomous Communities may create their own taxes in addition to being able, as was already mentioned, to regulate certain aspects of state taxes transferred to them.
Taxes established by the Autonomous Communities may not tax events already taxed by state or local taxes.
Among the most significant regional taxes established by Autonomous Communities are the tax on empty housing (Impuesto sobre las Viviendas Vacías), the tax on stays at touristic establishments (Impuesto sobre las estancias en Establecimientos Turísticos), tax on large commercial establishments (Impuesto sobre Grandes Establecimientos Comerciales), tax on infrautilised land (Impuesto sobre tierras infrautilizadas) and the tax on non-productive assets (Impuesto sobre activos no productivos).
City councils are obliged to establish at least three taxes:
- Real estate tax (Impuesto sobre bienes Inmuebles or “IBI”) which is paid annually by owners of real estate property or rights over properties.
- Business tax (Impuesto sobre Actividades económica or “IAE”) which is paid annually for carrying out an economic activity in Spain. In order to incentivise the performance of economic activities, natural persons are exempt from payment of this tax. Additionally, there is an exemption for the two first taxable periods in which activity is carried out and for those companies with turnover less than one million euros.
- Motor vehicle tax (Impuesto sobre Vehículos de Tracción Mecánica or “IVTM”) which taxes the ownership of motor vehicles apt for driving on public roads.
In addition, city councils may establish:
- Construction tax (Impuesto sobre Construcciones, Instalaciones y Obras or “ICIO”, which is an indirect tax on the execution of any works, installations or construction for which a works or urban planning licence is required.
- Tax on the increase in value of urban land (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana or “plusvalía municipal”) which taxes the increase in value on urban land when it is transferred either free of charge or for payment.
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