Tax measures in Law 11/2020 of the General State Budget for 2021

2021-01-11 News

On 31 December 2020, Law 11/2020, of 30 December, on the General State Budget for 2021, was published in the Official State Gazette and came into force on 1 January of this year. This law introduces significant changes to the main Spanish taxes, such as an increase in personal income tax for higher income, a lowering of the limit for reductions for contributions to pension plans, a reduction in corporate income tax for exemptions due to double taxation on income from significant shareholdings, the restoration of the indefinite nature of wealth tax, an increase in VAT on sweetened beverages and an increase in the rate of tax on insurance premiums, among other main measures detailed below.

Personal Income Tax (PIT)

Increase in the maximum marginal rates applicable to the highest incomes, both in the general base and in the base of income tax savings:
- The rate applicable from 300,000 euros onwards is increased by 2 percent, with this bracket being subject, depending on the Autonomous Community of residence, to rates of around 47% (until now this maximum accumulated rate was around 45%).
- Liquidatable base of the savings – The rate applicable from 200,000 euros is increased by 3 percent, so that this bracket is now taxed at 26% (until now the maximum rate was 23%).
Special scheme for displaced workers: The maximum marginal rate applicable from 600,000 euros is increased to 47% (previously 45%). Similarly, income from savings obtained in Spain will be taxed at 26% from 200,000 euros (until now it was 23%).
Pension plans – The maximum limits applicable to reductions in contributions to individual pension plans are reduced. In general, the current limit of 8,000 euros is raised to 2,000 euros. However, this limit will be increased by 8,000 euros provided that the increase comes from employer contributions.

Property Tax (IP)

The tax rate for assets over 10.7 million euros is increased by one point, raising the maximum marginal rate from the current 2.5% to 3.5%.
Likewise, the provision contained in the Tax Law establishing the abolition of this tax, the application of which has been postponed year after year, is eliminated. Consequently, the IP is now a tax payable for an indefinite period.

Corporate Tax (IS)

Limitation of exemption on dividends and capital gains from domestic and foreign sources. The exemption contained in Article 21 of the Corporate Income Tax Law affecting dividends and capital gains from significant shareholdings is amended so that the amount to be exempted will be 95% of the dividend or positive income obtained on transfers as of 2021, instead of the 100% currently applicable. This means that, in general, dividends or capital gains on the transfer of holdings of at least 5% will be subject to effective taxation at 1.25% (the 5% not exempt due to the 25% tax rate). The technical basis of this measure is that, since positive income derived from holdings of at least 5% is exempt, it is logical to consider the management costs of these holdings as non-deductible. Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries allows Member States to set such management expenses, on a flat-rate basis, at a figure not exceeding 5 per cent of the profits derived from the holding. It should be noted that, in the case of ‘chains of companies’, that minimum taxation of dividends, generally 1.25%, will be cumulated successively for each distribution of dividends, since the amended rule does not provide for any mechanism to limit such cumulative taxation. Moreover, this minimum taxation will also apply within consolidated tax groups.
In addition, an equivalent limitation has been approved in the regulation of the deduction of international economic double taxation to avoid that this method is chosen instead of the exemption method in the case of income derived from holdings in entities not resident in Spanish territory.
However, in order to allow the growth of companies with a net turnover of less than EUR 40 million which do not form part of a trading group, such taxpayers will apply the exemption or deduction for international economic double taxation to 100% of the dividends for a period limited to three years, when they come from a subsidiary, resident or not in Spanish territory, established after 1 January 2021.
Finally, the exemption and elimination of international double taxation on dividends or shares in profits and on income derived from the transfer of shares in an entity whose acquisition value exceeds Euro 20 million is abolished, in order to limit the application of these measures to situations in which there is a significant shareholding of at least 5%, although a transitional regime is established for a period of five years (the holdings acquired in the tax periods commencing prior to 1 January 2021, which had an acquisition value of more than EUR 20 million without reaching the percentage of 5% holding may continue to apply the 95% exemption regime until 2025).

Value Added Tax (VAT).

The tax rate on sweetened drinks or drinks with added sweeteners is increased from the reduced rate of 10% to the general rate of 21%.
The increase in the tax only affects the sale of these products in shops, as consumption on the spot in catering establishments will continue to be taxed at 10%.

Insurance Premium Tax.