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A Law enacted in December, 1988, introduced a new scheme aimed at rationalizing the local taxation system and facilitating the activity of local entities. Under this legislation, local authorities are empowered to modify some aspects of this type of taxes.This Law, which was partially amended with effect from January 1, 2003, establishes two different types of municipal taxes, which can be classified as follows:
– Periodic taxes:
- Tax on real estate (Impuesto sobre Bienes Inmuebles).
- Tax on business activity (Impuesto sobre Actividades Económicas).
- Tax on motor vehicles (Impuesto sobre Vehículos de Tracción Mecánica).
– Other taxes:
- Tax on erection and installation projects and construction works (Impuesto sobre Construcciones, Instalaciones y Obras).
- Tax on increase in urban land value (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana).
1. Periodic taxes
a) Tax on real estate
This tax is levied annually on owners of real estate or on holders of rights "in rem" thereon based on the cadastral value determined pursuant to the Property Cadastre regulations, at different rates up to a maximum of 1.30% for urban property and 1.22% for rural property.
b) Tax on business activity
This tax is levied annually on any business activity conducted within the territory of the municipality.
However, the following taxpayers are exempted from this tax:
– Individuals.
– Taxpayers who start a business activity within Spanish territory, during the two first tax periods in which they carry out said activity.
– Taxpayers subject to corporate income tax and entities without legal personality whose net sales (at group level according to article 42 of the Commercial Code) in the previous year were under €1 million.
– In the case of taxpayers subject to nonresidents’ income tax, the exemption will only apply to those operating in Spain through a permanent establishment, provided that they obtained net sales of under €1 million in the previous year.
The tax payable is calculated on the basis of various factors (type of activity, area of premises, net revenues, etc.). The minimum tax rates published by the Government can be adapted by the municipality.
c) Tax on motor vehicles
This tax is levied annually on the basis of the horsepower of the vehicle. Municipalities may double the minimum tax rate.
2. Other taxes
a) Tax on erection and installation projects and construction work
This tax is levied on the actual cost of any work or construction activity that requires prior municipal permission, excluding VAT and any similar taxes.
The tax rate will be set by each municipality up to a top rate of 4%.
b) Tax on increase in urban land value
This tax is levied on the increase disclosed in the value of urban land whenever land is transferred.The tax payer is the transferor of the urban immovable property.
The tax rate is set by the municipality up to a top rate of 30%. The tax base is the increase in land value (defined as the difference between the transfer price and cadastral value). This tax is deductible for personal income tax purposes from the transfer value of real estate.
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