Deduction for taxes paid abroad

Regulations: Art. 32 Wealth Tax Law

In the case of personal obligation to contribute , and without prejudice to the provisions of the International Treaties or Agreements, the amount of this tax will be deducted, based on the assets that reside and rights that could be exercised or had to be fulfilled outside Spain, the lesser of the following two:

The effective amount of what was paid abroad due to a personal tax that affects the assets counted in the tax.
The result of applying the average effective tax rate of tax to the part of the taxable base taxed abroad.

The average effective tax rate (TMG) is the result of multiplying by 100 the quotient of dividing the full amount of the tax by the taxable base. The average effective tax rate will be expressed with two decimal places. The average effective tax rate is determined according to the following formula:

TMG = Full fee x 100 divide Liquidable base

The determination of the part of the taxable base taxed abroad (BLE) will be determined as follows:

From the value of the asset located abroad, the amount of the deductible debts corresponding to it will be subtracted, as well as the proportional part of the debts that, being equally deductible, are not linked to any asset element, thus obtaining the asset amount. net corresponding to said element (PN).
The net asset amount thus determined (PN) will be reduced by the proportional part of the reduction due to the exempt minimum. This operation can be represented with the following formula:

BLE = PN x Taxable base divided Taxable base

Note: When the taxable person has more than one asset or right located outside of Spain, the calculation of the deduction will be made individually for each asset or right, transferring the sum of the prevailing amounts to box [41] of the declaration. in each and every one of the individual calculations made.

Example

Ms. VGC, resident in Ávila, presents the following data in her Wealth Tax return corresponding to the 2020 financial year:

Taxable base: 1,450,000
Liquidable base: 750,000
Full fee: 3,240.36

In his declaration he has included a property located abroad of which he is the owner and whose acquisition price was 200,000 euros. Of the aforementioned amount, 40,000 euros are pending payment as of 12-31-2020. Due to a personal lien that affects the aforementioned property, 350 euros corresponding to the 2020 financial year have been paid abroad.

In the section corresponding to deductible debts of your Wealth Tax return, only the 40,000 euros corresponding to the property appear.

Determine the amount of the deduction corresponding to tax paid abroad.

Solution

Tax actually paid abroad due to the property: 350
Amount that would have to be paid in Spain due to the property:
- Part of taxable base taxed in the foreign ⁽¹⁾: 82,758.62
- Average effective rate of tax: 0.43 per 100 ⁽²⁾
- Part of taxable base taxed abroad x average effective tax rate (82,758.62 x 0.43%): 355.86
Deduction amount (the lesser of 355.86 and 350): 350

Notes to the example:

⁽¹⁾The part of the taxable base taxed abroad is determined by subtracting from the acquisition value of the property the amount of the debts corresponding to it, which are the only debts that appear in the corresponding section of the declaration: 200,000 – 40,000 = 160,000 euros. Once the net value of the property has been determined, it is reduced by the proportional part of the reduction due to the exempt minimum: (160,000 x 750,000) ÷ 1,450,000 = 82,758.62 euros. ^(Back)

⁽²⁾The average effective tax rate is determined as follows: (3,240.36 x 100) ÷ 750,000 = 0.43. ^(Back)