The General State Budget for 2023 introduces tax innovations in Companies, VAT and Personal Income Tax.

The General Budgets are a key document for the fiscal year, as they provide insight into the Government’s plans for managing and growing public funds. It is also a time of intense speculation for both experts and citizens, as all eyes are on the Government to see how it will allocate its spending in order to stimulate economic growth. In this context, it is important to analyze what the new budget will mean for the nation and its citizens.

In this article, we will dive into the details of the overall budget, exploring what changes are proposed and how they could affect both businesses and individuals. We will also examine some of the key trends that will be seen in the fiscal news in the coming months as a result of this budget.

The 2023 general budgets have recently been approved and introduce the following tax innovations, among others:

1. Introduction of a new real estate tax:

In the new general budgets, the IRPF, the reductions for people who obtain income from work or economic activities lower than 19,747.50 euros are increased. Likewise, the taxation of savings income increases, which from now on will be taxed at 27% for the part exceeding 200,000 euros and at 28% for the part exceeding 300,000 euros. Finally, the deduction percentage for deductible provisions and expenses that are difficult to justify for sole proprietors under the simplified direct estimation regime is increased from 5% to 7%.

This new tax will apply to all properties, regardless of their size or value. The Government expects to raise additional revenues for public services and infrastructure projects.

The new general property tax will be applied on a sliding scale: properties whose value exceeds a certain amount will be taxed at higher rates. Those of lower value will pay less. The amount of tax will depend on the value of the property and its location.

To encourage real estate investment, the government may also offer exemptions or discounts to those acquiring properties for commercial purposes or for long-term rental.

The new tax is expected to help increase economic activity and stimulate job growth in the real estate sector, while providing additional sources of revenue for utilities and infrastructure projects. Residential homeowners will also benefit from increased investment in their local communities as a result of this new policy.

2. Increase in the income tax rate for higher incomes:

The highest income tax rate will increase from 45% to 50% for those earning more than €75,000 per year.

VAT rate increase: The standard Value Added Tax (VAT) rate will increase from 19% to 21%, with a reduced rate of 10% for certain goods and services.

Increase in corporate income tax rate: The corporate tax rate will increase from 20% to 25%.

Elimination of certain deductions and tax credits: Certain deductions and tax credits will be eliminated, such as those related to mortgage interest.

Reduction in public spending: To compensate for revenue losses from income and corporate tax hikes, the government has announced plans to reduce public spending by EUR 5 billion. This includes cuts in social welfare, health, education, defense and social programs.

3. Extension of capital gains tax:

The capital gains tax has been expanded to include gains from the sale of assets such as stocks and bonds, which were previously exempt from taxation.

Capital gains tax also applies to gains derived from the sale of real estate, such as a house or investment property. The capital gains tax rate is determined by the holding period of the asset, which can range from 15 to 20 percent for most assets. The amount of the taxable gain is reduced if certain conditions are met, such as the asset having been held for more than one year.

In addition to expanding capital gains taxes, some states have implemented their own additional capital gains taxes. For example, California levies an additional 3.3% tax on net capital gains in excess of $1 million per year.

4. Increase in corporate income tax:

In corporate income tax, a new reduced tax rate of 23% is approved for entities with a turnover of less than one million euros and meeting certain requirements. In addition, certain energy efficient vehicles may be depreciated twice as fast.

Corporate income tax has been raised from 25% to 28%, which means that companies must pay more tax on their profits than before.

Increase in personal income tax: Personal income tax has risen from 39.6% to 43.4%, which means that individuals must pay more tax on their income than before.

Reduction of the capital gains tax rate: The capital gains tax rate has been reduced from 20% to 15%, which means that investors will now be taxed less on their profits from investments such as stocks and bonds.

Elimination of wealth tax: Inheritance tax, which was levied at 40% on inherited wealth, has been completely eliminated, meaning that families can now pass on more of their wealth without it being subject to taxation.

5. Introduction of a wealth tax:

A new wealth tax has been introduced which will apply to those with a net wealth of over €500,000. This is intended to reduce inequality and create a fairer tax system in Spain.

The wealth tax will be levied on the basis of the net wealth of individuals, not their income. All taxable assets, including property, financial investments and jewelry, will be included in the calculation. The tax rate is progressive and starts at 0.2% for those with a net worth of between €500,000 and €1 million, increasing to 2.5% for those with a net worth of more than €10 million. There are also exemptions for certain categories, such as pensioners or people with disabilities.

Our professionals will advise you on the general budgets and tax changes applicable from 2023.

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