The Spanish Parliament has passed the tax reform in force from 1st January 2007.
The most important changes relevant for you are the following:
A) Taxation on individuals non resident in Spain.
The rate of returns of property is reduced from 25% to 24%.
Capital gains is reduced from 35 to 18%.
B) Taxation on European companies non resident in Spain.
The rate of returns of property is reduced from 25% to 24%.
Capital gains is reduced from 35 to 18%.
C) Patrimonial companies.
So far these companies have two different rates:
- 40% for yearly obtained returns.
- 15% for capital gains generated over one year.
With the tax reform this system is changed and the taxation on profits will be taxed regardless if the gain has been generated over one year or not. The new rates are:
25% for profits up to 120.000 euros
30% for profits on top of the above figures
D) Winding up of patrimonial companies.
The tax reform allows to wind up the patrimonial companies with some tax advantages. These advantages will be enjoyed only by the companies that
a) Has been qualified as patrimonial in all tax periods from 1st of January 2005 and keep this qualification until dissolution of the company; and
b) adopts the agreement of dissolution of the company with liquidation within the six months from the first tax period from 1st of January 2007, making all necessary steps according to the mercantile regulation to reach the cancellation of the company in the Company House within the six months from the agreement of dissolution.
The profits enjoyed by those companies above identified will be:
1.- Exoneration of 1% tax of the value of the assets received by shareholders as consequence of liquidation of the company (operaciones societarias).
2.- No payment of municipal tax of plusvalía for the property allocated to the shareholders . When the shareholder sells in the future the property it will be considered as time of acquisition the day when the company acquired the property.
3.- When the shareholder is resident in Spain, either individual or company, there will not be any payment in corporation tax of the company for the transfer of the assets to the shareholders (as at this point the assets must be reassessed according to market price). When the shareholder is non resident, the patrimonial company might experience a profit at the transfer of the assets to the shareholder if the market value of the assets at this time is higher to the value registered in the books.
4.- The assets received by the shareholder as consequence of liquidation of the company must be declared in its income tax or corporation tax depending if the shareholder is individual or company, either resident or non resident. There are some particulars to be taken into consideration:
a) The costs of acquisition of the shares (in compensation of, the shareholder receives now assets) are determined by the price paid by the shareholder when he/she bought the shares adding to this amount the profits of the company not distributed obtained in the periods when the company was taxed as patrimonial company. This value will be increased with the debts accepted by the shareholder and will be decreased with the credits, money or assets transferred to the shareholder.
b) If the result of above were negative, it will be legally deemed that the value of the assets transferred to the shareholder ( others than money or credits) have a value of acquisition nil and legally it will be deemed that the shareholder acquired such assets at the time when the company acquired them. In this case there will be a capital gain that the shareholder must declare. For shareholder resident in Spain the rate will be 18%. For non-residents there are still some uncertainties in the law to be resolved relating to the applicable rate; in my opinion , conventions to avoid double taxation must be applied and therefore if non-resident in Spain is resident in England or Germany the profit is taxed in Spain at 15% according to the Agreement.
c) When the result of the operations of above a) is zero, it will be deemed that the assets transferred to the shareholder (others than money or credits) have a value of acquisition zero and it will be deemed that the shareholder acquired them at the time when the company acquired them. Under this situation it will be deemed that there is no capital gain for the individual shareholder or income for the company shareholder.
d) When the result of the operations of above a) is positive, it will be deemed that there is no capital gains for individuals shareholder or income for company shareholder. The value of acquisition of the assets transferred to the shareholder (others than money or credits) will be the result of distribution the positive result between assets according to the market value of the final balance of liquidation.
5.- During the time up to the cancellation of the company in the Company’s House within the time of six months above explained it will be applicable to both the patrimonial companies and its shareholder the regulations in force on 31St of December 2006, except the rate of 15% which will be increased to 18%.
6.-Shareholder who decide to liquidate the patrimonial company should take into consideration:
- Our Valencia Government has announced plans to abolish inheritance tax between parents and children. Notwithstanding According to consultation of General Direction of Tributes V0356-06 the competent Tax Authority for inheritance and gift tax of a deceased non-resident in Spain with assets in Spain is the Central -Madrid- Tax Authority and also it is competent when the deceased is resident in Spain but the beneficiaries are non-residents. That means that the promised exemption is not applicable to those cases.
- Individual wealth tax of the shareholder will be much higher if he/she is owner of the property than if he/she is owner of shares of the company with normally a low capital, generally 3,006 euros.
- If the shareholder receives plots, VAT at 16% has to be paid.
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