Spanish wealth tax.

Changes to the Spanish wealth tax.

The wealth tax is a direct tribute that taxes the manifestations of wealth of the taxpayers, deducting the debts, and that is assigned to the Autonomous Communities, despite being a State tribute.
It is regulated by Law 19/1991 and was abolished in 2008 but later, it was reactivated in 2011.

It has a scope of application throughout the Spanish territory with the specialties that may exist in the foral territories of the Basque Country and Navarra and what the different International Agreements provide.

Today we are going to analyze the possible changes that have occurred as a result of the United Kingdom's exit from the European Union, which entails the consideration of the United Kingdom as a third country for tax purposes.

We start from the basis of analysis of a taxpayer who is a Non-Resident Company, whose patrimony in the national territory consists of a home whose acquisition value in 2003 was € 1,400,000 (not including indirect taxes, VAT or property transfers) and also, rent the property.

Avoid double taxation.

The Agreement to avoid double taxation signed between Spain and the United Kingdom of 2013 includes in its article 21, the power that enables the State in which the real estate is located to tax those taxpayers who hold ownership of shares or participations whose value proceeds in more than 50%, directly or indirectly, in real estate.

Therefore, following what is stipulated in the Agreement, the non-resident company will be subject to tax and must pay taxes on the value of the shares.

Will it also be taxed on the income obtained by the Company for the rental of the house?
The answer is yes, because Article 6 of the Convention establishes that the income will be subject to taxation in the State where the real estate is located.

And what would be the Taxable Base of the Wealth Tax? that is, how to value these shares for the purposes of the Wealth Tax?
The taxable base would be the value of those shares, which according to article 16 of the Law that regulates the tax, establishes that it will be the highest of the following three:
1. Nominal value of the shares.
2. The theoretical value resulting from the last approved balance sheet.
3. The result of capitalizing at 20% the average of the benefits of the three closed fiscal years.

How would it work?

To simplify this case, we are going to base ourselves on the par value of the shares, which corresponds to the real estate asset, that is, € 1,400,000.
The law establishes a minimum exemption for non-residents of € 700,000, which means that the taxable base (on which we will apply the progressive tax rate) would remain at € 700,000.

On this taxable base, we would apply the corresponding progressive rate, according to the scale of article 30, that is:
Up to € 668,499.75, the full payment would amount to € 2,506.86. For the rest of the Payable base, (€ 31,500.25) would be taxed at 0.9%, that is, € 283.50.

Well, the Law, in its Fourth Additional Provision, establishes that the regulations of the Autonomous Community in which the highest value of the assets and rights of which they are holders will be applicable for non-residents (natural or legal person) as long as they are resident in a member state of the European Union or the European Economic Area.

Given that residents of the United Kingdom no longer meet this condition, and since there are autonomous communities that have fully or partially subsidized the Wealth Tax, these taxpayers cannot now benefit from this favorable treatment.

Which Autonomous Communities have the best tax treatment?

For taxpayers of the Tax.
- Madrid's community:
100% fee bonus
Regulations: Art. 20 Consolidated Text of the Legal Provisions of the Community of Madrid.
- Community of La Rioja:
75% fee bonus
Regulations: Art. 10 Law 10/2017, of October 27, which consolidates the legal provisions of the Autonomous Community of La Rioja.
- Community of Catalonia:
Regulations: Art. 60 Law 5/2012, of March 20, on fiscal, financial and administrative measures and the creation of the tax on stays in tourist establishments in the Autonomous Community of Catalonia.
95% in the part of the quota that corresponds proportionally to the forest properties, as long as they have a management instrument duly approved by the competent forest administration of Catalonia.

The Valencian Community has a minimum exemption of € 500,000 for 2021 and € 300,000 if it is the taxpayer's habitual residence.

There is a debate between economic agents and political parties about the suitability of maintaining this tax, given the low real weight that it has in the coffers of the communities, the "disloyalty" that arises between those communities that advocate the suppression or those for the increase in rates (which produces situations of unfair competition between them) and ideological factors on the maintenance of the Welfare State.