Wealth tax in Spain
What is the Wealth Tax in Spain?
The wealth tax in Spain (IP), regulated by Law 19/1991, is adirect, general, and personal tax levied on the ownership or possession of assets, based on their net value, on a periodic basis. It is a strictly individual tax levied on natural persons and is complementary to personal income tax (IRPF).
It is a state tax, established and regulated by the State, the total revenue of which is transferred to the autonomous communities. The State holds the authority for the management, assessment, collection, inspection, and review of the tax, without prejudice to the provisions of the respective laws transferring these powers to the autonomous communities.
How is this tax return filed?
It is mandatory to submit it electronically, online. Self-assessments for wealth tax must be completed using the online form for model 714.
The Tax Agency reminds taxpayers that anyone filing a wealth tax is also required to file an income tax return for the same year.
How is a person's net worth determined?
The Tax Agency explains that net worth is the difference between the amount of gross assets (the total value of non-exempt assets) and the total amount of deductible debts.
Indirect ownership of real estate (through companies)
Law 38/2022, of December 27, which created the ITSGF (Tax on Transfers of Real Estate Assets), modifies certain tax regulations and clarifies that securities representing equity interests in any type of entity, not traded on organized markets, will be considered to be located in Spanish territory if at least 50% of their assets consist, directly or indirectly, of real estate located in Spanish territory. This measure aims to prevent tax avoidance through the use of corporate intermediaries in real estate ownership. To this end, it establishes that, for the purpose of calculating assets, the net book values of all recorded assets will be replaced by their respective market values determined on the tax accrual date.
In the case of real estate, the net book values will be replaced by the values that must serve as the taxable base for the tax in each case, in accordance with the provisions of Article 10 of this law (that is, the highest of the following three values: the cadastral value, the value determined or verified by the Tax Administration for the purposes of other taxes, or the price, consideration, or value of the acquisition). In this regard, it should be noted that the Directorate General of Taxes, in Ruling V1947/2022of September 13, has maintained that
«The wealth tax does not tax the ownership of shares or holdings in companies not resident in Spain that are owned by individuals not resident in Spain, who must only pay tax on the ownership of assets and rights located, that can be exercised or must be fulfilled in Spanish territory».
Temporary Solidarity Tax on Large Fortunes (ITSGF)
Law 38/2022 creates the temporary solidarity tax on large fortunes (ITSGF), which is configured as a complementary tax to the Wealth Tax of a state nature, not susceptible to transfer to the autonomous communities, to tax with an additional fee the assets of individuals of an amount greater than 3,000,000 euros, in order to demand a greater effort from those with a greater economic capacity and reduce the differences in the taxation of wealth in the different autonomous communities, especially in those that have totally or partially deregulated the Wealth Tax.
This new tax is essentially the same in structure as the Wealth Tax, in terms of its territorial scope, exemptions, taxpayers, taxable and assessable bases, accrual and tax rates, as well as the limit on the total tax liability. The fundamental difference lies in the taxable event, which only taxes net worth exceeding €3,000,000.