'Brussels takes Spain to court over non-resident tax provisions'
"The European Commission said on Monday it had decided to refer Spain to the Court of Justice over its taxation of non-residents' capital gains from the sale of Spanish property assets and on personal income after the government failed to change its legislation after a formal request from the EC in July of last year.
Under Spanish law, capital gains of non-residents made from the sale of property held for over one year are taxed at a rate of 35 percent, whereas similar capital gains of residents are taxed at a rate of 15 percent.
Spain also applies a flat withholding tax on employment-related income for non-residents of 25 percent, whereas residents are subject to a withholding tax of 15 percent in the case of self-employment and a progressive tax system with rates ranging from 15 to 45 percent.
The Commission said the discriminatory treatment regarding employment income was particularly unfair in the case of those on low salaries such as trainees.
'The Commission considers that the Spanish tax legislation fails to conform to the EC Treasury requirements, in particular to the non-discrimination principle,' the EU executive body said in a statement posted on its website.
'The higher tax burden on non-residents also makes it less attractive for Spanish employers to recruit labour from other member states rather than from Spain and thus represents an obstacle to the free movement of workers.'
The Commission said the tax treatment on capital gains on the sale of
Property also infringed the bloc's rules on the free flow of capital."
News date: Friday, June 02, 2006
Non-resident Income Tax 2007 – Important changes
Capital Gains Tax in Spain is due to change. On march 10th 2006 the Spanish government passed the personal income tax bill which partially modifies the following tax laws: corporation tax, non-resident income tax and wealth tax.
It is intended to ensure that taxation for residents of other European
Countries do not pay more than Spanish residents in similar tax brackets. *One of the most significant changes that will affect non-resident income tax from 2007 onwards will be the significant reduction from 35% to 18% of the capital gains tax applied to property sales or transfers. It is important to note the with-holding tax will be reduced from 5% to 3%. *
In addition, the Personal Income Tax bill establishes that Capital Gains tax arising from the sale or transfer of property in Spain by persons over the age of 65 and persons who are considered to be in a situation of dependence shall be exempt totally from capital gains tax.
However it should be noted it should be noted this only applies to residents in Spain and therefore does not apply to non-residents, meaning non-residents aged over 65 will till be liable to pay capital gains tax on the profit of selling their home in Spain
