New features in Personal Income Tax and Corporate Income Tax in the Draft General State Budget Law for 2023.

The draft General State Budget Law for 2023 has recently been published, which includes several significant tax measures that will come into effect on January 1, 2023. Among other changes, the Personal Income Tax (IRPF) introduces an increase in the taxation of the savings tax base, and the Corporate Income Tax includes a reduction in the tax rate for very small entities.

We inform you that the Draft General State Budget Law (PLPGE) for the year 2023 has been published in the Official Gazette of the Cortes Generales on October 8, 2023, to continue with its parliamentary processing and approval.

Among other measures, we would like to highlight those provided for in the Personal Income Tax and the Corporate Income Tax.

Regarding Personal Income Tax (IRPF), the reduction for income from employment and economic activities is increased, as is the threshold for the obligation to file a tax return when income from employment is received from more than one employer. The reduction is also increased in 2023 for taxpayers who determine their income using the objective estimation method, and the percentage applied to expenses that are difficult to justify is increased for those who determine their income using the simplified direct estimation method. New limits are established for contributions to pension plans, and two additional tax brackets are added to the savings tax rate for incomes exceeding €200,000. The limits established for 2022 are extended for both the objective estimation method in IRPF and the special simplified and agricultural, livestock, and fishing VAT regimes.

Regarding Corporation Tax, a reduced tax rate of 23 percent is established for companies that invoice less than €1,000,000 and are not asset-holding entities.

The government has announced other tax measures, such as the approval of a new temporary tax on large fortunes and a limitation on the offsetting of losses by entities belonging to a tax group under the Corporate Income Tax. However, these will be included in a separate Bill or Proposed Law, and will therefore be analyzed in a subsequent circular once the text is published.

Given that the 2023 General State Budget will be subject to parliamentary processing in the coming months, it should be noted that the tax modifications set out in this circular may be subject to change.

1. Personal Income Tax

1.1 Reduction for obtaining income from work

The amount of the reduction for obtaining income from work and the income thresholds are increased, from and up to where it is applicable.

Taxpayers with net employment income below €19,747.5 (previously €16,825), provided they do not have other income, excluding exempt income, exceeding €6,500, will reduce their net employment income by the following amounts:

• €6,498 (previously €5,565) if net employment income is equal to or less than €14,047.5 (previously €13,115).
• 6,498€ (formerly 5,5656€) less the result of multiplying by 1.14 (formerly 1.5) the difference between the income from work and 14,047.5€ if the net income from work is between 14,047.5 and 19,747.5€.

1.2 No obligation to declare

The lower threshold for the obligation to file a tax return has been raised for those receiving employment income. Specifically, taxpayers who receive employment income from more than one employer (and in other very specific cases, as before) are not required to file a tax return if the sum of said income does not exceed €15,000 (previously €14,000).

1.3 Withholding of employment income

Withholdings and payments on account to be made on employment income paid or credited during the month of January 2023, corresponding to that month, and those to which the general withholding procedure applies, must be made in accordance with the regulations in force on December 31, 2022.

For income paid or credited from February 1, 2023 onwards, provided that it is not income corresponding to the month of January, the payer must calculate the withholding rate taking into consideration the regulations in force from January 1, 2023, making the adjustment thereof, in the first employment income that is paid or credited.

1.4 Reduction for obtaining income under simplified direct estimation

The reduction applicable to economically dependent self-employed workers is increased:

When net income from economic activities is less than €19,747.5 (previously €14,450), provided that there is no income, excluding exempt income, other than that from economic activities exceeding €6,500:

• €6,498 if the net income from economic activities is equal to or less than €14,047.5 (previously €11,250).
• 6,498€ less the result of multiplying by 1.14 (formerly 1.15625) the difference between the income from economic activities and 14,047.5€ (formerly 11,250€) if the net income from economic activities is between 14,047.5 and 19,747.5€ (formerly 11,250 and 14,450€, respectively).

1.5 Expenses that are difficult to justify in simplified direct estimation

The deduction percentage for all deductible provisions and expenses that are difficult to justify will be 7 percent (previously 5 percent). We remind you that the deduction cannot exceed €2,000, and this absolute limit remains unchanged.

1.6. Taxpayers under objective estimation

The general reduction applicable to the net income from modules obtained in the 2023 tax period is increased to 10 percent. Taxpayers may reduce the net income from modules obtained in 2023 by 10 percent, in the manner established in the Order approving the signs, indices or modules for said year.

The exclusion limits for the objective estimation method are extended for the tax years 2016, 2017, 2018, 2019, 2020, 2021, 2022, and 2023. Specifically, the thresholds of €150,000 and €75,000 are set at €250,000 and €125,000, respectively. Likewise, for these tax years, the threshold of €150,000 is set at €250,000.

1.7 Limits on reduction in the taxable base of contributions to social security systems

The absolute contribution limit of €1,500 will be increased by €8,500, provided that such increase comes from employer contributions, or from employee contributions to the same social security instrument for an amount equal to or less than the amounts resulting from the following table depending on the annual amount of the employer contribution:

Therefore, the calculation of the maximum employee contribution is only modified when the company's contribution is between €500.01 and €1,500.

However, in any case, the multiplier 1 will be applied when the worker obtains in the year total employment income exceeding €60,000 from the company making the contribution, for which purpose the company must inform the managing or insurer entity of the social welfare instrument that this circumstance does not occur.

It is specified that the limit of €4,250 previously established for contributions from self-employed workers to simplified employment plans and for contributions to plans promoted by the self-employed worker also applies to contributions to sectoral pension plans.

In line with this reduction, the financial limits of contributions to social security systems are modified.

1.8 Savings tax rates

New tax rates are regulated, adding two brackets to the taxable base between €200,000 and €300,000 with a rate of 27 percent (previously 26 percent) and from €300,000 onwards, where the rate of 28 percent applies (previously 26 percent).

nationals who establish a new residence in a country or territory considered a tax havenretain their tax status for five years. These taxpayers, along with nationals who are habitually resident abroad due to their status as members of diplomatic missions, consular offices, etc., are subject to the same savings tax rate.

1.9 Maternity deduction

• Women with children under three years of age who are entitled to the child allowance and who, at the time of the child's birth, receive contributory or non-contributory unemployment benefits, or who at that time or at any later time are registered with the corresponding Social Security or mutual insurance scheme with a minimum contribution period (in the latter case, 30 days), may reduce their tax liability by up to €1,200 per year for each child under three until the child reaches three years of age. In cases of adoption or foster care, whether pre-adoptive or permanent, the deduction may be claimed, regardless of the child's age, for the three years following the date of registration in the Civil Registry. Until now, this deduction was only available to working mothers, whether employed or self-employed.
• The deduction of up to €1,200 will be calculated proportionally to the number of months of the tax period after the moment in which the requirements are met, in which the woman is entitled to the minimum for descendants for that child under 3 years of age, provided that during those months neither of the parents receives in relation to said descendant the supplement of aid for childhood provided for in Law 19/2021, of December 20, which establishes the minimum living income.
• When you are entitled to the deduction in relation to that descendant because you registered with Social Security or a mutual insurance company after the birth of the child, the deduction corresponding to the month in which the 30-day contribution period is completed will be increased by €150.
• The increase in the deduction for childcare expenses will be limited to the total amount of the actual unsubsidized expenses paid to the childcare provider, whereas previously the limit was the social security contributions paid.

1.10 Withholdings and payments on account

The imputation percentage of 1.1 percent that applies to urban or rural properties with buildings that are not essential for the development of agricultural, livestock or forestry operations, not related to economic activities, nor rented, nor the main residence, will apply in the case of properties located in municipalities where the cadastral values ​​have been reviewed, modified or determined by a general collective valuation procedure, in accordance with the cadastral regulations, provided that they had come into force from 1 January 2012 (before it was when they had been reviewed and come into force in the ten previous tax periods).

2. CORPORATE TAX

2.1 Tax rates

is reduced from 25% to 23% for entities whose net turnover (INCN) of the immediately preceding tax period is less than €1,000,000 and is not considered a holding company.

You can contact this professional office for any questions or clarifications you may have.

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MGI Àmbit

A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.

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