Tag Archive: Spain

1. Exemption for Renewable Energy Projects

   11 November 2023 5:30 am Leave a Comment

   Exemption for Renewable Energy Projects – Introduction

    

   In an impactful decision, the Spanish General Directorate of Taxes (SGDT) has clarified that capital gains exemptions will apply to the sale of shares in subsidiaries dedicated to photovoltaic energy projects, even if the construction has not commenced. 

    

   This announcement marks an essential step in providing clarity for the renewable energy sector.

    

   What Triggered This Decision?

    

   The ruling specifically pertains to holding companies engaged in renewable energy projects, focusing on photovoltaic energy. 

    

   The subsidiaries or Special Purpose Vehicles (SPVs) involved in these projects are at various stages, from land scouting to feasibility analysis and permits and licenses management. 

    

   However, these SPVs might not possess their own resources and personnel.

    

   Exemption Application

    

   The SGDT’s perspective is that these SPVs should not be considered mere asset-holding entities. 

    

   Instead, they are actively involved in the economic activity of promotion and development. 

    

   Provided that they have their organizational setup for production and distribution, the SGDT allows for the application of the exemption for capital gains derived from the sale of these SPVs, even before the actual construction work on the photovoltaic solar parks has started.

    

   Timing Matters

    

   The SGDT emphasizes that the income resulting from the sale of SPVs should be allocated to the corporate income tax in the year it accrues. 

    

   This applies to the fixed part of the agreed price. 

    

   For the variable part, dependent on uncertain future events, it should be included in the tax base when those events occur, and a reasonable estimate can be made of the variable price.

    

   Previous Rulings

    

   This ruling closes the debate that arose from previous similar cases.

    

   Some prior rulings questioned the exemption when economic activity had not yet materially commenced.

    

   However, recent rulings have taken a more favorable stance regarding the application of the exemption.

    

   Renewable Energy Sector

    

   This ruling provides much-needed clarity for businesses operating in the renewable energy sector, allowing for the application of capital gains exemptions on SPV sales. 

    

   It is essential to review the conditions and assess each case individually to ensure compliance.

    

   Transfer Pricing Considerations

    

   This decision also highlights the need to evaluate the valuation of services provided by holding companies and group entities to SPVs. 

    

   Such assessments should align with market value and necessitate a review of the group’s transfer pricing policy.

    

   If you have any queries about Spain’s Exemption for Renewable Energy Projects, or Spanish tax matters in general, then please get in touch.

2. Spanish Net Wealth Tax & Solidarity Wealth Tax for non-Spanish residents

   1 December 2022 2:34 am Leave a Comment

   Introduction

   Several weeks ago, we commented on the Spanish Government’s recently proposal to introduce a Solidarity Wealth Tax.

   However, this article considers new wealth tax proposals – in respect of the Net Wealth Tax and the Solidarity Wealth Tax – for non-Spanish-tax-resident individuals who hold Spanish real estate through one or multiple non-Spanish-resident entities.

   What is the proposal?

   It is envisaged that non-Spanish-tax-resident individuals would be subject to the Net Wealth Tax (“NWT”) when they hold shares in an unlisted entity. This would be where “at least 50% of its assets are directly or indirectly made up of real estate located in Spain”.

   These new proposals would replace the current domestic provisions which historically have required non-resident individuals to pay NWT in circumstances where they directly own real estate only.

   Additionally, the Spanish Government plans to bring in the Solidarity Tax (“ST”) to supplement the regional NWT. The ST will be calculated and assessed at the federal level.

   The ST will be levied on non-Spanish-tax-resident individuals with a net wealth in Spain of at least EUR 3 million. It should be noted that this will include any interests in non-resident entities that own Spanish real estate

   The NWT can be credited against any ST liability.

   Commencement of new Spanish Net Wealth Tax and Solidarity Wealth Tax

   It is expected that these measures will be passed before the end of 2022.

   If the new legislation is published prior to the end of 2022, then both would apply to indirect holdings of Spanish real estate held on 31 December 2022.

   It is currently expected that both would have to be paid in June or July of the following year.

   If you have any queries about the Spanish Net Wealth Tax or Solidarity Wealth Tax, or Spanish tax matters in general, then please do get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

3. New Solidarity Wealth Tax for high net worth individuals

   13 September 2022 4:34 pm Leave a Comment

   Background

   At the end of September, Spain announced a package of new measures to be included in the General State Budget Bill for 2023.

   One such measure was the Solidarity Wealth Tax.

   “Solidarity” Wealth Tax

   This will be a temporary tax and will apply for 2023 and 2024 at the end of which it’s success will be reviewed.

   The tax will be levied on individuals with net assets valued at over €3m.

   The rate of tax will be:

   Threshold	Rate
   €3-5m	1.7%
   €5-10m	2.1%
   In excess of €10m	3.5%

   As you may be aware, the autonomous regions already apply a Wealth Tax to their residents. As such, n order to avoid double taxation, the amount paid under the existing  Wealth Tax regime will be credited against the new “Solidarity” Wealth Tax.

   It is anticipated that this new tax will be paid by around 23,000 taxpayers. The expected revenue to be raised from these new measures is around €1.5b.

   Although not yet confirmed, it is understood that non-Spanish residents who own assets in Spain will also be subject to this new tax on those assets.

   It should be noted that some parliamentary groups have already announced their intention to challenge the constitutionality of the new tax.

   Other tax announcements

   • Personal Income Tax (“PIT”) rates on savings income will increase from 26% to 27% for individuals who earn more than €200k per year. In addition, the rate for annual incomes of over €300k will increase to 28%.PIT will apply to salaries of EUR 15,000 and over, instead of the current EUR 14,000 and over.
   • Also, the effective rate of PIT will be reduced for wages between EU€18-21k.
   • There will also be changes to Corporate Income Tax (“CIT”) including the restriction on certain losses. In addition, the CIT rate for SMEs with a turnover of up to €1m will be reduced from 25% to 23%.

   If you have any queries about Solidarity Wealth Tax, or Spanish tax matters in general, then please do get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.