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COVID 19 IMPLICATIONS ON 2020 PERSONAL INCOME TAX

There is no doubt that 2020 Personal Income Tax ( PIT) campaign, that will begin in April 2021, will be an unprecedented one, taking into consideration the numerous legal changes and the exceptional COVID 19 situation .

Thus, it is convenient to comment some implications that the current COVID 19 crisis and the fiscal measures associated to it during 2020, will provoke on the elaboration of 2020 PIT:

1. Earnings received as a result of an ERTE.

It is commonly known that the negative impact of the pandemic, eased the access to ERTE, and many companies have used such possibility.

From the employee’s point, the perception of the referred benefits is not exempt from taxation on the PIT, and will be considered as a work earnings, having important consequences:

1. a) Obligation to declare: the employee will have two payers, and consequently, if the Job Office ( SEPE) has paid more than Euros 1,500 to the individual, the limit to declare will decrease from Euros 22,000 to Euros 14,000 per year.
2. b) It is highly likely that the declaration result will be to pay, since SEPE has been applying the minimum withholdings rates, in most of the cases.

A possible way to avoid this situation could be that the employee asks its company ( if already working ) or SEPE ( if still under unemployment)  for an increase on the withholdings rate.

2. Sick leaves.

Since the employee has two payers, we could be under the same scenario previously commented (ERTE) ; the limit to declare will be decreased, because after a certain period of time, regardless the sick leave is due to COVID or not, the company will stop paying the salaries, being the payer the Social Security.

3. Maternity benefits.

Same as in previous tax years, mothers with children under 3 years old, with rights to apply the descendents allowance, could decrease their tax quotas in Euros 100 per month, only if they are working for a company or self-employed, and duly registered before the Social Security.

In accordance with Social Security legislation, in case the ERTE suspends their contracts,the employees will be unemployed to all effects.

Consequently, they will stop from being employees and therefore, they will not fulfill the requirements to perceive the maternity benefits. The only way of keeping the employee status is when the ERTE is partial.

The Tax Office criteria is that mothers in full time ERTE will not be entitled to receive maternity benefits until the ERTE ends, considering they will be unemployed during such time.

4. Mortgage deferrals.

Those individuals to whom their banks granted deferrals on the payments of their mortgages due to COVID-19, will have a lower expense on their main residence investment.

This will provoke that tax payers who have been applying the deduction of main residence investment in the PIT, will have a lower base to apply it, and taking into consideration that this deduction has maximum limits, they could lose the right to apply the deduction on those amounts in subsequent periods.

5. Non-Monetary earnings: use of company´s car.

The alarm status and the mobility restrictions, will not affect the consideration of the use of a company car as a non-monetary contribution. The Tax Office understands that such consideration only depends on the mere availability of the vehicle, and not on the actual use of it.

6. FreeLancer benefits (“prestación por cese de actividad”)

Freelancers that have been perceiving these benefits ( “Prestación por cese de actividad”) will  need to treat them on their PIT as if they were salaries ( work earnings).

There are other implications as a result of the pandemic, hence we are at your disposal for any clarification of doubt you may have.

BREXIT: THE END OF THE TRANSITIONAL PERIOD

Next 31^st December 2020 the transitional period of Brexit will end. Even though there is a lot of uncertainty regarding the possibility of having a special tax agreement between UK and the EU, at present day, there is none and consequently, UK will be considered as a third country to all effects from 1^stJanuary 2021.

Historically, there has always been a very strong trade relationship between UK and Spain, and therefore, it is important for Spanish companies to understand the new tax scenario and prepare for it. Furthermore, especially in Costa del Sol, there is a significant number of property owners with British nationality, who will have different tax treatments in comparison with the current situation.

COMPANIES

The main aspects that all entities should take into consideration are as follows:

• Border taxes: import of goods from UK will be subject to customs duty. The Spanish Tax Authorities will not let any goods come in our country without paying the import taxes, in case it applies. Likewise, when sending goods to United Kingdom, the British Border Authorities will require their import taxes, in accordance with UK tax legislation.

• VAT: when exchanging goods with the UK, we will be talking about imports or exports, instead of EU Operations. This implies a big difference: whilst currently no VAT is to be paid when buying/selling from/to UK, from 1^st January 2021, the buying company will have to pay the VAT on the border of its country, in accordance with the VAT rates of such country, otherwise the goods will remain in the border.

• British companies owning a property in Spain will be taxed at 24%, instead of the current 19%. This will increase significantly the tax quotas, not only for the tax rate increase of five points, but also because it will not be accepted to deduct any rental expense.

INDIVIDUALS

It is commonly known that a huge amount of British citizens own properties in Spain, either for personal use or for rental purposes. Brexit will increase their tax bills in Spain as indicated below:

• Non Resident Taxes: EU citizens pay in Spain annually 19% of a deemed rent (2% of the cadastral value of the property, 1.1% if the cadastral value has been revised during the previous ten years). However, Non EU citizens should pay 24%.

When the property is used for rental purposes, EU citizens pay 19% of the rental profit, but Non EU citizens´ tax rate arises to 24%, with no deduction of expenses, which makes the tax quotas considerably greater for citizens outside the EU.

• Wealth Tax: Non Residents in Spain with properties located in our country with a total value of Euros 700,000 (or above), are subject to Wealth Tax each year. EU citizens can decide whether they are taxed according to the national legislation or autonomic legislation. However, Non EU Citizens cannot do so. Most of the times, the national Wealth Tax legislation is more tax expensive than the autonomic ones and therefore, the British Wealth tax bills are likely to increase after Brexit.

There are other tax implications which could affect in other cases. Companies that normally operate with UK and British citizens owning properties in Spain should plan for the post-Brexit era, always following the advice of professionals.

At MDG we are at your entire disposal to help you with any doubt you may have.

We are pleased to announce that on September 17th MDG Advisors received the Award for Best Business Trajectory 2020 from AJE. Among others, the jury included important personalities from the Malaga Town Hall, Technological Park of Malaga, Bic Euronova, University of Malaga, Junta de Andalucia and AJE Board of Directors.

At MDG we have adopted telecommuting as most things are adopted in life, with the urgency of a close deadline and where there was no room for procrastination. We had organised the remote system many months before but had hardly used it unless for the very extraordinary days we could not go to the office for medical reasons.

We started working from home overnight and were lucky to have all systems previously installed. Since the early beginning of our firm we were always concerned about adopting technology to our routines and investments in this field were done every year. It was our target for 2020 to become a digital firm, we could have never imagined a more radical launch.

But it is not just the technological structure that conditions a proper adaptation to telecommuting, it is also essential the cohesion and commitment of the team with the project. Working from home is a litmus test for the communication and productivity skills of any company.

After 4 weeks working from home, the balance so far could not be better, our levels of productivity haven`t been affected and the compromise of all the team, from managers to juniors has been remarkable. If there is something positive we get from the Covid-19 crisis, it is the record adaptation of our firm and the opportunity to confirm the level of engagement and commitment of the MDG team.

From MDG, we would like to inform you about the principal measures taken in this regulation. However, we would like to inform you also that as from tomorrow, there will be more measures published and the ones we already have will be clarified. We are living a confusing time and little rigour in the regulation recently published, due to this unusual COVID-19 crisis, hence we recommend patient and caution.

These measures are the following ones:

1. Suspension of all economic activity NOT indispensable. You can access the list of these essential activities, at the following link: https://www.boe.es/buscar/doc.php?id=BOE-A-2020-4166

2. The new recoverable paid leave is adopted between March 30 and April 9. For those workers of the companies that have to suspend their activity because it is not essential, this permission is provided. Their salaries will continue to be paid , but the hours corresponding to that salary must be recovered after the State of Alarm is overcome. This is mandatory, even if it is called “permission”, and the hours will be gradually recovered. It does NOT apply to companies that can work remotely.

3. Dismissal for objective reasons is limited, in other words, force majeure and economic, technical, organizational causes … for the termination of contracts will not be considered as objective cause, therefore the dismissal will not be fair. The Government pretends to limit the extinctions of contracts, and to facilitate the suspensions of contracts.

4. Interruption of the calculation of duration in the suspension of temporary contracts. If the suspension of temporary employment contracts has been agreed, its computation will restart after the conclusion of the Alarm State.

5. Facilitation of the unemployment benefits for workers affected by ERTES. The application for unemployment benefits will be made collectively by the employer, and not by each worker individually.

6. The ERTES requested on the occasion of COVID-19, both those based on force majeure and objective causes, will only last as long as the Alarm State is maintained.

7. Warning to companies that, if they act in fraud of law or with falsification of data, both in ERTES and in the reception of any benefit, will be sanctioned accordingly, as well as the Government remark that necessary measures will be taken to review and control that such actions do not occur.

We are happy to announce that we have taken a new step on the digital transformation of our procedures: we are already in the cloud and we are proud of it!

At MDG we have always been very focused on walking alongside technology, as we trust on the new IT era to ensure smooth communications with our clients, as well as to increase our professional performance. The implementation of this system enables our clients to access and monitor the accounts of their entities in live; anywhere; anytime.

Want to know more? Please get in touch.

Dear clients,

From Mdg Advisors, we would like to inform you about the new measures implemented by the Government, through the publication today of the regulation “Real Decreto-Ley 8/2020”, which may affect the self-employed/ freelance. 

First of all, we would like to inform you that we are awaiting the development of these regulations, as well as we are waiting for new measures to be adopted by the Government in these weeks, so we advise caution and you have our entire disposal to help you in this time of uncertainty. Self-employed associations are also working to try to get further actions on this in the Cabinet (“Consejo de Ministros”) next week.

Thus, we inform you that the main measure adopted in this “Decreto” for freelancers has been the regulation of the extraordinary benefit for cessation of activity (“Prestación extraordinaria por cese de actividad“), a benefit that the self-employed may apply that implies the payment of this benefit and the exoneration of the payments of the Social Security fees, if requirements are met. If not, there is no suspension of the payment of the fees and no benefit.

The main notes if this measure are the following:

Who can request this extraordinary benefit for cessation of activity?

– The self-employed whose activities are suspended due to the regulation of the “Real Decreto 463/2020, de 14 de Marzo, de declaración del Estado de Alarma” (Declaration of the State of Alarm). In other words, if you are among the sectors covered by this “Decreto” and you have had to close your business, you can apply for this benefit. Please find in the following link these sectors, in the annex at the end of the text: https://www.boe.es/buscar/doc.php?id=BOE-A-2020-3692

– The self-employed whose billing in the month prior to the application of the benefit is reduced by at least 75% in relation to the average billing of the previous semester. In other words, if this benefit is requested in April, the billing of the month of March should be compared with the billing of the previous semester, to determine if the billing has been reduced by 75%.

What requirements must be fulfilled?

– Be affiliated and registered, on the date of the declaration of the State of Alarm (March 14), in the Special  Regimen of Social Security for Self-Employed Workers (RETA).

–  In the event that the business activity is not directly suspended due to the regulation in the “Real Decreto 463/2020, de 14 de marzo”, it has to be proved that the billing is reduced at least by 75%, in relation to the billing in the previous semester.

– Be up-to-date in the payment of the Social Security fees. However, if it is not, this situation of non payment can be regularised by paying the outstanding fees due within 30 days.

What is the amount of the benefit?

– In general, the amount will be 70% of the regulatory base (“base reguladora”).

– In the event that the minimum contribution period (“período mínimo de cotización”) is not accredited, the amount will be 70% of the minimum contribution base (“Base de cotización mínima”) in RETA.

What is the duration of this benefit?

– The duration is 1 month.

– In the event that the Alarm State is extended and its duration exceeds one month, it will be expandable until the last day of the month in which the Alarm State ends.

– During this time it will be understood as contribution time, and will not reduce the periods of benefit for cessation of activity to which the beneficiary may be entitled in the future.

To consider:

– This benefit is incompatible with any other Social Security benefits.

– The management of these benefits correspond to the mutual collaborators of the Social Security.

Apart from that, it should be take into account the possibility, regulated in this “Decreto”, of requesting a deferral on the mortgage payment of the main residence (vivienda habitual), not others, with some requirements, which may also be helpful.

Also, we would like to inform that the guarantee of water supply, energy and telecommunications, is applicable only for individuals that cannot eventually attend to the payment of those supplies, but this is not applicable  for companies, they have to pay their suppliers.

Finally, several credit benefits have been approved with public finance, that companies (PYMES) and self-employed may can apply for. We must wait for its further policy development in order to verify the requirements that will be established to access these grants.

Again, we remain at your entire disposal for any questions you may have.

Thank you for trusting in our firm.

Regards,

The deal arranged by PSOE and Unidas Podemos last 30^th December has provoked an agreement that both parties have called “Coalición Progresista. Un nuevo acuerdo para España”. This agreement includes, amongst others, the partial abolishment of the labour reform approved back in 2012, increase of Minimum Wages and a series of fiscal measures.

The main points of this agreement from a tax point of view are:

1/ Fight against fraud. It is intended to update the list of tax haven territories, eliminate fiscal amnesties and promote fraud prevention through Tax Office lists of debtors. Regarding cash payments, the limits will be stricter.

2/ Increase of control of “SICAV”. New requirements will have to be met in order to apply the reduced tax rate for this kind of entities, ensuring its nature of collective investment instrument. To do so, it will be establish a maximum capital amount per investor (including participation of related parties).

3/ Corporation Tax. Big corporations will be taxed at a minimum of 15%, increasable until 18% for financial entities and hydrocarbon companies. Dividends and capital gains related to participation on other entities will be reduced by 5%, and qualified as non tax deductible expenses. Small and Medium size companies (“PYMES”) will be taxed at 23% instead of 25%, as long as their annual turnover does not exceed one million euros.

4/ Personal Income Tax ( IRPF). Tax payers with rents above 130,000 euros will see their tax rate increased around two %, and the part exceeding 300,000 euros will be increased by 4%. For financial earnings above 140,000 euros, national tax rate will be 27% instead of 23%.

5/ Special regime of “SOCIMIS” will be reformed, applying a tax rate of 15% on retained profits.

6/ VAT. There will be a tax rate reduction in female hygiene products and veterinary services.

7/ New government also wants to approve new taxes such as: Tax on certain digital services, applicable to operations that currently are not taxed in the digital economy; Financial transactions Tax and/or Tax to punish certain behaviours on environmental issues.

Regardless of this agreement, none of the above mentioned measures has been approved yet but the increase of Minimum wages.