Further to the Income and Reductions posts from this Personal Income Tax series, we will now analyse the second type of tax credit, deductions, and comment on how tax credits fit into the overall system.
Remember that deductions or “deducciones” lower the overall quote obtained after having applied a tax percentage to the resulting value of your income base minus certain reductions (the other type of tax credits). The end result is the net quote (“cuota líquida”).
- Having started the construction of your accommodation or contracted a mortgage against it prior to the end of 2012 (up to 9042€)
- Investing in new or recently established companies (overall, 20% of the investment with certain limits and conditions, and up to 10000€)
- Donations (for organisations meeting certain requirements in each category)
- Specially recognised organisations (public interest declared, development oriented, or arts or special events related (“mecenazgo”)) (broadly with certain conditions, 75% or 80% of the first 150€, and 30% or 35% after that point. If you have donated for two consecutive years to the same organisation or concept, you can get a flat rate of 35% or 40% for the whole donation).
- Foundations not falling in the previous category: 10%,
- Political parties, unions, or federations: 20%, up to 120€ in total.
Higher and further deductions for individuals living in Canary Islands or the city-regions of Ceuta and Melilla (in the North of Africa) can also be applied.
If you have obtained income from foreign countries and it has been taxed abroad, you have the right to deduct all or part of the taxes you have paid there.
From the family perspective, further tax credits in the form of deductions can be applied for maternity purposes (maximum of 1200€ annually). Deductions might also be applied for large families (3 or more children) and families with disabled members (1200€ annually per member in broad terms).
How Tax Credits Fit into the Overall System
Both types of tax credits analysed in this and the previous post reflect government policies, always subject to the need to get as many taxes as possible without them being a (too heavy) burden to the overall economic system.
As an example, I remember that back in 2011/2012 the elimination of the mortgage-related deductions at the end of 2012 was meant to encourage people to invest in real estate, since it was understood that the construction industry had been too damaged after the economic crisis and it was important for the Spanish economy. This was a way to stimulate it in the short term (while also getting more tax revenue after that).
Additional ways to exercise government policy relate to the birth rate, the development of ‘overseas’ territories, or activities of foundations or special events are encouraged by certain tax credits in the form of previously outlined deductions or those reductions summarised in the previous post.
In the next post we will comment on the overall system and provide some international comparisons to complete this series.
What do you think of these types of tax credits? Are there any tax credits (either deductions or reductions) missing? Would you increase or decrease the amounts of any of the existing ones?
Please be aware that I am not an expert in taxes and therefore you should always seek professional advice. Please also bear in mind that, as with any tax code, there are many rules and variations from one individual to another.
Links of Interest:
Agencia Tributaria, Personal Income Tax
Agencia Tributaria, Manual Práctico Renta 2017
Cinco Días, ‘Otras’ rentas del trabajo: (‘Other’ working income)
Computing, “La Agencia Tributaria se rige por la gobernanza del dato” (The Spanish Tax Agency operates according to the Data governance)
El Confidencial, Renta 2017 y Vivienda (2017 Income Statement and Homes/Residencies)
Gestoría Orejana, Régimen Especial de Trabajadores Desplazados (“Ley Beckham”)
Infoautónomos, Deducción por inversión en empresas nuevas o recientes (deductions from investments in new or recently established companies)
Holded, Declaración de la Renta 2017, ¿cómo pagar menos? (2017 Income Statement, how to pay less?)
Rankia, ¿Cuáles son los tramos del IRPF 2017? Campaña 2018 (Income tax rates)
Super Contable, Tratamiento fiscal de los gastos de viaje y dietas (Taxation on travel expenses and daily allowances)
Photos: Caixa Forum, Madrid. Chinyero Volcano, Tenerife Island, Canary Islands.