After months of speculation and rumour, the long anticipated changes to the tax laws affecting non-residents and residents will become law as of 1st January, 2007. The new law (Ley 35/2006) was published in its entirety in the Official State Publication "BOE" on 29th November, 2006.
The changes in the law are particularly good news for non-resident property owners as it reduces the rate of Capital Gains Tax payable from 35% to 18%. This brings the tax rate for non-residents into line with that charged to residents, thus eliminating the previous discriminatory tax policy which had resulted in complaints being made to Spain by the EU Commission and a referral to the European Court.
If there is any declaration by the European Court that Spain is guilty of having acted in a discriminatory manner, this may open the way for those who have been taxed at 35% on their earlier capital gains to claim they are entitled to a refund.
The 5% withholding tax currently levied against non-resident property owners selling in Spain is to be reduced to 3% and tax on income and rents received in Spain by non-residents will be reduced from 25% to 24%.
We anticipate the new law will also sound the death knell for Spanish property owning companies known as "Sociedades Patrimoniales". Until now they had previously enjoyed an advantageous corporation tax rate of 15% on capital gains. However, from 1st January, 2007 gains made by such companies will now be taxed at the standard rate of corporation tax which is reduced to 32.5% in 2007 and 30% in 2008.
The tax reforms also introduce a number of changes affecting Spanish residents which can be summarised as follows:-
As with all Spanish tax legislation the new law will be supplemented by Regulations, the full text of which is yet to be published.