An introduction. Written by Dan Hjortsø on 11 November 2022
The abolishing of the Andalusian Wealth Tax
On 20 September this year, the Andalusian (Southern region of Spain) government decided to ease the tax pressure on the most wealthy residents of the region from this year (read more here). They did so with the purpose of encouraging certain income groups to establish their residence in Andalusia. It is of course much more interesting to establish oneself in Andalusia if you do not have to think about a Wealth Tax, similar to how it is in other European countries.
Elimination of this difference was one of the objectives of the abolishment of the Wealth Tax. Furthermore, the local government wants to attract more talent with investment capacity to Andalusia and thereby promote Andalusian economic activity and job creation. In fact, it is considered by the local government that the existence of this tax has negatively influenced the achievement of the objectives described.
The national law on Wealth Tax
The State law (find it here) regarding the Wealth Tax establishes a threshold of 700.000 euros above which you are obliged to account for tax-wise unless the region installs a reduction on this tax. With this faculty, the regions of Madrid and now Andalusia have introduced a 100% reduction on this tax. The law does not exempt you from providing the information about your fortune to the Spanish authorities, as this is regulated elsewhere, it only exempts you from paying the taxes that were applicable before.
But only nine days after the introduction of the abolishing of the Wealth Tax in Andalusia, the Spanish government announced the future tax measures for 2023 and 2024, including the so-called Solidarity tax on great fortunes.
The Solidarity tax on great fortunes
The law is not yet approved and, therefore, the final terms and conditions for its application are unknown, but the Spanish Minister of Finance said that the new Solidarity Tax law would apply for 2023 and 2024. But as the government in writing has indicated that they count on the income in 2023 from this tax, it seems obvious that the taxes are based on the year 2022.
Residents with a fortune of more than 3 million euros are affected according to the following steps:
- 3 to 5 million euros: 1.7%.
- 5 to 10 million euros: 2.1%.
- 10 million euros and more: 3.5%.
Consequences of the Solidarity tax
In order to avoid double taxation, the amount to be paid resulting from the Wealth Tax applicable in each region may be deducted from said Solidarity tax. Thus, where full reductions are applied to the Wealth Tax, as in Madrid and Andalusia regions, the resident affected will not pay the Wealth Tax but will have to face the full effect of the Solidarity Tax.
And a further consequence of this is that the taxes are no longer paid to the region but to the state of Spain. Some authors have argued that the State law is unconstitutional, but that is a question that remains to be solved at the judicial level – and while that happens the taxpayer still has to pay his taxes.