Wealth Tax in Spain
Wealth tax (IP) is a direct, general and personal tax on the ownership or possession of wealth, levied on its net value, on a periodic basis. It is a strictly individual tax levied on individuals and is complementary to Personal Income Tax (IRPF).
The taxable event is the ownership of the net worth (assets and rights minus obligations and debts) of individuals, held as of December 31, the date on which the tax is due.
Obliged to present it, the exempt minimum
Those taxpayers whose taxable income exceeds 700,000 euros are obliged to file the wealth tax, taking into account the value of all their assets or rights and excluding the value of the main residence (up to a maximum of 300,000 euros).
Law 22/2009, of December 18, 2009, which regulates the financing system of the Autonomous Communities of common regime and Cities with Statute of Autonomy and modifies certain tax regulations (BOE of December 19), establishes in its article 47 that the Autonomous Communities may assume in the Wealth Tax, among other regulatory competences, those related to the determination of the minimum exempt amount.
Consequently, the taxable base will be reduced, exclusively in the case of personal obligation to contribute, by the amount approved by the Autonomous Community as the minimum exempt amount.
If the Autonomous Community has not regulated the minimum exemption, the taxable base will be reduced by 700,000 euros, the amount established for these purposes in article 28 of Law 19/1991, of June 6, on Wealth Tax.
The amount of the minimum exempt amount applicable in 2017 by Wealth Tax taxpayers due to personal obligation is, in general, 700,000 euros, except in the following Autonomous Communities:
Aragon: the amount of the minimum exempt amount is set at 400,000 euros.
Catalonia: the amount of the minimum exemption is set at 500,000 euros.
Extremadura: in general, the amount of the minimum exemption is set at 500,000 euros. However, for taxpayers with physical, mental or sensory disabilities, the following amounts of the minimum exempt amount are established, depending on their degree of disability:
600,000 euros, if the degree of disability was equal or higher than 33 and lower than 50 percent.
700,000 euros, if the degree of disability is equal to or greater than 50% and less than 65%.
800,000 euros, if the degree of disability is equal to or greater than 65%.
Valencian Community: In general, the amount of the minimum exemption is set at 600,000 euros. However, for taxpayers with a mental disability, with a degree of disability equal to or higher than 33 percent, and for taxpayers with a physical or sensory disability, with a degree of disability equal to or higher than 65 percent, the amount of the minimum exemption is increased to 1,000,000 euros.
The minimum exemption in the amount of 700,000 will be applicable in the case of non-resident taxpayers subject to personal obligation to contribute and taxpayers subject to real obligation to contribute.
In relation to exemptions, Art. 4 ,Law 19/1991, of June 6, on Wealth Tax includes a large number of exempted assets and rights:
1.- The movable and immovable property forming part of the Spanish historical heritage and of the autonomous communities registered in the General Register of Property of Cultural Interest or in the General Inventory of Movable Property and which have obtained the corresponding formal qualification by the competent administrative body.
2.- The objects of art and antiques whose value is inferior to the amounts established in art. 26.4 of Law 16/1985, of June 25, of the Spanish historical patrimony. The definition of art objects and antiques can be found in Law 37/1992 (LIVA). If they exceed these maximum amounts, they will be exempt if they have been ceded by their owners in permanent deposit for a period of not less than 3 years to museums or non-profit cultural institutions for their public exhibition, while they are deposited or it is a work belonging to the artists while it remains in the patrimony of the author.
3.- Household goods, understood as personal and household effects, household utensils and other movable property for the private use of the taxpayer, except jewelry, furs of a sumptuary nature and vehicles, boats and aircraft, other objects of art and antiques.
4.- The vested rights of the participants and the economic rights of the beneficiaries in a pension plan.
5.- The rights of economic content corresponding to premiums paid to insured pension plans defined in 51.3, LIRPF.
6.- The rights of economic content corresponding to contributions made by the taxpayer to the corporate social welfare plans regulated in 51.4, LIRPF, including the contributions of the policyholder.
7.- The rights of economic content deriving from premiums paid by the taxpayer to group insurance contracts, other than corporate social welfare plans, which implement the pension commitments assumed by companies, under the terms provided in the first additional provision of the revised text of the Law regulating pension plans and funds, and in its implementing regulations, as well as those deriving from the premiums paid by employers to the aforementioned group insurance contracts.
8.- The rights of economic content corresponding to premiums paid to private insurance covering dependency as defined in 51.5, LIRPF.
9.- The rights derived from intellectual or industrial property while they remain in the author's estate and in the case of industrial property that are not subject to business activities.
10.- The securities whose yields are exempt by virtue of the provisions of article 13 of the Law on the income tax of non-residents and tax regulations.
11.- The assets and rights of individuals necessary for the development of their business or professional activity, provided that this is carried out habitually, personally and directly by the taxpayer and constitutes their main source of income. For the purposes of calculating the main source of income, neither the remuneration for management functions exercised in entities listed or unlisted on organized markets that meet the established conditions, nor any other remuneration deriving from the participation in such entities, shall be computed.
12.- The assets and rights common to both partners when they are used in the development of the business or professional activity of either of the spouses, provided that this is exercised habitually, personally and directly by the taxpayer and constitutes his or her main source of income.
13. - Full ownership, bare ownership and the right of usufruct for life over shares in entities, whether or not listed on organized markets, provided that the entity, whether or not it is a corporation, does not have as its principal activity the management of movable or real estate assets, and that the taxpayer's interest in the capital of the entity is at least 5% computed individually, or 20% jointly with his or her spouse, provided that the taxpayer's interest in the capital of the entity is at least 5% computed individually, or 20% jointly with his spouse, ascendants, descendants or collateral relatives to the second degree, whether the kinship originates in consanguinity, affinity or adoption, and that the taxpayer effectively performs management functions in the entity, receiving remuneration that represents more than 50% of the total business, professional and personal work income. The exemption will only apply to the value of the shares, determined in accordance with the tax rules, in the part corresponding to the proportion existing between the assets necessary for the exercise of the business or professional activity, less the amount of the debts derived from the same, and the value of the net assets of the entity, applying the same rules in the valuation of the shares of investees to determine the value of those of the holding entity.
14.- The taxpayer's habitual residence, as defined in 68.1, LIRPF 3, up to a maximum amount of 300,000 euros.
There is a wide debate on this tax. It is argued, for example, that the Constitution establishes that "everyone shall contribute to the support of public expenditure in accordance with their economic capacity through a fair tax system inspired by the principles of equality and progressiveness which, in no case, shall have confiscatory scope". The failure to comply with this precept, that of a fair tax system, is what is attributed to this Tax.
Another legal argument is that the Constitutional Court itself recently changed its doctrine recognizing precisely this principle of "economic capacity". It was in the case of the tax on the increase in the value of urban land, when it ruled that in no case may the tax payable exceed the amount received from the sale of the property in question. "Therefore, based on the doctrine emanating from the Constitutional Court itself, it can be stated that a tax can be classified as confiscatory when it subjects to taxation unreal, fictitious or non-existent manifestations of economic capacity or when its taxation exhausts the taxable wealth, forcing the taxpayer to have other assets or wealth at his disposal to pay the tax."