Every year, when April arrives, the season begins in which Personal Income Tax (IRPF) becomes a recurring topic. Even so, it remains an unfamiliar subject for many.
Because it is a recurring part of our lives, it is worth having a general idea of this tax which, together with VAT, represents the largest source of revenue for the Tax Administration. In any case, if you have questions or need advice on this matter, do not hesitate to contact BBMabogados, where we have the best experts in this field.
What is the income tax return or IRPF, and what does it tax?
Personal Income Tax (IRPF) is a tax levied on the income obtained in a tax year by persons resident in Spain. In this respect, income is understood to mean the earnings obtained, once deductible expenses have been subtracted. This tax must be paid to the Tax Agency.
It is characterised as a direct tax, since it falls on the taxpayer’s income, which reflects their economic capacity. Secondly, it is a personal tax because the taxable event is defined by reference to a person and their income, rather than to an asset. In addition, it is subjective, because it takes into account each individual’s personal and family circumstances and their bearing on income. Likewise, it is a progressive tax, since the greater the tax base, the higher the percentage of that income that is taxed.
Now, as regards what IRPF taxes, the law establishes five types of income that must be declared:
EARNED INCOME
This is income obtained as the fruit of work, including the receipt of pensions, unemployment benefits, subsidies or grants.
INCOME DERIVED FROM SAVINGS
This refers to money in bank accounts, funds, bank deposits or other types of financial investment.
INCOME DERIVED FROM PROPERTY
This is income obtained from owning property. Generally, the income these generate through being let out.
INCOME OBTAINED FROM CARRYING ON A BUSINESS OR PROFESSIONAL ACTIVITY
This is income obtained from carrying on an economic or professional activity on a self-employed basis.
INCOME FROM CAPITAL GAINS OR LOSSES
This is income generated by the entry or exit of assets from one’s estate.
Who must file?
In principle, every individual, whether of Spanish nationality or not, who resides in Spain for more than 183 days during the year, or who has in the country the main centre of their activities or economic interests, whether directly or indirectly, is required to file.
There is an extensive group of exceptions to this rule. Do not hesitate to contact us to determine whether your case might fall among those exceptions or exemptions.
If, in addition to handling your annual campaign, you need ongoing monitoring of your assets, you can count on our specialist tax advice service in Santander for individuals, the self-employed and companies.
What happens if you are required to file and do not do so, or do not pay the tax?
Several scenarios may arise on this point. Thus, if you do not file the return within the deadline, and this does not cause financial loss to the Tax Office, the infringement could carry a fine of 200 euros.
If, on filing the return, tax is payable and the taxpayer does not pay it, the Tax Office applies surcharges for late filing that increase with the length of the delay: 1% plus a further 1% for each full month during the first year, and 15% plus late-payment interest once twelve months have passed.
If the Tax Administration determines that the taxpayer has not paid and has no intention of doing so, it will apply penalties that may range from 50% to 150% of the amount payable, plus late-payment interest depending on the seriousness of the infringement.
How does IRPF work in Santander?
Earned income and savings income are the most common. Then, frequent but to a lesser extent than the above, comes income from property. Income from economic activities, on the other hand, applies only to the self-employed.
Finally, capital gains and losses are extraordinary income, given how rarely they occur, since they arise in cases such as the sale of a flat, the winning of a prize or winning the lottery.
Income of the first three types is known to the Tax Office during the year. This is because those who pay this income are required to report it throughout the year and even to withhold a percentage at the time of payment.
So, if there is no record that we are self-employed or that our assets have changed, the draft income tax return is generated so that each taxpayer simply checks the data and can confirm it.
Where there are deductible expenses that the Tax Office was unaware of, the necessary adjustments are made and there is a possibility that overpayments have been made. It is then that the return “is refundable”.
Another scenario is where, being self-employed or having received a change in one’s assets, these must be declared and the return “is payable” for the differences that were not withheld on that income.
As can be seen, each person’s return may vary as much as each person’s circumstances. That is why it is advisable to rely on the advice of professionals who will study your specific case and know how to guide you to avoid future penalties.
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