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Entry Into Force Of Budget Raises Personal Income Tax

The new year brings under its arm the premiere of a General State Budget, the first since 2018, and, with it, relevant tax increases in Companies, personal income tax or VAT.

Changes that mainly affect large companies or high incomes but which, together with other measures promoted in parallel to public accounts, also affect disparate groups ranging from the average consumer to the international technology giants.

As a whole, the tax reform proposed by the Treasury will mean an increase in collection of 7,770 million euros, of which 5,635 million would enter the public fund in the year 2021 itself, and the remaining 2,135 million in 2022.

The total figure has decreased from the 9.170 million communicated to Brussels on October 15 due to the changes that the plan has undergone during the negotiation with the opposition groups and the parliamentary procedure, which left out the tax hike on diesel or the VAT increases on education and public health that had been initially contemplated.

In parallel, the Treasury’s decision to reduce the VAT on masks from 21% to 4% would save Spaniards 1,568 million, reducing the tax impact of the reform to 6,202 million. These are the main tax changes that the new year holds:

One of the main novelties of the Budget is that it reduces from 100% to 95% the exemptions that governed the dividends and capital gains of the shares of Spanish companies in subsidiaries, in any country.

That non-exempt 5% is now taxed at the general rate of 25% (or 30% in the case of banks and oil companies). In other words, companies will pay 1.25 euros (or 1.3) for every 100 received.

The measure temporarily excludes companies with a turnover of less than 40 million for three years so as not to discourage their internationalization. The Treasury estimates that it will only affect 0.12% of the 1.5 million registered companies. These are the 1,739 largest firms in the country, which are expected to contribute an additional 1,520 million.

In the case of income tax, the modification included in the Budget is twofold. On the one hand, the regional income tax rate will rise by two points from 300,000 euros in annual income. The measure has a very different impact by communities, taking into account the strong disparity in current regional rates.

Thus, for example, the marginal rate for the highest incomes in Madrid would become 45.5% but in Catalonia it would reach 50%. The Ministry headed by María Jesús Montero estimates that the tax increase will only affect 0.07% of taxpayers.

On the other hand, the reform also affects the taxation of savings. This tax is increased by three points from 200,000 euros, from 23% to 26%, which will lead 17,000 taxpayers to contribute an extra 21 million. Together, both modifications of personal income tax will contribute 490 million to the treasury.

Another objective of the Budget is to tax the great fortunes more. The Heritage tax is recovered for them as a structural tribute, since after its abolition in 2008 it was recovered in 2013 and extended since then year by year.

The text raises the rate applied to those of more than 10 million by one point, from 2.5% to 3.5%. If applied in all regions, it would yield a collection of 339 million for the regional coffers, although with Madrid having a 100% subsidy, the effect will be 40% lower.

The listed companies of real estate investment, Socimis, will suffer, for their part, a minimum tax on undistributed profits as dividends from their partners that will yield 25 million in collection.

Since January 1, the exempt limit on contributions to private pension plans has dropped from 8,000 to 2,000 euros, while in those supplied by companies the maximum is increased from 8,000 to 10,000.

The measure will leave 580 million more in the treasury. In parallel, the Treasury has raised the tax on insurance premiums from 6% to 8%, in its first increase since 1998, to enter 507 million more.

In the case of VAT, the main change is an increase from 10% to 21% on sweetened and sugary drinks sold in shops and supermarkets, but not in hospitality. Although the estimated collection was 400 million, it will finally be lower because in the processing of the accounts, milk beverages were left out of the increase.

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