The Revised Local Finances Law approved by Legislative Royal Decree 2/2004, of March 5, establishes a scheme aimed at rationalizing the local taxation system and facilitating the activity of local entities. Under this legislation, local authorities are empowered to modify some aspects of this type of taxes. This Law establishes two different types of municipal taxes, which can be classified as follows:
- Periodic taxes, among them:
– Tax on real estate (impuesto sobre bienes inmuebles).
– Tax on business activity (impuesto sobre actividades económicas).
- Other taxes:
– Tax on erection and installation projects and construction works (impuesto sobre construcciones, instalaciones y obras).
– Tax on increase in urban land value (impuesto sobre el incremento del valor de los terrenos de naturaleza urbana).
3.1 Periodic taxes
3.1.1 Tax on real estate
This tax is levied annually on owners of real estate or on holders of rights “in rem” over real estate based on the cadastral value determined pursuant to the Property Cadastre regulations, at different rates up to a maximum of 1.30% for urban property and 1.22% for rural property37.
3.1.2 Tax on business activity
This tax is levied annually on any business activity conducted within the territory of the municipality.
However, the following taxpayers are exempted from this tax:
- Taxpayers who start a business activity within Spanish territory, during the two first tax periods in which they carry on the activity.
- Taxpayers subject to corporate income tax and entities without legal personality whose net sales (at group level according to article 42 of the Commercial Code) in the previous year were under €1 million.
- In the case of taxpayers subject to nonresident income tax, the exemption will only apply to those operating in Spain through a permanent establishment, provided that they obtained net sales of under €1 million in the previous year.
The tax payable is calculated on the basis of various factors (type of activity, area of premises, net revenues, etc.). The minimum tax rates published by the Government can be adapted by the municipal authorities.
3.2 Other taxes
3.2.1 Tax on erection and installation projects
and construction work
This tax is levied on the actual cost of any work or construction activity that requires prior municipal permission, excluding VAT and any similar taxes.
The tax rate will be set by each municipal council up to a top rate of 4%, and the tax falls due at the start of the project regardless of whether the permit has been obtained.
3.2.2 Tax on increase in urban land value
This tax is levied on the increase disclosed in the value of urban land whenever land is transferred.
- Taxpayer: in transfers for consideration, the transferor, and in donations, the transferee.
- Tax rate: the rate set by each municipal council and capped at 30%.
- Tax base: the increase in the value of the land. The tax base is determined by reference to the value of the land when the tax falls due, which in the transfer of land will be the value that has been determined for the purposes of property tax. Certain annual percentages will be applied to this value based on the ownership period, which will be determined by each municipal council, and may not be higher than the following limits: (I) Between one and five years: 3.7; (II) Up to 10 years: 3.5; (III) Up to 15 years: 3.2; (IV) Up to 20 years: 3.
This tax is deductible for personal income tax purposes from the transfer value of real estate.
37 The tax rates applicable to urban real estate were increased for fiscal years 2014 and 2015.