Spain 2010 Budget and Tax Proposals

EUR 11bn is what the government is trying to collect by the following tax proposal, being discussed in the Parliament as we speak.

Income Tax.- The rate for investment income goes from 18% to 19% on the first EUR 6,000 and 21% thereafter. I believe that this is an unnecessary change of tax policy which coupled with a strong Euro will detract new capital investments into Spain. The increase in tax revenues from this measure is something to be seen.  Fortunately the SICAV regimen was not altered  and investment income taxed at 1% is safe if using a SICAV.

VAT.- Starting July 1st 2010, the standard rate of VAT goes from 16% to 18%, and the reduced rate from 7% to 8%. This will affect the real estate transactions as the new rate will affect the sales of off-plan and new properties by increasing a point. This is not a good policy to encourage a recovery in property sales.

Corporation Tax.- The existing 25% lower rate applicable to SME will be further reduced to 20% for companies maintaining and creating new employment, with some limits and up to EUR 120,202.41 of annual profits. The existing 30% rate is reduced to 25% for the same companies. We welcome this reduction that may have some influence in creating new business.

In General the Spanish Economy forecast for 2010 has not changed substantially and hopefully these measures may help the Spanish Economy.

It is interesting to note that even before today’s 2010 Budget presentation, Goldman Sachs upgraded its forecast for the Spanish Economy, indicating some light at the end of the tunnel. Although unemployment and Public deficit will continue in the negative side, as reported by Diario Expansion,  by the end of Q4 in 2009 the Spanish Economy will start moving out from recession.

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