SPAIN Law and Practice Contributed by: Cristina Alba and José María Rodríguez Hernández, act legal
mission of assets. It is taxed separately at generally lower progressive rates between 19% and 30%. In order to reduce international double taxation, sev - eral options are available within the applicable PIT regulations. • Foreign tax credit: an ordinary credit is granted for foreign taxes effectively paid on income that is also subject to Spanish taxation. The limit is set at the lower of the foreign tax paid or the Spanish tax that should be attributable to that income. • Specific exemptions: notably, employment income derived from work performed abroad may be exempt up to EUR60,100 per year, provided certain conditions are met, including that the work is car - ried out for a non-resident entity or a foreign per - manent establishment, and that the host country applies a tax comparable to Spanish PIT. In addition, Spain’s PIT legislation also offers a spe - cial regime for qualifying inpatriates. This regime is commonly known as the “Beckham Law”, and it ben - efits people who move to Spain during the year they acquire their Spanish residence status and the fol - lowing five tax years. The main feature of the Beck - ham Law is that eligible taxpayers may choose to be taxed under regulations that are similar to those of the NRIT. This means that foreign-source income is largely excluded from Spanish taxation, which can significantly reduce overall exposure for internation - ally mobile executives, entrepreneurs and investors. The regime also influences Wealth Tax: beneficiaries are only taxed on assets and rights that are located in or can be used in Spain, not on assets that are in other countries. 2.4 Taxation of Non-Resident Individuals Individuals who are not tax resident in Spain are sub - ject to taxation under the NRIT regime on Spanish- sourced income, which includes, among others: • income attributable to a Spanish permanent estab - lishment; • employment income derived from work physically performed in Spain; • income from Spanish real estate (including imputed income for urban properties not rented out);
• dividends, interest and royalties paid by Spanish entities or otherwise sourced in Spain; and • capital gains derived from certain Spanish assets, particularly real estate. Non-resident taxation is typically applied on a gross basis, with limited deductions, although residents of EU/EEA jurisdictions (subject to effective exchange- of-information requirements) may benefit from more favourable rules, including the possibility of deduct - ing certain expenses directly related to the income obtained. Headline tax rates generally stand at 24%, reduced to 19% for EU/EEA residents, in each case subject to the provisions of applicable double tax treaties, which may reduce withholding rates or allocate taxing rights differently. Interest, dividends, and capital gains are, however, generally taxed at a flat rate of 19%, irrespective of whether the taxpayer is resident in an EU/EEA juris - diction. 2.5 Tax Residence of Legal Entities A legal entity is regarded as tax resident in Spain if any of the following criteria is met: • place of effective management situated in Spain. The notion of effective management focuses on where strategic decision-making and overall direction of the entity’s activities are actually exercised. In practice, this involves examining governance arrangements, the location of board meetings, the role and residence of senior management, and where operational control is genuinely carried out. Spanish law also has rules against tax avoidance for businesses that are based in low-tax or non-cooper - ative countries. Where a company’s principal assets or core activities are effectively located in Spain, a presumption of Spanish tax residence may arise. That presumption, however, is not irrebuttable. The taxpayer may overturn it by demonstrating that incor - • incorporation under Spanish law; • registered office located in Spain; or
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