IAE (Impuesto sobre las Actividades Económicas) is a tax on the economic activity of the company. It is payable only by companies whose turnover exceeds €1 million. The IAE is calculated in stages according to the turnover of the company.
The taxpayers of the IAE are natural persons (sole proprietorships, self-employed persons), legal persons (companies) and corporations without legal personality (Inheritances and communities of property) who carry out entrepreneurial, professional and artistic activities, with the exception of agriculture, livestock, forestry and fishing.
The Spanish IAE tax is a municipal tax but is administratively managed by the national tax authority (Hacienda, AEAT).
How much is the IAE tax?
Determining the trade tax is a relatively complicated procedure. Various coefficients are applied.
One coefficient depends on the net turnover. The net turnover must be reported to the tax office using form Modelo 848 (annually: 1 January – 14 February). Alternatively, the net turnover can be declared by means of the Impuesto de Sociedades (Corporate Tax Declaration).
The location of the company in the respective municipality provides a further coefficient.
There are three tax rates:
- The municipal minimum rate is specified in the official tables of applicable rates and entitles the taxpayer to operate within a municipality.
- The provincial rate entitles the taxpayer to operate throughout the province without being obliged to pay the municipal rate.
- The national rate entitles the taxpayer to operate throughout Spain without having to pay the minimum municipal or provincial rate. However, only certain activities are subject to the provincial rate or the national rate.
The IAE tax rates are fixed. In addition, certain objective facts relating to the activity carried out may also be taken into account in calculating the tax. These facts include electricity consumption, the size of commercial premises, work shifts, etc.
Tax base amount
A minimum base amount is established by law for each IAE number. Updated annually in the BOE (Boletin Oficial del Estado) coefficients:
- net turnover: 1.29 to 1.35 (depending on the amount of turnover)
- location: the municipality can set different multipliers according to the location of the business premises within the urban area: 0.4 to 3.8
- bonuses or discounts (e.g.: founder discount: 50% in the first 5 years)
Activities that do not apply to IAE
In principle, all private business activities are subject to trade tax, as are freelancers and artists, but not agriculture and fishing. Freelancers are also considered to be sole traders if they have business premises or office and employees.
In practice, most companies are then exempt from IAE tax, as explained below.
A precise classification is made by means of the tables published by the tax office regarding the classification of the trade tax.
If your activity is listed in the IAE table under “Sección” one, it is a sole proprietorship, “Sección” two are freelancers and “Sección” three are artists.
Who’s excluded from this tax?
The exemption applies to:
- Natural persons (personas fisicas): i.e. all autonomos;
- Legal persons (Personas Juridicas) with a net turnover (Importe Neto de Cifra de Negocios) of less than € 1.000.000.00, and Sociedad Civil.
In any case, all taxpayers are also exempt during the first two years of activity. In order to be able to claim these exemptions, certain information and formal obligations must be observed.
Regardless of whether or not it is exempt, before starting an economic activity, it must be declared to the Spanish tax authorities. In the Modelo 036 or 37 form, the IAE number (classification or epigraph), among other things, must be indicated. The tax office has a separate IAE number in a list for each economic activity.
Taxpayers who are IAE taxable because they do not comply with the above exemptions must complete the Spanish tax Form 840.
If a taxpayer stops to be eligible for the above exemptions within a certain period of time, they must inform the Spanish Tax Administration that they are no longer eligible for exemption by completing Form 840 and must re-complete the same form if they are again eligible for exemption.
Form 840 must also be submitted within the period of 1 month if there is a modification affecting the IAE calculation or the person/entity is no longer registered.
In most cases, this is because the company’s net turnover is greater than € 1.000.000.00, meaning that Form 840 must be submitted before the end of the next tax period. In other words, if at the end of 2019 your net turnover was greater than € 1,000,000.00, you must submit Form 840 in December 2020, having an effect in 2021 and onwards.
Form 036 – natural persons and legal persons
To apply for an IAE tax number for a legal entity, one must fill in Form 036, which is provided by the Spanish tax authority i.e. Agencia Tributaria.
The form applies to all types of communications from taxpayers for all taxes and types of registration cases. To apply for the NIF, one only needs to mark field 110 on the first page, sign the declaration (with the date and name and, if so, the type of representation of the company) and page 2A (natural persons) or page 2B (legal entities) with the identification data of the person or company.
Almost all applications using Form 036 can be made via the Internet, with the exception of the application for a Spanish Tax Identification Number, since if the applicant is not yet included in the relevant database, he will not be recognized by the system.
If you are registered for VAT purposes, you must also consider boxes 111 (Alta en el censo de empresarios y profesionales) and 130 (solicitud de inscripción en el Registro de operadores intracomunitarios).
Form 037- freelances
As a rule, Form 037 (so-called declaración censal) must be used to register with the tax office. It can be done in two stages, which has the advantage that not all formal obligations are incurred from the beginning:
- First stage: Even before the start of the activity (alta previa al inicio de la actividad) the business must be declared if costs are already incurred, e.g. for market studies, office equipment, Internet presence, etc. Otherwise, there will be problems if the invoice received for this purpose is later deducted as operating costs or input tax is claimed if it is dated before the so-called alta previa al inicio de la actividad.
- Second stage: At the latest when the first invoices are issued, sometimes even earlier, for example when customers are employed or tax is withheld from suppliers (retenciones), the final start of the activity (alta definitiva) must be declared.
Taxable persons are the natural or legal persons who are liable to pay the tax. The taxable period corresponds to the calendar year, except in the year of first registration. In this case, the taxable period runs from the beginning of the activity to the end of the calendar year.
The tax is due annually. If in the year of initial registration, the activity is not commenced on 1 January, the tax is calculated pro-rata according to the time remaining on the calendar.
At GMTax Consultancy we specialize in this type of procedures and all others related to your company’s operations or to tax accounting issues. Feel free to contact tax advisor now to get professional help in these matters.