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LIFE IN SPAIN

FOCUS: How soaring prices are fuelling growing social unrest in Spain

A lorry drivers' strike, mass protests by farmers and fishermen, industrial production stoppages: record inflation levels have fuelled growing anger with Spain's left-wing government as energy prices go through the roof.

FOCUS: How soaring prices are fuelling growing social unrest in Spain
Demonstrators applaud as taxi drivers take part in a demonstration protesting the cost of fuel, in Barcelona on March 23, 2022. - A lorry drivers' strike, mass protests by farmers and fishermen, industrial production stoppages: record inflation levels have fuelled growing anger with Spain's left-wing government as energy prices go through the roof. (Photo by Josep LAGO / AFP)

After a weekend which saw tens of thousands hit the streets, demonstrators were to head out again on Wednesday for further rallies.

Under the slogan: “Rein in prices, protect jobs, stop the deterioration in living conditions”, the action has been called by Spain’s top unions, UGT and the CCOO Workers Committees.

Backed by consumer groups, the unrest comes as Spain saw consumer prices surge to their highest level in almost 35 years, with inflation jumping to 7.6 percent in February, against a backdrop of soaring energy costs, worsened by the war in Ukraine.

“We want the EU to take all the necessary measures, and at least let countries regulate prices… it can’t keep nations shackled with prices that are completely misaligned with the cost of electricity production,” said UGT boss Pepe Alvarez.

Rally organisers warn the consequences for both households and businesses are serious.

“Month-by-month, lighting bills, heating bills, the cost of petrol and diesel, food, housing and transport just keep going up. The whole of society is suffering,” they said in a statement.

The protests were called on the eve of a two-day European Council summit, which is likely to focus on measures to protect consumers from record energy prices that have been exacerbated by the Russian invasion.

Spain has been gripped by unrest since March 14th when lorry drivers launched an open-ended strike over mounting fuel prices, staging roadblocks and picket lines and leaving supermarkets with empty shelves and several sectors struggling to cope.

READ MORE: How the truck drivers’ strike is affecting life in Spain

The government is also facing a strike by fishermen who downed tools on Monday following calls by a federation of nearly 9,000 boats which says diesel prices have left many vessels working at a loss.

And there is anger in the livestock and farming sector, which has been hit by rising animal feed costs, with nearly 150,000 protesters demonstrating in Madrid on Sunday.

Customers pick up milk cartons on the shelves of a supermarket in Madrid on March 23th, 2022. (Photo by OSCAR DEL POZO / AFP)

‘EU must act as one’

It is the biggest wave of social unrest since Prime Minister Pedro Sanchez came to power in mid-2018 and is firmly backed by the opposition, notably the far-right Vox which organised Saturday’s anti-government protest in several cities.

Vox, Spain’s third largest party which is seeing a boom in support, has successfully tapped into the widespread discontent, especially in rural areas, accusing the government of being “a misery factory ruining the middle classes and the most underprivileged”.

The government is in a tight spot.

Despite taking various measures in recent months to improve low wages and contain energy prices by lowering VAT and tax on electricity production, its efforts have been all but wiped out by spiralling inflation.

In a bid to appease his critics, Sanchez has pledged to unveil “a major response plan”, set to be approved on March 29, that will include significant tax cuts.

His government has also set aside a 500-million-euro ($550-million) budget to compensate truck drivers for diesel price hikes.

However, details remain sketchy, with Sanchez on Tuesday insisting the EU should “defend its citizens… (and) act together to reduce energy prices and limit the economic harm caused by the war in Ukraine”.

Over the past week, Sanchez toured European capitals to push for a common EU response after months of lobbying for Brussels to change the mechanism which couples electricity prices to the gas market.

So far, Madrid’s pleas have fallen on deaf ears, despite support from Paris but there’s hope that could change in the coming days.

If there’s no agreement, the government has said it would push ahead alone, adopting emergency measures on March 29th.

But protesters say it is too little, too late, pointing to similar measures already in force in France and Germany.

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TAXES

How foreigners in Spain’s capital can pay less tax with the new Mbappé Law

The regional government of Madrid is finalising the approval of the so-called Mbappé Law, a very favourable new personal income tax regime for foreigners who settle and invest in the Spanish capital.

How foreigners in Spain's capital can pay less tax with the new Mbappé Law

Similar to Spain’s Beckham Law, introduced in 2005, this piece of legislation is named after a famous footballer who will be the first to benefit from lower tax rates, as will other foreigners in Madrid.

Kylian Mbappé is a French footballer who currently plays for Paris Saint-Germain, but looks set to sign for Real Madrid this summer.

The objective of the right-wing Madrid government of Isabel Díaz Ayuso is to attract more foreign investment to the region with beneficial fiscal rates.

READ ALSO – Beckham Law: What foreigners need to know about Spain’s special tax regime

Unlike the Beckham though, the Mbappé Law is only designed to benefit foreigners who move to the region of Madrid, it’s not open to those who want to move elsewhere in Spain.

Also unlike the Beckham law, foreigners will only be able to reap the rewards of the Mbappé Law if they invest money into the region. This could be in the form of investments in companies or in vehicles, but it cannot include investments in property.

Specifically, applicants will be able to deduct 20 percent of all the money they invest in the Madrid region.

The law applies to regional personal income tax, which accounts for approximately half of entire tax payments in Spain, since the other part corresponds to the State’s collection.

Normally, a foreigner like Mbappé will be taxed in the highest income bracket, as they will earn well over €300,000 gross per year.

When the law is finally approved however, Mbappé could avoid paying the regional income tax entirely, in the event that 20 percent of his Madrid investments represent the same amount that he would have had to pay in taxes on his salary.

READ ALSO: Why you should move to this region in Spain if you want to pay less tax

How will the Mbappé Law work?

For example, if Mbappé earned €40 million gross (not his actual salary), he would normally be charged €18 million in personal income tax.

Of this, 24.5 percent would correspond to the state tax, and this would have to be paid as normal. This means the state would collect €9.8 million from him in tax.

The change happens with the rest of the tax – the regional tranche. If he doesn’t make any investments, which now seems unlikely, he would have to pay €8.2 million in tax to Madrid.

If on the other hand the French superstar invested €40 million in Spanish companies or state bonds – he could deduct €8 million, which represents 20 percent of that amount.

This would mean that Mbappé’s tax rate would remain at 24.5 percent, a marginal rate that is slightly higher than the personal income tax for a worker who earns €20,000 and receives around €1,300 net per month.

As a percentage, of course, the amounts in Mbappé’s case are going to be huge. So, instead of paying €18 million in total, he would only pay €9.8 million.

Overall, this legislation signals that Madrid will become even more attractive to foreign investors.

By contrast, those who move to Catalonia will have to pay 25.50 percent in regional income tax, which added to the 24.5 percent of the state tax would increase personal income tax by half. So as a Real Madrid player Mbappé would earn €30.2 million, but if he signed for Barça he would pocket €20 million.

What’s the catch?

There are a few caveats to the new law, which primarily depend on how long you stay in Madrid. The new regulations establish that you have to stay and live in Madrid for a total of six years. If you leave before those six years are up, then you will be forced to return part of the tax savings you made.

What does this mean for Madrid?

The regional government of Madrid estimates that 30,000 foreign investors could choose to move to the region specifically in order to benefit from the new law and that it will cost the public coffers €60 million per year.

The idea is that Madrid will continue to attract foreign investment. Madrid’s leader Isabel Díaz Ayuso recently claimed that: “Two out of every three euros that arrive in Spain as an investment from abroad do so in projects that are developed within the Community of Madrid. In the last decade, the flow of investments has doubled”.

Madrid already has some of the best tax incentives in Spain. Residents pay less tax on their income, assets, inheritance and property transactions and conditions are beneficial to high-income earners in particular.

Financial experts agree that Madrid is among, if not the top region, with the most lenient tax system in the country, and when the Mbappé law comes into force, the region will benefit from even more incentives.

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