SPAIN Law and Practice Contributed by: Raúl Salas and Elena Ferrer-Sama, RocaJunyent
2.7 Capital Gains Capital gains are normally classed as ordinary income taxable at the standard CIT rate (generally 25% or the applicable tax rate) during the tax period in which they arise. However, a 95% participation exemption cur - rently applies to capital gains arising from the transfer of shares (either of resident or foreign entities) when: • at least a 5% participation is held for an interrupted period of at least one year; • the transferred entity is an operating entity; and • certain other requirements are met. In the case of a foreign subsidiary, an additional condi - tion must be met. In order for the exemption to apply, the foreign subsidiary should have been effectively subject to (and not exempt from) a tax similar to CIT at a nominal rate of at least 10% in each and every year of holding the stake. This requirement is under - stood to be met when a tax treaty is applicable and includes an exchange-of-information clause. Capital losses from shares that could benefit from the par - ticipation exemption are not tax-allowed, unless they come from liquidation (subject to certain conditions). 2.8 Other Taxes on Transactions Depending on the nature of the operations carried out by the business, the following taxes may be payable by an incorporated business on a transaction. Value-Added Tax (VAT) Spanish VAT regulation implements the EU directives on VAT. In Spain, VAT is levied on: • the supply of goods and services provided by The concept of entrepreneurs and professionals encompasses a large number of assumptions, but basically refers to those persons (physical or legal) who carry out business or professional activities – ie, activities that involve the commissioning of mate - rial and/or human means of production on their own behalf to intervene in the production or distribution of goods or services. entrepreneurs and professionals; • intra-community acquisitions; and • the importation of goods into Spain.
The territory in which the tax applies is the Iberian Peninsula and the Balearic Islands. In the Canary Islands, Ceuta and Melilla, other indirect taxes are applied – respectively, the Canaries General Indirect Tax ( Impuesto General Indirecto de Canarias , or IGIC) and the Tax on Production, Services and Imports ( Impuesto sobre la Producción, los Servicios y la Importación , or IPSI). The IGIC operates in a simi - lar way to VAT, albeit with some differences when it comes to exemptions. Conversely, the IPSI is a basic sales tax. There are three different rates of VAT: • 21% (general rate applied to regular deliveries of goods and services); • 10% (reduced rate applied to basic needs); and • 4% (super-reduced rate applied to basic needs other than those classified in the reduced rate). The ordinary rate of the IGIC is 7%. The other rates are 0%, 3%, 9.5%, 15% and 20%. Property Transfer Tax Property Transfer Tax ( Transmisiones Patrimoniales Onerosas , or TPO) applies to the transfer of goods and rights when the transferor is a private individual. It also applies to real estate transfers and real estate leases when the seller is an entrepreneur but the transfer is either exempt from or beyond the scope of VAT. The transfer of shares is exempt from both VAT and TPO. However, when the transfer is aimed at dissimu - lating the transfer of real estate owned by the com - pany, the actual taxation of transfer of real estate is applied. TPO tax rates are as follows: • 6% for the transfer of real estate (as well as for the establishment and transfer of rights in rem over the real estate); • 4% in the case of the transfer of movable property and livestock; and • 1% in the case of establishment of rights in rem of guarantee, pensions, bonds or loans.
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