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July 8—A second phase of cuts to personal income tax rates scheduled to occur Jan. 1, 2016, will be moved up six months and made effective July 1, 2015, Spanish Prime Minister Mariano Rajoy said July 2.
The income tax rate cuts, which are scheduled to be approved by royal decree on July 10, include:
• The lowest marginal tax rate, for annual incomes between 12,450 euros ($13,785) and 20,200 euros ($22,363) decreased to 19 percent from 20 percent;
• The second income tax rate band, for annual incomes between 20,200 euros and 35,200 euros ($38,970) decreased to 30 percent from 31 percent;
• The third income tax rate band, for annual incomes between 35,200 euros and 60,000 euros ($66,427), decreased to 37 percent from 39 percent; and
• The top marginal tax rate, for annual incomes above 60,000 euros, decreased to 45 percent from 47 percent.
The government also announced that self-employed individuals will be subject to a 15 percent withholding rate, regardless of income. Previously, the 15 percent rate only applied to self-employed individuals with annual incomes of less than 15,000 euros ($16,606).
In order to facilitate the processing of payroll with the new tables with the appropriate paperwork, Spanish Secretary of Finance Miguel Ferre said July 7 that the State Tax Agency would make available a computer application on its website by the week of July 13. Employers failing to include withholding for July may regularize their situation with August paychecks, he said. The tax cut will be applied as a single “transitory” or “intermediate” rate applicable to earnings from January to December 2015. For example, the projected income tax rate cut for the lowest rate from 20 to 19 percent rate means a single 19.5 percent rate will be applied when taxpayers file their return for 2015, yet employees will notice the reduction to 19 percent in withholding starting in July.
While the new rates would have force of law, the government’s urgent use of a royal-decree law would mean parliament must subsequently debate approval or denial, without modifications, within 30 days.
The government did not advance whether the forthcoming royal decree would approve anything beyond the “second phase” income tax reductions already planned for 2016 or distinguish with regard to tax cuts affecting nonresidents or so-called inbound assignees subject to special taxes and rates.
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The Prime Minister's announcement of the tax decreases is available, in Spanish, at: http://www.lamoncloa.gob.es/presidente/actividades/Paginas/2015/020715-rajoy.aspx.
The Secretary of State for Finance's announcement on the payroll application is available, in Spanish, at: http://www.lamoncloa.gob.es/serviciosdeprensa/notasprensa/minhap/Paginas/2015/070615ferreirpf.aspx.
More information on payroll issues in Spain can be found in the Spain country primer.
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