On December 31, 2020, the General State Budget Law for 2021 was published in the Official State Gazette (BOE). This law includes a series of important tax measures, such as raising the Corporate Income Tax for large business groups, limiting exemptions for dividends and capital gains generated by their participation in subsidiary companies, and increasing the Personal Income Tax (IRPF) by three points for savings income above 200,000 euros and by two points for the general scale for income above 300,000 euros. The limits in force for applying the objective estimation regime (modules) are extended for 2021.

We inform you that Law 11/2020, of December 30, on the General State Budget for 2021 (hereinafter LPGE 2021), was published in the Official State Gazette (BOE) on December 31, 2020. This Law includes numerous tax measures related to various taxes, which are summarized below.

The General State Budget Law (LPGE) includes a series of important tax measures, such as an increase in Corporation Tax for large business groups, limiting exemptions for dividends and capital gains generated by their participation in subsidiary companies, and a three-point increase in Personal Income Tax (IRPF) on savings income above €200,000 and a two-point increase on the general scale for income above €300,000. The current limits for applying the objective estimation system (modules) are extended to 2021. A new state scale for Wealth Tax is introduced with indefinite validity, but only the highest tax bracket is modified, raising the applicable tax rate from 2.5% to 3.5%. Regarding VAT, on the one hand, the rate for certain sugary drinks is increased from 10% to 21%, and on the other hand, the limits for applying the simplified tax regime and the special regime for agriculture, livestock, and fishing are extended to the 2021 tax year. With respect to other taxes, the most notable change is the increase to 8% in the tax rate on Insurance Premiums, which is currently at 6%.

The LPGE 2021 comes into force the day after its publication in the BOE, that is, on January 1, 2021, although specific rules are established in some cases, as will be pointed out.

Next, we will see these and other main tax measures included in the LPGE 2021.

1. PERSONAL INCOME TAX

1.1 General tax scale, savings tax rates, withholding tax scale and payments on account applicable to recipients of employment income, and scales applicable to workers posted to Spanish territory: Effective from January 1, 2021, and with indefinite validity, a new tax bracket is added to the general tax scale for general taxable income starting at €300,000, with a tax rate of 24.50%. The new feature is the addition of a bracket for income exceeding €300,000, with a 2 percentage point increase. If there were no regional tax scale, the maximum marginal tax rate would be 47% (compared to the 45% previously applied).

Accordingly, a new bracket is introduced for the withholding tax base for employment income exceeding 300,000 euros, increasing the maximum withholding tax rate from 45% to 47%.

Additionally, a new bracket is added to the savings scale for taxable bases exceeding 200,000 euros with a tax rate of 26%.

In line with the above, the scales applicable to workers posted to Spanish territory are modified as follows:

a) The rate applicable to the part of the general taxable base that exceeds 600,000 euros is increased from 45% to 47%.

b) A new bracket is introduced for the part of the taxable savings base that exceeds 200,000 euros, which goes from 23% to 26%.

c) The withholding tax rate applicable to payments made by the same payer that exceed 600,000 euros is increased from 45% to 47%.

1.2 Limits on reduction in the taxable base of contributions to social security systems: With effect from 1 January 2021 and indefinite validity, the general limit with which the reduction for contributions to social security systems operates (pension plans, mutual social security funds, insured pension plans, company social security plans and insurance for severe or great dependency) is modified, reducing the maximum amount that can be reduced from €8,000 to €2,000 per year.

However, the above limit will be increased by €8,000 (i.e., up to €10,000), when the increase comes from employer contributions, specifying what is considered as employer contributions for the purposes of calculating this limit: The contributions made by the individual employer to employment pension plans or social welfare mutuals, of which, in turn, he is a promoter and participant or mutual member, as well as those made to company social welfare plans or group dependency insurance of which, in turn, he is the policyholder and insured.

The financial limits for contributions to social security systems are modified accordingly.

On the other hand, the maximum annual limit of contributions with entitlement to reductions made to social security systems in favor of the spouse who does not obtain income from work or economic activities or obtains it in an amount less than 8,000 euros per year is reduced from 2,500 to 1,000 euros.

And finally, the maximum annual limit for all reductions made by all persons who pay premiums to private insurance policies that exclusively cover the risk of severe or total dependency in favor of the same taxpayer, including those of the taxpayer himself, is reduced from 8,000 to 2,000 euros.

1.3 Extension of the exclusion limits of the objective estimation method (“modules”): The limits established by Law 48/2015, of October 29, on the General State Budget for the year 2016, for the 2016 and 2017 financial years and extended for the 2018 financial year by Royal Decree-Law 20/2017, of December 29; for the 2019 financial year by Royal Decree-Law 27/2018, of December 28 and for the 2020 financial year by Royal Decree-Law 18/2019, of December 27, are extended for 2021.

For the tax years 2016, 2017, 2018, 2019, 2020, and 2021, the amounts of €150,000 and €75,000 are set at €250,000 and €125,000, respectively. Likewise, for these tax years, the amount of €150,000 for agricultural, livestock, and forestry activities is set at €250,000.

2. WEALTH TAX

2.1 Tax scale: The validity of the tax is established indefinitely, so that it is not necessary to extend it year after year by law, thereby providing legal certainty on this tax, and the tax of the last bracket (for assets greater than 10,695,996.06 euros) is increased by one point, from 2.5% to 3.5%.

In any case, it should be noted that these modifications are introduced into national legislation and that some autonomous communities have exercised their regulatory powers, establishing specific tax breaks. Therefore, the specific regulations of the autonomous community of residence must be taken into account.

3. CORPORATE TAX

With effect for tax periods beginning on or after 1 January 2021, the following modifications are introduced into the Corporate Income Tax Law (which are included in Article 65 and in the thirty-first final provision of the LPGE):

3.1 Limitation on the deductibility of financial expenses: The regulation of the limitation on the deductibility of financial expenses is modified by eliminating the addition to the operating profit of financial income from holdings in equity instruments that correspond to dividends when the acquisition value of said holdings is greater than 20 million euros.

3.2 Limitation of the exemption on dividends and positive income derived from the transfer of securities representing the equity of resident and non-resident entities in Spanish territory:  The regulation of this exemption is modified to provide that the management expenses related to such shares are not deductible from the taxpayer's taxable profit, setting their amount at 5 percent of the dividend or positive income obtained, so that the amount that will be exempt will be 95 percent of said dividend or income.

With the same purpose as the previous modification and the necessary technical adaptation, the article that regulates the elimination of international economic double taxation on dividends from entities not resident in Spanish territory is modified.

This regulation is consistent with the power retained by Member States, pursuant to Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable to parent companies and subsidiaries of different Member States, to stipulate that management expenses relating to participation in the subsidiary are not deductible from the taxable profit of the parent company. These expenses may be fixed as a lump sum, provided that, in this case, their amount does not exceed 5 percent of the profits distributed by the subsidiary. For systematic reasons, this measure should also be applied to those other provisions of the Tax Law that likewise eliminate double taxation on the receipt of dividends or profit shares and on income derived from their transfer.

In order to allow the growth of companies with a net turnover of less than 40 million euros and that are not part of a business group, such taxpayers will not apply the reduction in the exemption of dividends mentioned above, for a period limited to three years, when they come from a subsidiary, resident or not in Spanish territory, established after 1 January 2021.

3.3 Transitional taxation regime for shares with an acquisition value exceeding 20 million: Furthermore, the exemption and elimination of international double taxation on dividends or profit shares and on income derived from the transfer of shares in the capital or equity of an entity whose acquisition value exceeds 20 million euros is eliminated, with the aim of limiting the application of these measures to situations in which there is a significant participation percentage of 5 percent, regulating a transitional regime for a period of five years.

3.4 Deduction for investments in film productions, audiovisual series and live performing arts and musical shows

The deduction for investments in film productions, audiovisual series of fiction, animation, documentary or production and exhibition of live performing arts and musical shows is modified to allow those who participate in the financing ("financier") of the work carried out by another taxpayer to also apply it, but establishing the total or partial incompatibility between the deduction of one and the other.

The requirements are as follows:

• The financier must provide amounts as financing to cover all or part of the production costs.
• The financier will not acquire intellectual property rights or other rights with respect to the results of the production, which must be owned in all cases by the producer.
• The funder's contributions can be made at any stage of production until the nationality certificate is obtained.
• The producer and the financier must sign a financing agreement specifying, among other things, the following:
• Identity of the taxpayers involved in the production.
• Production description.
• Production budget with a detailed description of expenses and, in particular, those to be made in Spanish territory.
• Form of financing of production, specifying separately the amounts contributed by the producer, those contributed by the financier and those corresponding to subsidies and other support measures.
• Other matters that may be established by regulation.

The reimbursement of the amounts contributed will be made through the net deduction in the quota agreed in the contract and in accordance with the provisions of sections 1 and 3 of article 36 (regulating the deduction).

• The deduction by the financier will be incompatible, totally or partially, with that of the producer.

The deduction will be calculated and applied as follows:

The deduction will be calculated in the same way as for the producer, but with the limit resulting from multiplying the financing granted by 1.20. The excess may be applied by the producer.

The deduction will be applied annually, based on the contributions paid in each tax period.

To be entitled to the deduction, the financing contract and the certifications required by the regulation must be submitted to the Tax Administration, signed by the producer and the financier, before the end of the tax period in which the deduction is generated, under the terms established by regulation.

Finally, regarding the requirements for applying the deduction (both by the producer and the financier), and specifically the need for the production to obtain (i) the certificate of nationality and (ii) the certificate that accredits the cultural character in relation to its content, its link with the Spanish cultural reality or its contribution to the enrichment of the cultural diversity of the cinematographic works exhibited in Spain, the LPGE adds that these certificates will be binding for the competent tax administration in matters of accreditation and application of the deduction and identification of the beneficiary producer, regardless of the time of their issuance.

3.5 Common rules applicable to investment deductions

Article 39 of the LIS regulates the common rules for deductions for investments regulated in Chapter IV of Title VI of the law:

a) Limit on the application of deductions: The rule establishes that the deductions provided for in this chapter that are applied in the tax period cannot exceed, in total, 25% of the gross tax liability reduced by deductions to avoid international double taxation and tax credits. However, this limit is increased to 50% for R&D&I deductions that correspond to expenses and investments made in the tax period that exceed 10% of the gross tax liability reduced by the aforementioned deductions for double taxation and tax credits.

Now the application of this increased limit is also extended to the deduction for investments in film productions, audiovisual series and live performing arts and musical shows.

b) Maintenance of investments: In general, the assets used for deductions must remain in operation for a period of 5 years from their acquisition, or for their useful life if this is less than 5 years. In the case of movable property, the period is reduced to 3 years or to its useful life if this is shorter.

It is now added that, in the case of film productions and audiovisual series, this requirement will be considered fulfilled if the production company maintains its percentage of ownership of the work for a period of 3 years, without prejudice to its power to market its exploitation rights in whole or in part to third parties.

4. NON-RESIDENT INCOME TAX

The following modifications are incorporated into the Consolidated Text of the Non-Resident Income Tax Law, approved by Royal Legislative Decree 5/2004, of March 5 (LIRNR), with effect from the entry into force of the LPGE, that is, 01-01-2021.

4.1 Extension of the exemption from interest and capital gains tax to residents of the European Economic Area

Article 14.1 c) of the LIRNR provides that residents in the European Union apply a specific exemption for (i) interest and other income derived from the transfer of own capital to third parties, and for (ii) capital gains derived from the transfer of movable property without a permanent establishment.

However, unlike other exemptions regulated in Article 14, such as those in sections h) (parent-subsidiary dividends), k) (dividends obtained by pension funds) and l) (dividends obtained by certain collective investment institutions), the exemption did not apply to residents of the European Economic Area (EEA) until now.

The LPGE comes to remedy this situation, also including the exemption for residents in the EEA, when there is an effective exchange of tax information with the states belonging to it under the terms provided for in section 4 of the first additional provision of Law 36/2006, of November 29, on measures for the prevention of tax fraud (which is expected to be modified by the Anti-Fraud Law).

4.2 Restriction of the "minimum participation requirement" for the application of the exemption for dividends distributed to parent companies resident in the European Union

In line with the modification noted in the Corporate Income Tax, the possibility is also eliminated that, for the purposes of the exemption of dividends distributed to community parent companies regulated in article 14.1 h) of the LIRNR, the minimum participation requirement is considered to be met if the acquisition value is greater than 20 million euros, even if the participation does not reach 5%.

However, for shares acquired before January 1, 2021, a transitional regime is established for a period of five years (i.e., until the period beginning in 2025), where the aforementioned exemption can be applied provided that the remaining requirements set out in the rule for this purpose are met.

5. VALUE ADDED TAX

5.1 Place of supply of certain services: Effective from 1 January 2021, the place of supply rule regarding the effective use or operation of services within the territory where the tax applies, as set out in Article 70.2 of the VAT Law, is amended again. Until now, the effective use or operation clause applied to certain services when, according to the place of supply rules, they were not considered to be supplied within the Community, but their effective use or operation took place within that territory. The new provision is that this clause will also no longer apply when these services are not considered to be supplied in the Canary Islands, Ceuta, and Melilla.

5.2 Reduced tax rates: Effective from 1 January 2021, the tax rate applicable to soft drinks, juices and sodas with added sugars or sweeteners is increased to 21% (previously 10%).

5.3 Extension of the limits for the application of the simplified regime and the special regime for agriculture, livestock and fishing in the 2021 tax year: In accordance with the transitional regime regarding the limits for the application of the objective estimation method in Personal Income Tax in the 2016 to 2021 tax years that we have just referenced, an extension for 2021 of the transitional regime established for the 2016, 2017, 2018, 2019 and 2020 tax years is also provided, relating to the limits that determine the exclusion of the simplified regime and the special regime for agriculture, livestock and fishing of VAT, where the magnitude was raised from 150,000 euros to 250,000 euros.

Therefore, as with the Personal Income Tax (IRPF) for the objective estimation regime, the limits for the application of the simplified regime (150,000 euros) and the special regime for agriculture, livestock and fishing (250,000 euros) are extended for 2021, with indefinite validity.

6. SPECIAL TAXES

Effective from 01-01-2021 and with indefinite validity, the following modifications are introduced in Law 38/1992, of December 28, on Special Taxes.

6.1 Hydrocarbon Tax

• General tax rates for diesel for general use and biodiesel for use as fuel: The general rate for both diesel for general use and biodiesel for use as fuel is increased from €307 to €345.

• Partial refund for diesel fuel for professional use: The refund rate is modified, which, expressed in euros, will be the result of adding the positive amount resulting from subtracting the amount of 306 euros from the general rate (€345) and the positive amount resulting from subtracting the amount of 24 euros from the special rate (€72), in force at the time the right to the refund is generated.

6.2 Special Tax on Electricity

• Exemptions. Two new exemptions are introduced:
  • The electrical energy consumed on vessels because it was generated on board them.
  • The supplied electricity that is subject to compensation with the surplus hourly energy, in the self-consumption modality with surpluses covered by compensation, in accordance with the provisions of Royal Decree 244/2019, of April 5, which regulates the administrative, technical and economic conditions of the self-consumption of electricity.
• Taxable base: reduction: A 100% reduction is established in the taxable base that will be applicable to the amount of energy supplied or consumed in rail transport.
• Minimum tax rate: For rail transport, the tax rate cannot be less than €0.5.

7. TAXES ON INSURANCE PREMIUMS

• Tax rate for Insurance Premiums: The tax rate is increased from 6% to 8%.

8. TAX ON ECONOMIC ACTIVITIES (IAE)

• The title of Group 15 of Section One of the Tariffs is modified, and shall read as follows: "Group 15. Production, transport, distribution and marketing of electricity, gas, steam and hot water."
• The title of group 151, of Group 15, of Section One of the Tariffs is modified, and shall read as follows: "Group 151. Production, transport, distribution and marketing of electricity."
• A new heading 151.6 is added within group 151 of Group 15, of Section One of the Tariffs, with the following wording: «Heading 151.6. Marketing of electricity.
• A new heading 661.9 is added to group 661 of Section One of the Tariffs, which is worded as follows: "Heading 661.9. Other mixed or integrated trade in large stores, understood as that carried out in a specialized manner in establishments with a usable area for the exhibition and sale to the public equal to or greater than 2,500 m² of products such as those related to DIY and home equipment, furniture for the home and office, electronic articles and household appliances, articles for the automobile, articles for sport or others.
• A new heading 664.2 is added to group 664 of Section One of the Tariffs, with the following wording: «Heading 664.2. Electric vehicle charging points.

9. OTHER TAX UPDATES

9.1 Property Transfer Tax and Stamp Duty (ITP and AJD)

The tax scale for titles and noble ranks applicable to the AJD-administrative documents modality is updated by 2%.

9.2 Rates

• The amount to be charged for fixed-value fees is increased by 1 percent, except for those specifically created or updated by regulations issued since January 1, 2019, in order to adjust it to the increased costs of providing or carrying out the services or activities for which they are charged. However, the amounts of the gambling taxes established in Royal Decree-Law 16/1977 of February 25, which regulates the criminal, administrative, and tax aspects of games of chance and betting, remain unchanged.
• The fees required by the Central Traffic Headquarters will be adjusted, once the coefficient indicated above has been applied, to the nearest higher or lower euro cent, when the amount resulting from the application consists of three decimal places.
• The quantification of the parameters necessary to determine the amount of the fee for reserving the radioelectric public domain is generally maintained.
• In the area of ​​railway fees, the fees for railway company licenses, for granting safety authorization and safety certificates, for the approval of centers, certification of entities and rolling stock, granting of titles and authorizations for entry into service, and for the provision of services and performance of activities in the area of ​​railway safety are updated.
• The basic amounts of port fees are also maintained. The discounts and corrective coefficients applicable in ports of general interest to occupancy, vessel, passenger, and cargo fees are established, as well as the corrective coefficients applicable to the fixed fee for receiving waste generated by ships, in accordance with the provisions of the Consolidated Text of the State Ports and Merchant Marine Law, approved by Royal Legislative Decree 2/2011, of September 5.

9.2 Legal interest on money and default interest

The legal interest rate and the default interest rate are set at 3.00% and 3.75%, respectively, therefore remaining unchanged from previous years.

9.3 Public Indicator of Multiple Effects Income (IPREM):

The amounts for 2021 are set, which are increased compared to previous years and are as follows: a) daily, €18.83, b) monthly, €564.90, c) annual, €6,778.80, and d) in cases where the reference to the minimum interprofessional wage (SMI) has been replaced by the reference to the IPREM, it will be €7,908.60 when the rules refer to SMI on an annual basis, unless they expressly exclude the extraordinary payments; in this case, the amount will be €6,778.80.

9.4. Priority patronage activities

For the year 2021, the Law lists the activities and programs that will be considered as priority patronage (for example, those carried out by the Cervantes Institute for the promotion and dissemination of the Spanish language and culture through telematic networks, new technologies and other means; volunteer training programs that have been subsidized by public administrations; programs aimed at eradicating gender violence that have been subsidized by public administrations or are carried out in collaboration with them, etc.).

For these activities, as in previous years, the percentages and limits of deductions provided for in the aforementioned law will be increased by five percentage points. The limit of €50,000 per year for each contributor to any of the specified activities remains in place.

9.5 Tax benefits. Event of exceptional public interest

The following tax benefits are established applicable to various events that qualify as being of exceptional public interest:

1) «Bicentennials of the independence of the Ibero-American Republics» (from the date of entry into force of the LPGE until December 31, 2023).

2) «150th Anniversary of the creation of the Spanish Academy in Rome» (from the entry into force of the LPGE until December 31, 2023).

3) Commemoration of the «125th anniversary of the Madrid Press Association» (from the entry into force of the LPGE until December 31, 2021).

4) Celebration of the «MADBLUE» Summit (from the entry into force of the LPGE until December 31, 2023).

5) «30th Anniversary of the Reina Sofía School of Music» (from the entry into force of the LPGE until August 31, 2023).

6) «Guadalupe Holy Year 2021» (from the entry into force of the LPGE until December 31, 2022).

7) «Andalucía Valderrama Masters 2022/2024» (from January 1, 2022 to December 31, 2024).

8) "Davis Cup Madrid Tournament" (from the entry into force of the LPGE until December 31, 2021).

9) «MADRID HORSE WEEK 21/23» (from the entry into force of the LPGE until December 31, 2023).

10) «Centenary of Rugby in Spain and of the Unió Esportiva Santboiana» (from the entry into force of the LPGE until December 31, 2023).

11) «Solheim Cup 2023» (from the entry into force of the LPGE until December 31, 2023).

12) «IX Centenary of the Reconquest of Sigüenza» (from July 1, 2021 to June 30, 2024).

13) «Barcelona Mobile World Capital» (from the entry into force of the LPGE until December 31, 2023).

14) «Valencia, World Design Capital 2022» (from the entry into force of the LPGE until August 31, 2023).

15) "Fiftieth anniversary of the National University of Distance Education (UNED)" (from the entry into force of the LPGE until December 31, 2022).

16) «Centenary of Revista Occidente» (from the entry into force of the LPGE until December 31, 2023).

17) «50th anniversary of the death of Clara Campoamor. 90 years since the beginning of a full democracy (from March 1, 2021 to February 29, 2024).

18) «Fifth Centenary of the death of Elio Antonio de Nebrija (from the entry into force of the LPGE until December 30, 2023).

19) «New Goals II» (from July 1, 2021 to June 30, 2024).

20) «250th anniversary of the National Museum of Natural Sciences (CSIC-MNCN)» (from the entry into force of the LPGE until December 31, 2021).

21) «Andalusia European Region of Sport 2021» (from the entry into force of the LPGE until December 31, 2023).

22) «75th anniversary of the Oviedo Opera» (from July 1, 2021 to December 31, 2023).

23) «Healthy Habits for the control of Cardiovascular Risk «Learning to take care of ourselves»» (from the entry into force of the LPGE until December 31, 2023).

24) «World Badminton Championships Spain» (from June 1, 2021 to December 31, 2023).

25) «Centenary of the Battle of Covadonga» (from the entry into force of the LPGE until December 31, 2023).

26) "VII Centenary of the Palencia Cathedral 2021-2022" (from the entry into force of the LPGE until December 31, 2023).

27) "Special FITUR: Tourism Recovery" (from the entry into force of the LPGE until December 31, 2023).

28) «Inclusive Sport Program II» (from July 1, 2021 to June 30, 2024).

29) «Valencia 2020-2021, Jubilee Year. Way of the Holy Chalice» (from the entry into force of the LPGE until December 31, 2022).

30) «Neurodegenerative Diseases. International Year of Research and Innovation. Period 2021-2022» (from the entry into force of the LPGE until December 31, 2022).

31) «50th anniversary of the Sant Joan de Deu Hospital» (from the entry into force of the LPGE until December 31, 2023).

On the other hand:

1) The event "Spain Guest of Honor at the Frankfurt Book Fair in 2021" (approved by Royal Decree-Law 17/2020, of May 5, which approves support measures for the cultural sector and tax measures to address the economic and social impact of COVID-19) changes its name to "Spain Guest of Honor at the Frankfurt Book Fair in 2022" and the duration is extended until December 31, 2022 (previously until November 30, 2021).

2) The duration of the event «Alicante 2021. Starting point of the Round the World Sailing Race», approved by the same Royal Decree-Law 17/2020, is established between January 1, 2021 and December 31, 2023.

3) The duration of the event «Plan Decenio Milliarium Montserrat 1025-2025», approved by Law 3/2017, of June 27, is established between February 1, 2019 and January 31, 2022.

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

Warm regards,

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

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