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The solidarity welth TAX for high-net-worth individuals in Spain

In Spain, with the entry into force, on December 28, 2022, of Law 38/2022, a new tax has been introduced, called “Impuesto de Solidaridad a las Grandes Fortunas.”

Basically, this is a temporary welth tax for high-net-worth individuals that applies throughout Spain and has been introduced, according to the government’s declarations, to harmonize taxation among the Autonomous Communities.

It is a tax intended to complement the current Wealth Tax, or “Impuesto sobre el Patrimonio” (in which regulatory authority and tax collection are transferred to the Autonomous Communities) and will affect some contributors for the 2022 tax year.

Currently, it is planned that the tax will only apply in 2023 and 2024, although the law includes a review clause that allows the government to extend it for future years.

In continuation, the operation of the solidarity tax is schematically exposed:

• Type of Tax: it is a direct tax on the wealth of the natural persons. As anticipated, since it is complementary to the patrimony tax, the rules regarding the determination of taxable persons, exemptions or the base of the “Impuesto sobre el Patrimonio” also apply to the solidarity tax
• Which subjects are affected? Natural persons with a net wealth of more than €3 million.
• The minimum tax base exempt from the tax is 700.000 €.
• Taxes paid abroad will be deductible (under the Wealth Tax regulations for Spanish residents); also, the amount of the “Impuesto sobre el Patrimonio” actually paid will be deducted from the resulting amount.
• Tax rate: The net patrimony, after the application of the related exemptions and reductions, will be taxed according to the following progressive rates:

• Limits: The above tax, when added to the personal income tax (“IRPF”) and Property Tax, may not exceed, in the case of personal liability, 60% of the sum of the IRPF tax bases. If the above limit is exceeded, the tax liability will be reduced until the above threshold is reached, although the reduction may not exceed 80%.
• Designation of a representant in Spain: Taxpayers whose wealth is subject to the tax and who are not resident in Spain will in certain cases have to designate a representant in Spain, who can be either a natural or legal person.
• Counter-measures of the Autonomous Communities:
  • a) Some objections are emerging, as this tax rule raises some doubts regarding the distribution of tax competence between the state and the autonomous communities.
  • b) The Community of Madrid has introduced a tax incentive which allow nationals and foreigners, who make an investment in the Community of Madrid after having lived outside Spain for more than 5 years, to deduct 20% of the investment through a reduction in the regional income tax bracke