International Taxation Legal and Business Consultants Jacinto Benavente, 17 - 2 A, 29600 Marbella, (Málaga) Spain Telephones: (+34) 95 282 0779 (+34) 95 282 4910 Fax: (+34) 95 277 8468 website: www.windrammiller.com email: email@windrammiller.com

Print PDF File (Requires Acrobat Reader) S P A I N Outline Tax Information Fiscal Year 2 0 0 9 Index Fiscal Residence in Spain Liability to taxes (general) Taxes on Income (residents) Individuals Entities Taxes on income (non-residents) Individuals & Entities Tax on realised gain (residents) Individuals Entities Tax on realised gain (non-residents) General Wealth tax Inheritances and Gifts tax Other Taxes (Tax on land title, VAT, Stamp Duty, Business Tax) Compliance and administration

S P A I N Outline Tax Information - Fiscal Year 2 0 0 9 © Jonathan Miller IMPORTANT NOTICES This publication is based on Windram Miller & Company SL's understanding of the law and practice as at January 2009. Whilst every care has been taken in the preparation and presentation of the information contained herein, it is purely orientative in nature, and inevitably contains omissions, paraphrases and summaries, given the abbreviated nature of the publication. Windram Miller & Company SL does not accept responsibility for action taken or omitted to be taken in reliance thereon. This publication is not a substitute for professional advice. NOTE: on 1 Jan 02, the Euro (€) replaced the peseta as the official currency of Spain. With effect from 1 Jan 03, the tax rates and tables published by the Government are largely expressed in Euro. The (now redundant) fixed conversion rate of peseta to Euro was 166·386pts : 1 €   Print PDF File - Requires Acrobat Reader FISCAL RESIDENCE IN SPAIN Individuals (physical persons) The law holds fiscally resident an individual : a)   who spends more than 183 days in a calendar year (including sporadic absences) in Spanish territory, or b)   whose business, professional or economic interests (whether directly or indirectly held) are based in Spain. Note:Those whose spouse and dependent children are habitually resident in Spanish territory will be presumed resident (save proof to the contrary). Special Rule of residency:  Despite the fact that an individual may be classed as resident according to the above rules, under this special rule, they may opt to be taxed under the rules of the non-resident.  In order to take this option, they must meet the following criteria: a) They have not been resident in an EU country classified as a fiscal paradise. b) They have not been resident of Spain during the previous 10 years. c) Their relocation was in consequence of a bona fide employment contract, from which they earned a minimum of 75% of their total income and the work was carried out in Spain. For more detailed information and commentary, we can provide a copy of Jonathan Miller's article entitled "Fiscal Residence of Individuals in Spain". Legal entities (for example, companies and bodies of persons such as trusts) An entity is held to be fiscally resident in Spain in any of the following cases: a) it is organised under the laws of Spain, or b) its registered office, or equivalent, is in Spanish territory, or c) its place of effective management is in Spain General notes to the above: 1. "Spain" and "Spanish territory" mean the same thing. Spanish territory includes mainland Spain, the islands (Balearics and Canaries) and the enclaves of Ceuta and Melilla. 2. The Spanish fiscal year is concurrent with the calendar year (ie 1st January to 31st December) back to top

TAXES ON INCOME (NON-RESIDENTS) Individuals & Entities IRNR (Impuesto sobre la Renta de los No Residentes)   Non-residents are in general taxable on all income (and realised gains - see further below) arising in Spain. In general no reliefs or deductions of any nature are allowed from gross income arising in Spain. The standard rate of Withholding Tax on income is 24%. Different rates apply to Government-funded pensions, and to other sources as below (non-EU): Temporary contracts of employment......... 2% Retirement pensions and similar ......... variable – see table Re-insurance operations ......... 1.5% Dividends, interest, investment funds and other investment income......... 18% Realised gains (see note below)......... 18% Employment income from diplomatic missions (1).........   8% Royalties etc.......... 10% Maritime or airborne entities (2).........   4%   (1)        Persons non-resident in Spain and not subject to Residents Income Tax, who work for Spanish Embassies and Consulates. (2)        Those resident in another country or territory, for operations in Spanish territory of their aircraft/ships/vessels Property in Spain held for own use, other than main private residence (which evidently would not be the case for a non-resident), and not rented out (in which case the rents must be declared) gives rise to an annual deemed income of 2% (or in some special cases 1.1%) of the catastral (“rateable”) value, or acquisition value, whichever is the greater. EU residents: Normally an EU resident, without permanent establishment in Spain nor operating via a tax haven, is not taxable in Spain on interest arising from Spanish debt instruments including government and commercial paper (other than of a company whose principal activity is in Spanish-sited real property). Payments from subsidiaries or branches/Permanent Establishments in Spain to their parent or Head Office resident in the EU are exempt, provided they meet certain requirements and from 2009 the parent has at least a 10% direct holding in the Spanish entity.  Additionally, the parent company should not be resident in a fiscal paradise (see list) and the payment not a result of liquidation. Note:  Permanent Establishments in Spain of non-resident individuals (ie sole traders or partners) are taxed fundamentally as resident companies (entities) and are therefore subject to IS. Special rates for retirement pensions Band(annual pension) Euro Tax rate % Tax on Band Euro Cumulative Tax Euro 0 - 12,000 8% 960 960 12,000  -  18,700 30% 2,010 2,970 18,700 < 40% < <   3% SPECIAL LEVY ON NON-RESIDENT ENTITIES OWNING REAL PROPERTY SITED IN SPAIN An annual tax of 3% of the catastral value of real property sited in Spain owned by non-resident entities (not physical persons), which do not meet the terms of one of more of the exemptions below:   i)          Foreign States and their public institutions and International Organisations ii)          Entities resident in a treaty state (where the treaty incorporates an exchange of information clause) and where the direct or indirect shareholders (ultimate beneficiaries) are also resident in such a state  (not necessarily the same state) iii)         Entities carrying on a bona fide trade in Spain distinct from the mere tenancy or letting of the property in question. iv)         Companies quoted on an official stock exchange v)          Entities without an objective of profit and of cultural or charitable nature   The tax accrues on 31 December each year and is payable during the following month of January, failing which the property may be officially auctioned at the instance of the Revenue authority without necessity for a court order.   back to top

Print PDF file (requires Acrobat Reader)   TAX ON REALISED GAIN (RESIDENTS) Individuals (IRPF)   General regime (assets acquired after 31st  December 1994)  1.         Gain is calculated by deducting the base cost (acquisition price plus costs) from the disposal value. 2.         In respect of real property (land and buildings) only, the base cost may be "actualised" by applying the relevant co-efficient extracted from the statutory table. The co-efficient allegedly adjusts the base cost for inflation, and differs according to the combination of the year of acquisition and the year of disposal. For example, the co-efficient for a disposal in 2009 of property acquired in 1995 is 1·3368, and of a property acquired in 1994 or before the co-efficient is 1·2653 3.         Where the period of ownership was of one year or less, the gain is added to general income and taxed at the normal rates. 4.         Where the period of ownership was over one year, the gain is taxed at the flat rate of 18%.   Transitional regime (assets acquired 31 Dec 94 or prior to that date) 1.  Gain is calculated by deducting the base cost (acquisition price plus costs) from the disposal value. Any "stuffing" of value (eg post-acquisition improvements to real property) are treated for purposes of calculation of tax due as separate investments. Note that in respect of real property only, the acquisition price is actualised by applying the pre-1995 co-efficient of 1·2653. 2.  The gain thus calculated is then reduced by a factor depending on the type of asset and the number of years (or part thereof, however small) during which the asset was held. 3.  The number of years is calculated from date of acquisition (which must be on or before 31st Dec 1994) up to 31st December 1996 (note, NOT 1994). From the resulting figure, two complete years are then deducted (giving the multiplicand "N"). 4.  The following reduction percentages, multiplied by "N", are then applied to reduce the taxable gain: 4.1        Real property 11·11% (from which it may be deduced that property held for ten years and a day prior to 31 Dec 96 is effectively exempt from tax on a disposal since (11-2) x 11·11% = 100%) 4.2        Shares etc quoted on an official stock exchange 25% (note FIFO system applied for calculation of term and gain). Note that shares in investment companies do not benefit from this percentage. 4.3        Other assets 14.28% 5.  The resulting gain is taxed at 18%.   Exemptions in both general and transitional regimes are available (note: for residents only) in respect of:   1.         Sale or lifetime gift (transfers mortis causa are in any event exempt from tax on capital gains) of their main private residence by taxpayers over 65 years of age. 2.         Re-investment within Spain of the proceeds of sale of a main private residence into another main private residence within 2 years. This exemption may be apportioned if only part of the proceeds of sale are duly re-invested.  Extraordinarily, where a residence was sold in 2006, 2007 y 2008, the re-investment period is extended to the 31st December 2010.   Entities (IS) Realised gains are essentially taxable as part of general profit. In respect of real property only (ie not other types of asset), some "actualisation" of base cost - designed to correct for monetary inflation - is provided by the application of a co-efficient, the calculation of which is wildly complex and depends in part on the taxpaying company’s financial position as shown in the accounts.   TAX ON REALISED GAIN (NON-RESIDENTS)  General (IRNR) 1.  Where Spanish real property is transferred (by way of sale or otherwise) by a non-resident (individual or entity), the purchaser has a requirement to withhold 3% of the transaction value on account of the vendor’s potential liability to tax on realised gain (irrespective of whether a gain or a loss is to be realised). The 3% must be paid over to Hacienda (Spain's fiscal authority) and the receipt passed to the vendor for inclusion in his tax declaration (whether to pay the additional tax or recover some or all of the retention). If the purchaser fails to retain, the property itself (now property of the purchaser) is charged with the retention due and may be auctioned to enforce payment of the retention by the purchaser. Note:   This requirement to withhold 3% of the transaction value may be claimed as an allowance against the 18% tax applied to the realised gain in the hands of the transferor. 2.  Losses may not be offset against gains, whether in the same or a later year.  3.  Both entities and individuals follow the rules (given further above) for resident individuals, except that *  The benefit of the transitional regime is not available to entities, and *  Gains are taxed at a flat rate of 18%, whether the taxpayer be individual or entity including sale/gift or redemption of interests in Spanish investment funds, also taxable at 18%) *  The age and re-investment exemptions are not available   EU residents: Normally an individual or company resident in the EU but without permanent establishment in Spain, nor operating through an offshore company, is not taxable in Spain on gains arising from the alienation of Spanish shares and financial instruments including state-issued bonds (other than those of a company whose principal activity is directly or indirectly in Spanish-sited real property). This exemption is not available where during the 12 months preceding the alienation, the taxpayer (and associated persons, such a family members) owned a participation amounting to 25% or more.   WEALTH TAX (APPLICABLE TO INDIVIDUALS ONLY) IP (Impuesto sobre el Patrimonio) From 1st January 2008 until further notice wealth tax has been suppressed for both residents and non-residents.  Therefore, providing the taxpayer is up to date with his/her tax obligations, there is currently no need to present further wealth tax returns.   INHERITANCES INHERITANCES AND GIFTS  ( APPLICABLE TO INDIVIDUALS ONLY)   ISD (Impuesto sobre Sucesiones y Donaciones) Tax liability:   (Note – taxable person is the recipient) i) Spanish resident individuals are liable on receipt of any asset wherever situated whether by death of donor or lifetime gift. Legal entities are liable to corporation tax (IS) or IRNR on receipt of such gift or legacy. ii) Non-residents are liable on receipt of any asset situated in Spain. Tax is payable: (by the recipient) Within 6 months of death of the donor, or within 30 days following the transfer of lifetime gift. There are some provisions for deferred and schedular payment in certain circumstances. Assessment of tax: The tax is assessed on the value of the net amount received and accrues from the date of death, or the date of transfer of the gift. Tax payable: The calculation of the tax payable is dependent upon the net value of the transfer, the degree of kinship between transferor and transferee, and the pre-existing net worth of the transferee. Three steps are involved in this process: i) Ascertain into which kinship group the taxpayer falls, and what allowance (if any) is available. The following table gives the outline details Kinship Group those included allowance (DEATH ONLY) I direct descendants under 21yrs Euro 15,956.87 plus Euro 3,990.72 for each year under 21 yrs of age maximum allowance of Euro 47,858.59 II   direct descendants over 21yrs, spouse ascendants   Euro 15,959.87 III   other relatives, out to collateral second degree (eg: brother, uncle, nephew)   Euro 7,993.46 IV   more remote family, unrelated persons (including "common-law spouses")   nil   ii)  The initial tax figure is calculated by applying the tax-rates below to the net value of receipt, less any allowances and/or  reliefs due. Band up to....... Euro Tax rate on band % Cumulative tax Euro 7,993.4 7.65 611.50 15,980.91 8.50 1,290.43 23,968.36 9.35 2,037.26 31,955.81 10.20 2,851.98 39,943.26 11.05 3,734.59 47,930.72 11.90 4,685.10 55,918.17 12.75 5,703.50 63,905.62 13.60 6,789.79 71,893.07 14.45 7,943.98 79,880.52 15.30 9,166.06 119,757.67 16.15 15,606.22 159,634.83 18.70 23,063.25 239,389.13 21.25 40,011.04 398,777.54 25.50 80,655.08 797,555.08 29.75 199,291.40 excess 34.00 iii) To this initial tax figure a coefficient is applied where degree of kinship and pre-existing wealth are taken into account (see table below). Note: for non-residents, pre-existing net wealth is calculated with reference to Spanish sited wealth only. Pre-existing net wealth Group Group Group (Euro) I and II III IV 0 – 402,678.11 1.0000 1.5882 2.0000 402,678.11 – 2,007,380.43 1.0500 1.6676 <P align=ce site map web marketing by Sane