Capital Gains Tax to Be Abolished From 2008

30 April 2008

In line with promises made by various party candidates of the Spanish government, the Minister of Economy, Solbes, has recently declared that Capital Gains Tax in Spain will be abolished. With this act, Spanish is one of the last European countries to revoke a tax that was a residual of a former era.

According to official data, this abolishment will benefit the one million tax payers that generated approximately 1,400 million Euros of tax income in 2005. In practice this tax was applied in quite an uneven manner, with its tax payers generally being those that had previously made a declaration for this tax. With regards to non-residents, they acted as a Damocles´ sword given that they too were passively subject to this tax. In the majority of cases these non-residents owned properties in Spain and were obliged every year to present a series of declarations which encompassed Capital Gains Tax and Income Tax for non-residents. This obligation was also not very evenly distributed since many non-residents did not submit it; however it was necessary to be able to assure any possible refund in the case of a buyer withholding too much when selling a property. It should also be mentioned that this Tax will continue to be relevant for financial years of 2007 and earlier, until its expiration within the timeframe of 4 years (this being for residents up until 2012 and for non-residents until 2013).

It is yet to be determined how tax payers will act in relation to the relevant declaration of the 2007 Capital Gains Tax which must be presented in the next few months, and will continue to be in force. Finally it is important to mention that this abolishment is very positive and puts Spain in a better competitive position with regards to its neighbouring countries.

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