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Spanish solidarity tax on large fortunes – ISGF


What is the spanish solidarity tax on large fortunes?

This is a temporary tax complementary to Wealth Tax, which would only tax the wealth of individuals with a net patrimony (assets and rights that belonged to the taxpayer at the time prior to its accrual date) of more than 3,700,000 euros.

It is also temporary because in principle it will only be in force during the years 2022 and 2023.
For taxpayers with a personal obligation to contribute, a minimum exemption of 700,000 euros is established, so that Spanish residents with assets of less than 3,700,000 euros will not have to pay this tax (3,700,000 euros-700,000 euros).

The tax will be due on 31 December of each year and it will affect the tax payer net assets on that date.
It also has two aspects to bear in mind, one of which is tax collection and the other is to equalise the tax in the autonomous communities and this is because the communities that applied bonuses in the wealth tax, IP, meant that the other communities were left in a certain inequality. With the introduction of this tax, the objective is to try to create a figure that eliminates this inequality to a certain extent and so that a person does not have to pay more for living in a certain Autonomous Community.

Why has this tax arisen?

According to the government, to allocate it to policies to support the most vulnerable and to try to prevent large fortunes from taking advantage of the tax benefits granted by some Autonomous Communities, as well as, obviously, to increase revenue.

What percentage is applied according to net worth?

The tax is made up of tax rates to be applied according to the net worth.

  • 0% for assets of less than 3 million euros.
  • 1.7% for assets between 3 and 5 million euros.
  • 2.1% for assets between 5 million and 10 million euros.

In addition, it can be fully deducted with the regional wealth tax, i.e. the tax you pay for the Wealth Tax can be deducted from the ISGF, which will start to operate where the other tax (Wealth Tax ) ends, so that both taxes do not overlap and avoid double taxation.

The ITSGF establishes the same limit that applies between personal income tax and wealth tax. Therefore, the resulting ITSGF tax liability, together with the full personal income tax and wealth tax liability, may not exceed, in the case of resident individuals, 60% of the sum of the income tax bases, since, if this limit is exceeded, the ITSGF tax liability will be reduced until this limit is reached, with a maximum reduction of 80% of the tax liability.

Who are obliged to declare solidarity tax on large fortunes?

Those exceeding the amount of €3,700,000 as mentioned above:

  • Individuals who are ordinarily resident in Spain, who will have to pay this tax in full regardless of the place where the assets are located or where their rights can be exercised.
  • Non-residents, for the assets (at least 50% of which, directly or indirectly, consist of real estate located in Spanish territory) and rights of which they are holders when these are located within Spanish territory.

On the other hand, taxpayers not resident in Spain and from outside the EU, such as taxpayers resident in Spain who are outside Spain and are located in a country outside the EU or the EEA, are obliged to appoint a Representative resident in Spain (either an individual or a legal entity before the end of the tax return period, for the purposes of their relationship with the Tax Administration) “the appointment of the representative must be communicated to the territorial office responsible for filing the return, with a notification of acceptance by the Representative”.

Who will be responsible for collecting this tax?

First of all, it is important to know that the IP is ceded to the Autonomous Communities and therefore they receive 100% of what is collected and they can establish different rates to the state rate or even reduce them.

On the other hand, the collection of the ISGF will only be received by the Central Government.

Therefore, there are communities that have lower Wealth Tax percentages than those that have the ISGF and other communities that, for example, subsidise 100% of the Wealth Tax (Madrid and Andalusia).

But equally, what could happen is that, for example, Andalusia, which has subsidised the Wealth Tax and now finds itself with this new tax collected by the Central Government could stop subsidising the Wealth Tax so that this revenue goes directly to the Autonomous Community (Andalusia in this case), as citizens will inevitably have to pay if they exceed the minimum amount established for applying the tax, which could trigger a conflict between Communities and the “Central Government”.

Which Autonomous Communities will be able to apply it?

Those Autonomous Communities that subsidise Wealth Tax rates or apply lower rates will be able to apply it. Therefore, the affected regions would be: Andalusia, Asturias, Balearic Islands, Cantabria, Catalonia, Galicia, Madrid, Murcia. In addition, the Basque Country and Navarre will also be affected.

General Considerations

The impact of the ITSGF will mainly affect taxpayers residing in Autonomous Communities with subsidised Wealth Tax and who also obtain high annual incomes that prevent the application of the personal income tax and IP limits.

High net worth taxpayers and their family members should review their wealth structures in order to balance the impact that this tax could have, complying with the requirements of the family business exemption and/or with the personal income tax and Wealth Tax limit, for example.

Non-residents will now consider moving their residence to Spain much more, and the introduction of the ISGF may be an obstacle for them, as the benefits brought by the Wealth Tax rebate in Andalusia, for example, may be offset by this tax.

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