Spanish Government Proposes Tax Increases for 2010

1 October 2009

On September 26, 2009 the Spanish Government approved the draft of the Spanish General State Budget Act for 2010.

The proposed draft introduces significant changes regarding Spanish VAT, Spanish income tax and Spanish corporate income tax.

As regards Spanish VAT, the Spanish government proposes a gradual increase in current VAT rates. The general VAT rate will be increased from 16% to 18%. The reduced rate will be increased from 7% to 8% and the super-reduced rate (4%) will remain at the same level.

As for the Spanish income tax, there are two new proposed changes:

a) Tax rate on savings (i.e. interest on bank account deposits, dividends, short-term capital gains and long term capital gains) will be increased from 18% to 19% for the first 6,000 euros. The tax rate on additional amounts is increasing from 18% to 21%.

b) The 400 euro tax deduction which applied across the board to income tax is to be abolished.

With regard to Spanish corporate income tax, the corporate tax rate will shrink from 25% to 20% for small and medium sized companies with fewer than 25 employees and a turnover of less than 5 million euros which maintains or increases their labour force.

An equivalent measure will be introduced for individual entrepreneurs.

Subject to the corresponding parliamentarian process, the proposed changes in Spanish income tax as well as the Spanish corporate income tax are expected to come into force on January 1, 2010.
Modifications on VAT rates will come into force on July 1, 2010.

For further information, please contact Victor Manzanares: