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Tapestry
Alert: Spanish Tax Reform - EUR 12,000 exemption retained
December
2014
Dear Client,
Spain –
Proposed tax changes update – Retention of tax exemption
In our August Newsletter, we reported on the proposed reforms of tax
law in Spain. Last month, the reforms were passed into law,
although some details are subject to further modification by
subsequent regulation.
Tax reform specifically relating to share plans will generally affect
share plan awards granted / received on or after 1 January 2015.
Transitional arrangements apply to awards granted before 1 January 2015.
Tax exemption: to general surprise, the anticipated removal of the
EUR 12,000 income tax exemption on free/discounted shares distributed
to employees has not taken place. Under current rules an exemption
from income tax of up to EUR 12,000 per person may be available if a
plan is offered to all of the company’s employees and there is at
least a three year retention period post exercise/vesting. It was
expected that this exemption would be removed as part of the reform
package but it has been retained in the new Personal Income Tax law
(PIT). The revised wording in the new PIT makes it clear that the
exemption will only apply in cases where all the employees of the
company (without exception) are eligible to benefit from the share
plan. The final wording of the tax exemption is expected to be
revised in the PIT Regulations.
Tax reduction: under current rules a 40% tax reduction applies to
share plans that meet specific criteria (e.g. the income is irregular
and does not exceed EUR 30,000 and the period between award/grant and
vest/exercise exceeds two years). Under the new rules, the tax
reduction will be limited to 30% and will only apply to income
received in the same year as the reduction. The prohibition on
applying a tax reduction to regular income will no longer apply but
the reduction will only be available if the taxpayer has not made use
of the reduction over the previous five years.
The changes to PIT outlined in our August report have been approved
so for most Spanish resident tax payers, PIT rates will decrease from
a maximum of 56% to 47% (falling to 45% from 2016) Capital
gains tax rates will fall from 27% to 20% – 24% (19 – 23% from 2016).
Tapestry
comment: We will be checking the final
wording in the relevant regulations but for now this looks like a
better than expected outcome for Spanish employees. Employers
should take into account the potential impact of changes to PIT on
Spanish withholding tax obligations.
Bob & Sharon
 
Bob
Grayson
Sharon Thwaites
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