Israel – Spain Tax Treaty

Business activity in Spain

Spain provides a unique opportunity to reach many markets beyond Europe. Spain’s location is a gateway to other markets, including the European Union, North Africa, and Latin America. The unrestricted access that Spain provides to the European market is the opportunity to reach consumers with some of the world’s highest purchasing power.

Spain’s main manufacturing activity is agriculture and food production, with revenues close to €140 billion according to the Spanish minister of industry and tourism.

Spain had the third lowest inflation rate in Europe for March 2023 at 3.1%; that rate decreased to 2.9% in May 2023. Spain has been relatively unaffected by the recent inflation that has plagued much of the world since the pandemic.

Bilateral agreements between Spain and Israel

Convention on the Prevention of Double Taxation between Israel –Spain

The agreement between the Governments of Israel and Spain regarding the avoidance of double taxation was signed in 1999 and entered into force in 2001.

To read the agreement in English, click here.

Applicability of the MLI

Spain and Israel have signed the MLI, which means that there is an automatic exchange of information between the two countries. Spain and Israel signed the MLI in 2017. Israel ratified it in 2017 and Spain followed in 2021. This means that the treaty between Israel and Spain changed automatically according to the content of the MLI treaty, subject to the reservations set by both countries.

Residency for tax purposes in Spain

Residence of an individual

An individual will be considered a resident of Spain if they have stayed in Spain for more than 183 days within one year. However, there are other criteria as per the agreement to avoid double taxation:

1. A person will be resident in the State in which they have their permanent home available to them.
2. Suppose they have a permanent home available to them in both States. In that case, they will be considered residents in the State with the closest personal and economic relations (center of vital interests).
3. If the above criteria cannot be determined, they will be considered residents in the State where they usually live.
4. If a person usually lives in both States and does not live in either of them, they will be considered a resident of the State of which they are a national.
5. Lastly, if they are nationals of both States or neither, the responsible authorities will resolve the case by mutual agreement.

To learn about how an individual is considered a resident of Israel, read here.

Residency of a company

A company is a resident in Spain and subject to CIT on its worldwide income when:

• It has been incorporated in accordance with Spanish law.
• Its registered office is in Spain and/or
• Its effective head office is in Spain.

To learn about how a company is considered a resident of Israel, read here.

The tax system in Spain

Spain Tax Authority is called Agencia Tributaria

Income taxation: 28%

Taxation of companies and branches: 25%

VAT: 21%

Capital gains tax: 19%-28%

Withholding Tax

Inheritance tax and estate tax in Spain

Spanish Inheritance tax and estate tax are levied against Spanish residents on inheritance, legacy, or other types of succession, or by donation or other inter vivos legal transfers with no charge.

For non-residents, the inheritance tax and estate tax are levied the same way unless there is a DTT between the two countries of residence. In the event of a DTT, the taxation jurisdiction will be determined through the DTT.

The net acquisition value determines the tax rate, the relationship with the deceased/donor, and the taxpayer’s previous wealth.

The Groups for non-taxed allowance are as follows:

1. Children, including adopted, of the deceased under 21 years old – €47,859.
2. Children over the age of 21, grandchildren, their parents and grandparents, and spouse of the deceased – €15,957
3. Siblings, nieces, nephews, aunts, uncles, and their descendants and ascendants, as well as in-laws or the deceased – €7,993
4. Everyone not included in the previous groups – no allowance.

There are some special cases for different allowance amounts; individuals with disabilities can get an allowance between €47,000 to €50,000, depending on the degree of that disability.

Children and spouses of the deceased can also be entitled to a €100,000 tax reduction that can balloon to €156,000, provided that you haven’t reached the age of 26

If the inheritance includes the main residence of the deceased and the heirs don’t sell it within five years, there is an additional allowance to be claimed.

The general tax rates after the allowance are as follows:

• Up to €7,993 – 7.65%
• €7,993.46 to €31,955.81 – 7.56% to 10.2%
• €31,956 to €79,881 – 10.2% to 15.3%
• €79,881 to 239,389 – 15.3% to 21.25%
• 239,389 to 389,778 – 25.5%
• 398,778 to 797,555 – 29.75%
• Above 797,555 – 34%

Relocation

Relocating to Spain can come with economic advantages. Firstly, the country offers a relatively affordable cost of living, providing financial relief and a higher quality of life. Secondly, Spain’s diverse economy presents numerous job opportunities across sectors such as tourism, technology, and renewable energy, making it appealing to professionals and entrepreneurs.

 Additionally, favorable tax policies and EU membership open doors to global markets and encourage foreign investment. Spain’s strategic location in Europe enhances trade prospects, while its commitment to sustainable development attracts socially responsible businesses. Overall, Spain’s economic prospects and cultural richness make it an enticing destination for those seeking growth and prosperity.

Spain’s strategic location at the crossroads of Europe, Africa, and the Americas makes it an exceptionally well-connected country with ease of access to most of the world. Situated at the heart of Europe, Spain offers convenient travel options to neighboring countries and access to a vast market of over 500 million consumers within the European Union. The country’s well-developed transportation networks, including modern airports and high-speed trains, facilitate efficient travel within Europe and beyond. With numerous flights connecting major Spanish cities to destinations in North, Central, and South America, Spain serves as a vital gateway for most of the world.

Real estate taxation in Spain

The real estate tax is levied on owners of properties located in Spain at a percentage of the rateable value of the property depending on the type of property:

• Urban property – 0.4% to 1.1%
• Rural property – 0.3% to 0.9%
• Special properties – 0.4% to 1.3%

For more information on real estate rental taxation abroad, click here

Any income from real estate sales is taxed as follows:

• 0 to €12,450 – 19%
• €12,450 to €20,200 – 24%
• €20,200 to €35,200 – 30%
• €35,200 to €60,000 – 37%
• €60,000 to €300,000 – 45%
• €300,000 and above – 47%

Transfer of funds from Israel to Serbia

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities in Spain

1. Sole Trader or Sole Proprietor – The business is considered the same as the person running it. They are responsible for any debts incurred by the company.

2. Partnership – A business relationship formed by two or more people who contribute money and/or other capital. Profits are divided amongst themselves as they have agreed.

3. Public Limited Company or Corporation – A highly structured and regulated stock company. Annual audits are required, and the majority of owners decide major decisions. Shareholders are not responsible for the debts incurred by the company.

4. New Enterprise Limited Company – Considered to be a simplified version of the LLC with additional requirements. The name must include a registration number, one of the founder’s names, and the words “Sociedad Limitada Nueva Empresa” or “S.L.N.E.” At the beginning, there are only allowed to be one to five founders or shareholders; new shareholders are permitted to be brought in as long as they are real people, not legal entities.

5. The Worker-Owned Company – A special type of PLC or LLC owned by workers or the public that does not work for the business. Workers must own 51%, and workers that don’t own shares must not work more than 15% of total hours worked each year or not more than 25% if there are less than 25 workers.

Incentive laws in Spain

There are no specific tax relief laws that are established in Spanish law for foreign investors. Relief may be availed of by Spanish and foreign-owned companies alike.

Ceuta and Melilla, two autonomous enclaves, offer CIT credit totaling 50% for companies established and carrying on activities in these regions during a full business cycle.

A 25% tax credit for expenses incurred from R&D activities. If the expenses are higher than the average R&D expenses for the previous two years, the tax credit is 42%for the excess amount.

17% tax credit for R&D staff expenses and 8% for investments made in tangible fixed assets (excluding buildings). A 12% tax credit can be availed of for technological innovation activities.

Spain Double Tax Treaties