On January 14, 2019, the Spanish government sent the draft of the 2019 Budget Act (the 2019 Budget) to the Congress for debate and approval.

The 2019 Budget includes several tax measures aimed at increasing tax revenue to fund certain spending measures proposed by the government.

For corporate income tax purposes, the 2019 Budget proposes to reduce the 100 percent participation exemption regime to a 95 percent participation exemption. This proposed measure, if passed, will increase the effective tax burden on domestic and foreign dividends and capital gains of Spanish companies.

In addition, the 2019 Budget introduces a 15 percent minimum tax that will be applicable to large corporations (with a net turnover over €20 million in the previous 12 months) and consolidated tax groups. This minimum tax is increased to 18 percent in case of taxpayers subject to a 30 percent tax rate (eg, banks).

On the other hand, the 2019 Budget sets forth a reduction of the corporate income tax rate from 25 percent to 23 percent for companies with a net turnover below €1 million.

The 2019 Budget also introduces changes in the taxation of Real Estate Investment Trusts (REITs or, in Spanish, SOCIMI). The most notable of the proposed changes is the introduction of a 15 percent tax on undistributed earnings of these entities.

Regarding personal income tax, the 2019 Budget increases the tax rates for salaries – salaries over €130,000 and over €300,000 will be subject to higher progressive rates of 47 percent and 49 percent, respectively. Tax rate for savings (eg, dividends and capital gains) over €140,000 are proposed to be increased to 27 percent.

Key takeaways

The 2019 Budget contains many changes that are likely to increase the tax burden of holding companies, banks and large multinational groups in Spain. Multinationals and large Spanish companies are advised to monitor these legislative proposals.

It is difficult to predict the outcome of these proposals. However, we anticipate that the 2019 Budget will be amended, given the fact that the current Spanish government does not control the Congress and would need to negotiate with minority parties in order to obtain their support.

In addition to the tax measures discussed above, the government intends to introduce a digital service tax and a financial transactions tax.