admin

On 24 December 2022, Law 31/2022 on the General State Budget was published in the Official State Gazette (BOE), which includes tax modifications, such as:

A) Personal Income Tax:

– With regard to reductions, the amount for obtaining earned income is increased for certain income thresholds. Also, economically dependent self-employed workers are increased in 2 income brackets and there is a 10% reduction in the income from activities in objective estimation.
– Taxpayers who receive only earned income from more than one payer are not obliged to submit a self-assessment if the sum does not exceed €15,000 are not required to do so.
– The deduction percentage for expenses that are difficult to justify is increased to 7%, without modifying the limit of €2,000.
– The absolute limit for contributions to pension plans, €1,500, is increased by €8,500, provided that the increase is from employer contributions or employee contributions.
– The scale of savings includes two brackets: 200.000€-300.000€ at a rate of 27% and from 300.000€ 28%.
– The scope of the deduction is extended to €1,200 per working mother with two children under the age of 3 if, at the time of the child’s birth, they are receiving contributory or welfare benefits from the unemployment protection system.
– The imputation of real estate income will be 1.1% for properties located in municipalities where the cadastral values have been revised, modified or determined in accordance with the regulations.

B) Corporate income tax

– The rate is reduced to 23% for entities whose net turnover in the previous tax period is less than €1,000,000 and which are not considered as a group.
– For the years 2023, 2024 and 2025, accelerated depreciation is allowed, by multiplying the maximum coefficients by 2, for investments in new vehicles for the purpose of economic activities and which enter into operation in those years.

C) Value Added Tax

– -An exemption regime, similar to that of the armed forces, is established for operations with any State party to the North Atlantic Treaty.
– Exceptions to the reverse charge are included when transactions are carried out by persons or entities not established in the territory where the tax is levied.
– Provisions are included to better define the rules concerning the place of intra-Community sales of goods. Also, for the application of the threshold, the supplier must be established in only one Member State and the goods must be dispatched from that Member State.
– Modification of the basis for uncollectible receivables, e.g. the time limit to proceed with the recovery of VAT from the moment it is declared uncollectible is extended to 6 months.
– Tampons, pads, panty liners, condoms and other non-medicated contraceptives are taxed at the reduced rate of 4%.

D) Special Regime for Worker Cooperatives

– The number of salaried workers with an open-ended contract may not exceed 20% of the total number of members, if the number of members is less than 5, one salaried worker may be hired. However, if the number of partners is between 6-10, 2 may be hired.
– The cooperative may employ employees through any other form of contract, provided that the number of working days worked during the year does not exceed 25% of the total number of legal working days worked by members.

E) General Tax Law: rules are issued for the deferral and instalment payment of tax debts and penalties in pre-insolvency situations with 6, 12, 24, 36 months with different requirements in the instalments.

F) In other regulations: the legal interest rate is set at 3.25% and the default interest rate at 4.0625%.

From 1st January 2023 in Spain there will be a special tax on non-reusable plastic packaging, whether it is presented empty or whether it is presented as containing, protecting, handling, distributing and presenting goods.

Non-reusable packaging containing plastic is included to the extent that it is designed to contain, protect, handle, distribute and present goods,

Packaging is not considered to be that which is necessary to contain, support or preserve it throughout its life cycle and is intended to be used, consumed or disposed of with it.

The applicable tax rate will be 0.45 euros per kilogram of non-recycled plastic contained in the products subject to the tax.

The accrual differs according to the following:

• In manufacturing, the manufacturer is the taxpayer and the accrual of the tax occurs with the first delivery or making available, in Spanish territory, of the manufactured products or with the total or partial collection of the price, if payments are made in advance of the delivery or making available of the manufactured products.
• In the case of importation, the importer is the taxpayer and the tax accrues when the import duties are accrued in accordance with customs legislation.
• In intra-Community acquisition, the taxpayer is the intra-Community acquirer and the accrual of the tax occurs on the 15th day of the month following that in which the transport or dispatch to the acquirer begins or at the time the invoice is issued, if this is earlier.

In the case of intra-Community manufacture or acquisition, the settlement period is monthly or quarterly, depending on the VAT settlement period, in accordance with the volume of operations or other circumstances provided for in the tax regulations.

In the case of imports of products subject to the tax, the tax will be settled by customs in accordance with the provisions for customs debt in the customs regulations.

In case your company may be affected by this new tax, please do not hesitate to contact us.

“Technology facilitates best practices for compliance regimes in the development of transfer pricing”

 

These tools significantly help in price fixing between companies

 

• The use of technology in transfer pricing

Technology is now an important part of the business growth of multinational groups. The Organisation for Economic Co-operation and Development (OECD) established last year guidance on technology-supported transfer pricing, which includes new compliance responsibilities for the cross-border financial activities of many multinationals.

In order to establish whether an inter-firm transaction will create a price differential, it is necessary to compare that transaction with the outcome of a similar transaction in the open market. In order to achieve the best outcome, the use of technological tools will identify the best way to find the best values for the best pricing. To establish the “arm’s length” criterion for inter-firm transactions, firms must rely on equivalent substitute information to analyse whether their transaction is likely to generate a cost differential. The process of finding a fair benchmark to compare one transaction to another requires the review of thousands of potential values. Automation is key to achieving this effectively. It should be mentioned to the reader that there are multiple providers of electronic price discovery and risk functionality. For this reason, it is critical that multinationals adopt all technological means to ensure that their internal financing arrangements are made in compliance with the new regulations. In this day and age, the capabilities of technologies such as ERP allow for substantial improvements in transfer pricing management. Through the integration of these systems, an analysis of the expected profitability of each of the subsidiaries can be made in real time. The incorporation of the technology found in ERPs allows for real-time monitoring of possible risks arising from deviations in transfer pricing policies. It should also be noted that many groups are migrating to a new version called SAP, which allows for improved traceability and reduced errors.

 

• Artificial Intelligence in the service of businesses for transactions

AI innovations are important for trade, as they lead to increased productivity and better supply chain management, thereby incurring lower trade costs. With the spread of AI, access to goods, services and data is enabled. In the following, we will introduce the reader to some measures to further facilitate the use of AI in international trade: reducing barriers to trade in ICT goods (to facilitate access to hardware needed in the implementation of AI systems), providing an ideal regulatory environment (for trade in services in the deployment of AI systems), facilitating access to human expertise, and enabling free flows of data with confidence (as data is needed in AI systems). With all the above measures, the development of transfer pricing is encouraged. The applications of artificial intelligence in international trade are growing. Proof of this is that an AI-powered machine has demonstrated that translation lowers language barriers in trade, thereby boosting exports.

“The approval of the new Startup Law will mark a turning point in the sector and a turning point for the future”

 

What is the main news of this recent measure?

Following the approval in the Spanish Congress of Deputies on 2 December 2022 of the Law for the Promotion of the Emerging Companies Ecosystem, also known as the Startups Law, a new horizon is opening up for all entrepreneurs in this country. The aim is to introduce fiscal improvements in order to position itself at the forefront of innovation, as well as to bring about a great revolution of talent in Spain.

This law stands out for being consensual and some of the most relevant aspects to be highlighted are the following: reduction of Corporate Income Tax by up to 15%; deferral of tax debt in justified cases; tax exemptions, taking into account stock options; tax deductions of 50% for annual investments of up to €100,000 for start-ups; improvement of the tax regime for non-resident income tax applicable to investments and “digital nomads”, who will have a residence permit as highly qualified professionals for a period of 3 years; abolition of double social security contributions for entrepreneurs who simultaneously hold an employed job. Furthermore, in addition to the measures mentioned above, we consider it appropriate to comment to the reader that the personal income tax of employees of startups who hold stock options may be taxed at 24% for 5 years, declaring only their assets in Spain.

 

Improvements expected as a result of the law

By virtue of the above, the Government has proposed financing measures such as the FondICO Next Tech, whose goal is to achieve 4 billion euros in investment, and the National Innovation Company line. All of this is part of the Recovery, Transformation and Resilience Plan, which will allow Spain to align itself with the European standards of excellence of the ‘EU Startups Nations Standard’.

In conclusion, it should be noted that all the points discussed above are aimed at fostering the Spanish entrepreneurial ecosystem, introducing significant tax advantages, which makes Spain a magnet for international talent. In addition, the law removes bureaucratic obstacles and relaxes procedures to promote the creation and investment of technology-based start-ups.

The incentives for attracting foreign investment in the capital of the Costa del Sol are increasing and it is a trend that is on the rise”

 

Malaga: the ideal destination for foreign companies looking to increase profitability

 

Why is Malaga emerging as the most reliable alternative for foreign capital?

 

1. Introduction

Malaga, in recent years, has become more than just a tourist city. Throughout this short article, the reader will be shown Malaga’s position as the ideal place for attracting investment, the reasons that foreign investors have for investing their capital in the city, as well as the benefits derived from this fact, in order to give citizens a vision of this extraordinary city, and that, in the words of Francisco de la Torre, the mayor of Malaga, “the balance is very positive”.

 

1. Malaga’s leadership as a focus for foreign investment in Andalusia

On a national level, the capital of the Costa del Sol is the preferred area for companies to invest their capital, as can be seen from the 348 million euros of foreign investment in 2021 (Fundación Ciedes, 2021). To put this in perspective, we must take into account the situation experienced in 2020, as the impact caused by the health crisis resulting from COVID-19 halted several investment opportunities that were on the rise, but today, the recovery is spectacular.

In the national panorama, Andalusia is in fourth place with 965 million euros, behind the Community of Madrid, Catalonia and the Basque Country. In this high disbursement, the countries that invested the most in the Andalusian region were France, Chile and the United States, with Malaga standing out as the city that leads the rest. Likewise, according to the Foreign Investment Register, Malaga’s great importance in the total investment position in Andalusia can be seen.

Having highlighted the prestige that Malaga has been acquiring among large foreign investors, we will now mention some of the multinationals that have announced their presence in the city by opening technology centres, including EY, Dekra, Vodafone and Google, which has led to the joint work of the city’s different institutions: the Junta, the Technology Park and the UMA.

 

• Reasons for investment attractiveness and future improvements

There are several reasons that make it attractive for foreign companies to invest their capital in the city of Malaga, including its geographical location, good communications, infrastructure, sustainability, business opportunities and, above all, its climate and quality of life. In addition, innovation (investment in R&D) and costs are two key factors. We must not forget to mention teleworking, as Malaga is very attractive for foreign companies due to the integration, the quality of the connections and the Internet.

In conclusion, some of the proposed improvements are the reduction of bureaucracy, a better promotion of the city, an improvement in marketing and the strengthening of technological aspects with the aim of making Malaga the most prestigious place in the whole of Spain.

Last Thursday, November 3, 2022, the Government of Spain approved the Startups Law, a law that may come to place the country at the forefront in attracting investors.

It includes important tax measures and relaxes procedures to encourage the creation of and investment in startups in the technology sector. It favors the establishment of teleworkers and “digital nomads”.  Its most important points to highlight may be:

• Tax incentives for workers, investors, and startups, which includes preferential treatment of remuneration through stock options.
• Company incorporation procedures are streamlined, carried out in a single step and by telematic means, thus saving notary and registry costs.
• Reduction of the corporate tax from 25% to 15% and in the Non-Resident Income Tax for 4 years; as well as the deferral of the payment of the tax debt without interest for a period of 12 and 6 months respectively.
• The use of stock options, in the form of remuneration, is facilitated and their tax exemption is increased to 50,000 euros, and they are taxed when they are liquidated.
• The deduction base for investment increases from €60,000 to €100,000 and the deduction rate becomes 50%.
• Non-resident nomadic foreigners, as well as employees of startups, can access a special 5-year visa.
• The double Social Security contribution is eliminated for those who are self-employed and simultaneously employed.
• Collaboration with public administrations, universities, public research organizations and technology centers is also encouraged. This prevents the creation of sandboxes or test licenses in regulated sectors.

 

However, we must not forget that it has been approved in the Congress, it still remains to be approved by the Senate, this advance, however little it may seem apparently, can make that attraction of investment that it intends to obtain, start to work.

NEW FISCAL MEASURES FOR NEXT YEAR

 

Last Thursday, the central government announced a package of fiscal and tax measures for next year 2023, which we will now highlight:

• Wealth: The intention is to legislate a new tax on the country’s great wealth, provided that the net worth is more than 3 million euros. Thus, for wealth between 3 and 5 million euros, the rate will be 1.7%, with a maximum rate of 3.5% for net wealth of more than 10 million euros.

This tax will be of a temporary nature and, as experts in the field have already pointed out, the tax will be designed to combat the rebates that have been or will be introduced by regional governments which, in practice, have eliminated the Wealth Tax, such as Andalusia or Madrid, for example.

• Income: the new measures will also affect Personal Income Tax, where the rate will be increased from 26% to 27% for capital income over 200,000 euros.

At the same time, there will be new reductions on capital income from work with an average of 21,000 Euros, as well as raising the minimum taxable income from the 14,000 Euros already included in the legislation to 15,000 Euros.

In addition to these measures, others have also been announced that directly affect companies located in Spain, for example, for small companies and with regard to Corporate Tax, the rate will be reduced from 25% to 23%.

MDG Advisors will keep a close eye on the latest developments in tax matters and the new legislative regulation that will include these tax measures in order to analyse them in greater detail and provide our clients with detailed advice. If you have any questions, please do not hesitate to contact our MDG Team.