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How to Minimize Taxes and Tax Rates in 2021

in Tax

The approval of the State Budget (hereinafter, “PGE”) for 2021 in Spain is expected during this month of December 2020, the first after the Montoro accounts for the year 2018, which had been extended to date.

Among the most relevant tax modifications contemplated in the PGE bill with effect from January 1, 2021, the following stand out:

Personal Income Tax (IRPF)

1. New section on the general scale.

Article 63 of the Personal Income Tax Law is modified so that a section is added to the general scale of the tax for general taxable bases starting at EUR 300,000, with a tax rate of 24.50%, thus remaining:


New section personal income tax (IRPF)

Base liquidable / Hasta euros Cuota integra / Euros Resto Base liquidable / Hasta euros Tipo aplicable / Porcentaje
0,00 € 0,00 € > 12.450,00 € 9,50 %
> 12.450,00 € 1.182,75 € > 7.750,00 € 12,00 %
> 20.200,00 2.112,75 € > 15.000,00 15,00 %
> 35.200,00 4.362,750 € > 24.800,00 18,50 %
> 60.000,00 8.950,75 € > 240.000,00 22,50 %
> 300.000,00 62.950,75 € En adelante 24,50 %

This change affects income from personal work or economic activities and returns from real estate capital, among others. It also affects the scale of withholding for earned income. To this must be added the regional scales, so that the marginal rate in some regions can reach up to 50%.

Savings alternatives: For those taxpayers with taxable bases greater than EUR 300,000, it may be advisable to negotiate with the company the advance to 2020 of a part of the variable remuneration (payment of premiums linked to production, payment of incentives based on sales achieved, the payment of bonuses to managers, technicians, etc. or the payment of bonuses, to give a few examples).

It should be noted that this increase only affects people with high salaries such as senior managers or executives.

2. New section in the savings scale

Article 66 of the Personal Income Tax Law is modified so that a section is added to the scale of tax savings for taxable bases of savings from EUR 200,000, with a tax rate of 26%, thus remaining:


New section in the savings scale

Base liquidable del ahorro / Hasta euros Cuota integra / Euros Resto Base liquidable del ahorro / Hasta euros Tipo aplicable / Porcentaje
0,00 € 0,00 € > 6.000,00 € 19,00 %
> 6.000,00 € 1.140,00 € > 44.000,00 € 21,00 %
> 50.000,00 € 10.380,00 € > 150.000,00 23,00 %
> 200.000,00 44.880,00 € En adelante 26,00 %

This change affects income from movable capital (dividends, interest on accounts or loans, etc.) and capital gains (from shares, investment funds, from the sale of the house, etc.).

Savings alternatives: Advancing sales that can generate capital gains to 2020 may be advisable to avoid the 26% tax on the part of the profit that exceeds EUR 200,000. A clear example can be the sale of a property that you own.

Let’s take the case that the sale price is EUR 350,000 and that the purchase price at the time was EUR 100,000: if you have to sell said property in the short term and bring it forward to 2020 instead of 2021, you save EUR 1,500.

In the case of collecting dividends, the same, if it is expected to collect a significant amount and it is declared in 2020, there will be a saving of 3% on the dividend to be received that exceeds 200,000 Euros

3. Limit on the reduction in the tax base of contributions and contributions to social security systems

Article 51 of the Personal Income Tax Law is modified so that the set of reductions practiced by all people who pay premiums in favor of the same taxpayer, including their own, is reduced, which now may not exceed EUR 2,000 per year, being previously this limit of EUR 8,000.

This includes contributions to private pension plans, insured mutual benefit societies, business social welfare plans, and severe or high dependency insurance, etc.).

Even so, this limit of EUR 2,000 will be increased by up to EUR 8,000 (that is, up to EUR 10,000) when we are dealing with business contributions (those made by the individual employer to employment pension plans, for example).

Savings alternatives: From 2020 onwards, fiscally it is not advisable to contribute more than EUR 2,000 to these plans, so it may be advisable to make contributions up to EUR 8,000 for 2020 because from 2021 this reduction clearly decreases. Even so, it must be borne in mind that contributions are not taxed while saving, but they do when they are redeemed (such as income from work) and may be at a higher rate than savings.

Wealth Tax (IP)

Article 30 of the IP Law is modified, so that the maximum tax rate goes from 2.5% to 3.5% for assets of more than 10.65 million euros, in the case of Autonomous Communities that would not have approved their own scale, being as follows:


New section wealth tax (IP)

Base liquidable / Hasta euros Cuota integra / Euros Resto Base liquidable / Hasta euros Tipo aplicable / Porcentaje
0,00 € 0,00 € > 167.129,45 € 0,2 %
> 167.129,45 € 334,26 € > 7.750,00 € 0,3 %
> 334.252,88 € 835,63 € > 167.123,43 0,5 %
> 668.499,75 2.506,86 € > 668.499,76 € 0,9 %
> 1.336.999,51 € 8.523,36 € > 1.336.999 € 1,3 %
> 2.673.999,01 € 25.904,35 € 2.673.999,02 1,7 %
> 5.347.998,03 € 71.362,33 € 5.347.998,03 2,1 %
> 10.695.996,06 € 183.670,29 € En adelante 3,5 %

Even so, it must be taken into account that, among the autonomous regions with their own regulations for IP, some include bonuses, which reach up to 100% in the case of the Community of Madrid. For this reason, the Government has announced that a legislation for IP will be harmonized for the entire territory, although this measure cannot be included per se in the PGE 2021 Law.

Savings alternatives: For those taxpayers who are affected by this increase, which has a much more limited scope than the changes in personal income tax mentioned above, since it affects only some territories and assets of more than 10.65 million euros, It is necessary to consider that the IP is accrued on December 31 of each year, so that, for the excess of 10.65 million euros in equity, one percentage point more will be taxed

in 2021 than in 2020. Assent considered include real estate, assets related to economic activities, bank deposits, listed shares, etc. In conclusion, the savings margin for this increase in the tax rate is limited.

In addition, the Draft Law on Prevention and Fight against tax fraud contemplates that, in the case of real estate, its tax base will be the reference value provided in the regulations governing the real estate Catastro, on the date of accrual of the tax. This measure also affects the ITPAJD and the ISD.

owever, if the value declared by the interested parties, the prior or the agreed consideration, or both are higher than their reference value, the higher of these magnitudes will be taken as the tax base. If there is no reference value, the tax base will be the greater of the value declared by the interested parties, the selling price or the market value.

This reference value is based on all real estate sales carried out and formalized before a notary public, calculated with fair and transparent technical rules and which will be set by the Catastro.

Corporation Tax (IS)

Article 21 of the IS Law is modified, reducing the exemption on dividends and capital gains for the transfer of securities representing own funds by 5%, so that the exempt amount will be 95% of said dividends or capital gains (previously it was 100%).

However, this reduction will not apply when all of the following circumstances apply:

    • a) The entity that receives these dividends or capital gains has a net turnover of less than EUR 40
      million.

In addition, the entity that receives these dividends or capital gains must meet all these requirements:

    1. i) Not being considered a patrimonial entity
    2. ii) Not being part, prior to the constitution of the entity that distributes the dividends, of a group of companies
    3. iii) Not having, prior to the constitution of the entity that distributes the dividends, a percentage of participation, direct or indirect, in the capital or equity of another entity equal to or greater than 5%.
  • b) These dividends or capital gains come from an entity incorporated after January 1, 2021 in which it holds, directly and since its incorporation, all of the capital or equity
  • c) These dividends or capital gains are received in the three immediate and subsequent tax periods after the year of incorporation of the entity that distributes them.

In summary, being the most remarkable, that:

  1. If the entity that receives the dividends is a holding entity, forming part of a group of companies, although it has a net turnover of less than 40 million, the exemption goes from 100% to 95%.
  2. If the entity that receives the dividends has more than 5% of shares in another entity that is not the one that distributes dividends, even if the former has an net turnover of less than 40 million, the exemption goes from 100% to 95%.
  3. Even if the entity that receives the dividends has an net turnover of less than 40 million, it is not part of a group of companies (1) or has more than 5% in an entity other than the one that distributes dividends (2), it will only have the right to the 100% exemption if it has, on the entity that distributes dividends, 100% of its capital or own funds, and only if the entity that distributes the dividends has been incorporated as of January 1, 2021.

Savings alternatives: For those cases in which the reduction of this exemption from 100% to 95% may affect, it may be advisable to advance the dividend distribution or the sale of securities representing equity values that generate capital gains to 2020 for the tax saving of this 5% that is no longer exempt. As we

have seen, this will be the case in the vast majority of cases, since the requirements that have to be given for the reduction of the exemption are very demanding.

Other tax measures

The PGE Bill also contemplates the modification of the tax rate of beverages containing sweeteners, which goes from being taxed at 10% to being taxed at 21%, as well as raising the tax rate of Premium Tax from 6% to 8%. for sure.

Measures not contemplated in the PGE Law

Although these measures are not yet contemplated in the first draft published in the Cortes, it is expected that the following measures will be included in the processing of the Law on Prevention and Fight against Tax Fraud:

  • SOCIMI: Application with respect to Corporation Tax of a tax rate of 15% on the undistributed profits of this type of entities, which currently have a rate of 0% on income derived from their real estate activity (for example, dividends to Your partners).
  • SICAV: Grant the Tax Agency the competence to verify that they comply with the requirements to be constituted as collective investment vehicles and not as a tax planning tool for large family wealth and declare non-compliance with these requirements for exclusively tax purposes.
  • “Unit linked”: It is expected that they will no longer be exempt from Wealth Tax.
  • The general limit of cash payments is lowered from EUR 2,500 to EUR 1,000.

The Tobin and Google rates, already approved, and which come into effect on January 16, are also new for 2021. The former taxes 0.2% of the purchase of shares in Spanish listed companies with a capitalization of more than of 1,000 million Euros, while the later taxes 3% the sale of data, advertising and digital intermediation. As they are newly created figures, they were approved outside of the PGE and were approved last October.

Environmental taxes are also created, such as the one that affects non-reusable plastic containers or the one that affects waste (the latter already existed in some Autonomous Communities).

If you have any queries on this or similar topic, feel free to contact with a tax advisor here at GM Tax Consultancy.