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TAXES

Spain’s Valencia region lowers income tax for yearly earnings under €60K

Valencia's regional president has announced a reduction in income tax for the vast majority of taxpayers as part of a series of reforms that include free transport and other tax benefits for residents of the eastern Spanish region.

Published: 27 September 2022 15:35 CEST
spain valencia region income tax reduction
According to Puig, taxpayers in Valencia will save €111 on average this year. Photo: José Jordan/AFP

Valencian regional president Ximo Puig announced on Tuesday September 27th a series of financial reforms intended to make tax outcomes in the coastal Spanish region more progressive.

The headline grabbing reform is a reduction in income tax rates for those earning under €60,000 gross a year, something that benefits 97.4 percent of Valencian taxpayers (1.34 million workers).

The new income rates will be retroactive and apply to earnings from January 1st 2022, thus reflecting on the 2022 annual income tax declaration carried out next year.

“Incomes of €10,000 will save 21 percent (around €94.5),” Puig explained, and “those of €20,000 will save 7.3 percent (€117). Those of €30,000 will save 2.2  percent, or €67.”

Spain’s Personal Income Tax (IRPF) is a state tax, but half of its collection is controlled by the autonomous communities.

As such, each region can change its income tax brackets, like Puig has on Tuesday, and the reductions he has announced will apply to the 50 percent of IRPF collected by the Valencian regional government – it does not represent a reduction in the overall income tax rate.

Valencianos with incomes over €60,000 will not see any change to their income tax.

During his announcement, Puig gave the example of a young single person under 35 earning €28,000 and paying €8,000 on their mortgage who will pay €530 less in their next tax return.

According to the calculations from the Ministry of Finance, a couple who have an 80-year-old dependent relative, earn €30,000 and file a joint tax return would reduce their net regional tax liability by €162.

It is worth noting that that Generalitat is yet to formalise the reforms in writing, so the specifics (and savings) are not yet 100 percent clear. 

Reform measures

The reduction in income tax was announced alongside two other major policies: an increase in tax-exempt minimums, and increases to tax deductions.

The tax-exempt threshold for earnings will be increased by 10 percent for both personal and family incomes, taking it up to €6,105, allowing 33,000 low-income Valencia residents to not pay income tax.

According to Puig, taxpayers in Valencia will save €111 on average this year.

The politics of inflation

Describing the reforms as ‘progressive’ not ‘elitist’ in what many in the Spanish media have interpreted as criticism of the recent People’s Party tax reform across Spain, including in Madrid led by Isabel Díaz Ayuso, and the slashing of a wealth tax in Andalusia, Puig, leader of PSOE in Valencia, claimed his changes will benefit “families with lower income” and improve “the redistribution of wealth” in the region.

READ MORE: Spain’s Andalusia to scrap wealth tax in bid to attract high earners

“That’s the difference, ladies and gentlemen,” Puig said, “here we keep the wealth tax, a tax for which only 0.5 percent of Valencians are taxed… those who have a wealth of more than half a million euros.” 

Mortgages

The reforms also included a tax deduction of €100 for some mortgages, and a promise to build 1,090 new homes on public land in the Valencian Community.

Transport changes

Puig also announced that Valencian public transport (including all metro, tram and bus services) will be free for children and young people under 30 years old from October 9th until the end of the year.

The measure will benefit around 1,553,000 young people across the region and save them €135 each.

Fertility tax deduction

A tax deduction for fertility treatments for Valencian women who cannot be treated in the public health system for reasons of age or low probability of pregnancy was also announced as part of the tax reforms.

READ MORE: How Spain’s politicians are waging a tax war ahead of 2023 elections

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TAXES

Can you pay taxes in Spain with a foreign bank account?

Many foreigners have tax obligations in Spain but might not have a Spanish bank account to pay them from. Changes by Spain's tax authorities might just make it easier, depending on your circumstances.

Published: 3 May 2024 09:01 CEST
Can you pay taxes in Spain with a foreign bank account?

Navigating the ins and outs of the Spanish tax system can be a little daunting at times. That’s why many people choose to pay for a gestor to handle it all for them.

But for many foreigners in Spain, especially those with property in the country but who aren’t resident, figuring out when and how to pay your taxes can be extra complicated, especially if you don’t speak Spanish.

READ ALSO: What does a ‘gestor’ do in Spain and why you’ll need one

This was compounded by the fact that, for many years, you couldn’t pay Spanish taxes from a foreign bank account. As such, many people were forced to open a Spanish bank account for the sole purpose of paying tax.

Can you pay taxes in Spain with a foreign bank account?

Fortunately, it’s no longer like that. From February 1st 2024, the tax authorities in Spain started allowing tax payments via direct debit from any bank account within the SEPA area, removing the need for a Spanish bank account.

So, in short, yes, you can pay your Spanish taxes with a foreign bank account — depending on the country in which the account is based.

What is SEPA?

SEPA stands for Single Euro Payments Area is a basically an integrated bank transfer system. SEPA includes all the EU members states, plus those in the EFTA (Iceland, Norway, Liechtenstein and Switzerland). The UK is also still member of the SEPA area, despite Brexit.

Before the change, you could only pay your taxes in Spanish via banks approved by the tax authorities.

READ ALSO: Spanish tax returns: A handy guide for foreigners

VAT and tax experts Marosavat explain that under the previous rules, “direct debit [was] only available when the taxpayer’s bank account belongs to a bank entity cooperating with the Spanish tax authorities. This requirement impose[d] an important restriction when using direct debit as a payment method, especially for foreign taxpayers.”

But slowly, the Spanish tax authorities have eased the rules and made it easier for foreign businesses and tax payers to pay their tax from abroad. First, in March 2021, the rules were relaxed for foreign businesses with tax obligations in Spain. 

Then from July 2023 foreign accounts were approved for deferment and split applications of tax debt, and from February 2024 for regular tax payments.

Following the changes, Marosavat says, “the payments will still be processed through a cooperating bank entity, which communicates with the taxpayer’s bank entity. In consequence, all commissions and bank expenses related to the procedure will be passed on by the tax administration to the taxpayer.”

According to Spain’s Agencia Tributaria website, which you can find an English language version of here:

  • Payments are allowed for those who do not have an open account in any collaborating entity in state collection management.　

  • It is especially intended for use by those who pay their debts from abroad.　

  • It can be done by both natural persons and legal entities.　

  • The payment will have releasing effects on the date of receipt and entry of the transfer. 　

Non-resident property owners

This is particularly welcome news for second home owners in Spain, many of whom are non-resident and manage their properties from abroad for most of the year. 

According to IberianTax, by extending tax payments to the wider SEPA area, “property owners can now continue to use their home country’s bank accounts or accounts from other SEPA countries to make tax payments towards their taxes. This change simplifies the process and alleviates the burden of setting up a separate Spanish bank unnecessarily.”

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