Editor’s note: This article was first published in December 2011. Everything in it refers to Spanish IRPF rules for the 2011 tax year, including pension plan limits, the primary-residence purchase deduction and the 4% VAT rate on homes. Most have since changed or been abolished, so it should not be read as current tax advice.
There are three weeks left until the end of the tax year, so there is still time to consult a financial adviser who can help you reduce your income tax bill. In a report, the union of Spanish Finance Ministry technical staff (Gestha) stated that a Spanish citizen earning around 30,000 euros a year could save up to 2,768 euros by taking advantage of some of the most common deductions available under the IRPF Law (Spain’s personal income tax), many of which a large share of taxpayers are unaware of.
It’s a matter of reviewing, before the end of 2011, how much income tax we have already paid in advance, what is still outstanding, and what benefit we would get from putting part of our money into certain products or causes. Probably the best-known tax deduction is paying into a pension plan.
With these contributions, a taxpayer could save between 24% and 45% of the amount invested. The general limit for these contributions is 10,000 euros (12,500 euros if you are over 50), although the amount cannot exceed 30% of your income from employment and business activities.
Other tax deductions
Buying your primary residence is another good way to lower our “bill” with the Spanish Tax Agency, and on top of that, until the end of the year a 4% VAT rate applies instead of the usual 8%. Another form of tax deduction is renovating your primary residence, although the renovation has to be aimed at improving energy efficiency, hygiene, internet or digital TV access, security and so on.
See also: What can I invest 1,000 euros in to get a return?
The Tax Agency has warned that this year it will crack down hard on fraud in this kind of renovation, so the work cannot be paid for in cash (check with an adviser).
If you have invested in the stock market and made losses, you can also make money from those losses, because capital losses on investments are also tax-deductible. So this may be the moment to recover part of a bad investment.
Remember that donating money to NGOs and foundations also gets favourable tax treatment. Likewise, the tax authorities usually reward donations or contributions to political parties in the tax return.
If you have incurred costs from a legal case against the company you worked for, these can also count towards your deductions.
New this year, entrepreneurs who have taken the plunge and set up a Sociedad Limitada Nueva Empresa (a simplified Spanish limited company for new businesses) will be able to open a savings account that lets them deduct 15% of their contributions.
I imagine that, in addition to everything mentioned here, there are other ways to reduce your taxes. It’s a matter of asking your adviser to guide you properly through the pros and cons since, for example, I’m one of those people who would rather pay 300 euros to the taxman than invest 6,000 euros in a pension plan, though that is just my personal approach.
Featured image: P4K1T0, CC BY-SA 4.0, via Wikimedia Commons.
