Tax Year 1 st January to 31 st December An overview of Spanish Payroll
What we’ll cover: • Facts about Spain • Spanish business culture • Employer obligations • Rights and responsibilities • Reporting • Employment law • Tax • Social security • Deductions • Absences • Month 13 and 14 payments
• Compensation and benefits • How to read a payslip • Example scenrios • Setting up a legal entity in Spain
The Spanish Social Security • The Governing Body is Ministerio de Empleo y Seguridad Social http://www.empleo.gob.es/index.htm • The liquidation office where the contributions are paid is TGSS http://www.seg-Social.es/Internet_1/index.htm • The employment office is SEPE http://www.sepe.es
Tax
Tax Form 145 145 form is used to advise the Tax Office of any changes in the employee’s situation that will potentially affect their income tax rate 145 form should be completed and submitted : • Any time during the tax year if the employee’s personal situation changes (i.e. became a parent, divorce, additional income, etc.) • Once a year (legal requirement for all employees); before the first working day of the new tax year • Before the first day of employment, for new hires 6
Tax Form 145 SECTION 1: Employee personal details as name, tax number, marital status, descendants, disability SECTION 2: Employee’s descendants details 7
Tax Form 145 SECTION 3: Employee’s ascendants details SECTION 4: Additional existing benefits and pensions (including anyone living with employee) 8
Tax Form 145 SECTION 5: Employee current house mortgage details which tax deduction applies (prior Jan 1 st 2013) 145 form is filled and signed by the employee who hands it to the employer, who then signs and stamps the form. The employer submits the form online to the Tax Office as part of the monthly reporting One copy is kept by the employee and another copy is kept by the employer records for tax inspection purposes 9
IRPF Personal income tax in Spain is called IRPF (Impuesto sobre la Renta de las Personas Físicas) Dual system: National tax - a progressive tax throughout the Spanish territory Regional tax - tax rates could vary based on the region the employee lives and works Each regional Tax Office approves their own regional tax rates, basic and top income taxable amounts and tax rates applicable 10
IRPF 2016 income tax rates From To National Regional rate Total rate % % % 0 12, 450 9.50 9.50 19 12, 450 20, 200 12 12 24 20, 200 25, 200 15 15 30 35, 200 60, 000 18.50 18.50 37 60, 000 + 22.50 22.50 45 (*) Regional rate column shown are non-residents tax rate. Those will be replaced by the regional tax rates applicable in each region Rates effective from 1 st January 2017 have not been published - Budget for 2016 was due October 11
IRPF Not all the payroll elements that are subject to tax are subject to social security • The employer calculates and applies tax to the employee’s pay and it is displayed on • the payslip: the correct withholding tax rate (based on the information provided by the • employee on the 145 form) If the tax code applied is incorrect this will be corrected when the employee • submits their tax return Like many other European countries tax is based on the household income and • the tax codes depend on whether the employee is married, if the spouse is working, debts, loans, children and so on The employer (or their agent) liaises directly with the tax office on monthly basis to • download the tax codes due and also submits the payments and returns 12
Withholding Tax Certificate The employer must provide all employees the Withholding Tax Certificate ( Certificado de Retenciones ) for the current tax year to enable employees to fill their annual Income Tax Return The Income Tax Return should be submitted to the Tax Office by the 30 th June of the following year (i.e. 2015 total earnings to be submitted in 2015 income tax return by the 30 th of June 2016) Frequency - Annual Employers are expected to produce the certificate by the end of January but this can be delayed provided that employees are informed Employees will report the amounts on their annual income tax return 13
Tax Forms The tax forms to be submitted by Payroll Withholding Tax certificate Annual summary of employee earnings and taxes 111 TAX FORM Resident – withholding taxes 216 TAX FORM Non Resident – withholding taxes 190 TAX FORM Resident – withholding tax annual summary 296 TAX FORM Non Resident – withholding tax annual summary 14
Modelo 111 111 form is a payment form to the Tax Office that companies and the self- employed complete with the total amount of withholding tax retained through the payroll, and the sales tax retained from other companies and self-employed people and freelancers (through their invoices) in the last month / quarter Frequency monthly or quarterly (depending on the size of the company) 15
Modelo 111 Monthly deadline for submission and payment: Payment via direct debit : 15 th of the following month Payment via bank transfer : 20 th of the following month Quarterly deadline for submission and payment: Payment via direct debit, 15 th of the following month after quarter ends: Q1 = 15 th April Q2 = 15 th July Q3 = 15 th October Q4 = 15 th January Payment via bank transfer, 20 th of the following month after quarter ends : Q1 = 20 th April Q2 = 20 th July Q3 = 20 th October Q4 = 20 th January 16
Modelo 216 For non-residents the 216 form is used (modelo 216, IRNR, Impuesto sobre la Renta de no Residentes) It is a payment form showing the total amount of the withholding tax retained on behalf of non-resident employees and VAT retained from other companies and other self-employed people and freelancers who do not have a permanent establishment in Spain. It includes intercompany invoices and loans Frequency monthly or quarterly (depending of the size of the company) Same deadlines as 111 form 17
Modelo 190 190 form is an annual report to the Tax Office that summarises the 4 quarterly or 12 monthly 111 forms submitted during the current tax year It is not a payment form, just an appraisal form Frequency Annual due on the 30 th January 18
Modelo 296 296 form is an annual report to the Tax Office that summarizes the 4 quarterly 0r 12 monthly 216 forms submitted during the current tax year for non-residents It is not a payment form, just an appraisal form Frequency Annual 30 th January 19
24% Special Tax Regime for Non Residents The world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange. The biggest companies are multinational corporations which relocate their employees to their subsidiaries abroad The Spanish Government have launched a series of measures to promote the inward flow of expatriate workers, which could be very beneficial for employers and employees. Those benefits include private medical insurance, attractive pension plan, meal vouchers, international schools and nurseries and property searches together with a favourable tax plan and the advantage of being relocated to the Spanish sun! 20
Special Tax Regime for Non Residents Real Decreto 35/2006 Known as the " Beckham Law " gained its nickname after the footballer David Beckham became one of the first foreigners to take advantage of it after joining Real Madrid football club The law is aimed at all foreign workers moving to the Spanish territory who apply to became liable for a special taxation based on their income in Spain for the next 5 tax years after being relocated to the country Flat rate tax of 24% on their income in Spain up to an annual income of 600,000 € Above 600,000 € the tax rate is 45% from 2016 21
Special Tax Regime for Non Residents Requirements In order to apply for this Regime, the following conditions must be met: • The individual must never have been considered a Spanish Tax Resident during the last 10 years; and • The assignment in Spain should be a consequence of a labour contract or letter of assignment • Those who are not applying under the Beckham law the rate are 24% or 19% for EU/EEA residents. The amended rules will also apply to individuals who relocated to Spain before 1 January 2015 22
Special Tax Regime for Non Residents Forms – general info 149 form Request to the Tax Office to apply (or resign) for the special taxation of non-residents relocated to Spain. It must be submitted within 6 months upon arrival. Tax Office will reply in the next 15 days. Once the application is granted the special tax rate will apply for a period of 5 years. Individuals must fill and submit 150 form (Annual income tax). Until the special tax regime is granted, individuals must fill and submit 210 form (Annual income tax) instead. 23
Social Security 119
Social Security (S.S. – Seguridad Social) • Employers must have a CCC (Código Cuenta de Cotización) – the unique reference number • Employers are obliged to deduct monthly contributions from employee salaries which are reported to the Social Security Trust Fund (TGSS - Tesorería General de la Seguridad Social) on monthly basis • Employee contributions are calculated on rates based on certain payroll elements. • Minimum and maximum basic and overtime contributions are capped depending on which contribution group the employee is under
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