Deduction for taxes paid abroad

Regulations: Art. 32 Wealth Tax Act

In the case of a personal obligation to contribute, and without prejudice to the provisions of the International Treaties or Agreements, the payment for the purposes of the assets that are being carried out or which have been outside Spain, the lesser of the following two will be deducted from this tax:

The effective amount of what is paid abroad for personal tax purposes that affects the equity elements included in the tax.
The result of applying the tax rate on the taxable base part taxed abroad.

The average effective tax rate (TMG) is the result of multiplying the quotient by 100 by dividing the total tax liability by the net tax 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 divides Net tax base

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

The value of the equity element located abroad will be subtracted from the amount of the deductible debts corresponding to it, as well as the proportional part of debts that are equally deductible, are not linked to any equity element, thus obtaining the net equity amount corresponding to that element (PN).
The net equity amount thus determined (PN) will be reduced in the proportional part of the reduction by tax-free threshold. This operation can be represented by the following formula:

Ble = PN x Net tax base divides Gross tax base

Note: When the taxpayer has more than one good or right outside Spain, the deduction will be calculated individually for each good or right, the sum of the amounts that prevail in each and every individual calculation made is transferred to box [41] of the tax return.

Example

Ms. G.V.C., resident in Ávila, presents the following details in her 2021 Wealth Tax return:

Taxable base: 1,450,000
Net tax base: 750,000
Total payment: 3,240.36

In its tax return, it has included a property located abroad for which it is the holder and whose acquisition price was 200,000 euros. Of the aforementioned amount, 40,000 euros are pending payment at 31-12-2021. For personal tax reasons affecting the aforementioned property, it has paid 350 euros abroad corresponding to the 2021 financial year.

In the section corresponding to deductible debts from your Wealth Tax return, only the €40,000 corresponding to the property is shown.

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

Solution

Tax actually paid abroad for the property: 350
Amount payable in Spain for the property:
- Net tax base tax payable abroad⁽¹⁾ = 82,758.62
- Average effective tax rate = 0.43 per 100 ⁽²⁾
- Tax base part taxed abroad x effective tax rate: (82,758.62 X 0.43%) = 355.86
Amount of the deduction (the lower of 355.86 and 350) = 350

Sample notes:

⁽¹⁾The taxable base part taxed abroad is determined by subtracting the amount of the debts corresponding to the property from the acquisition value, which are the only debts that appear in the corresponding section of the tax return: 200,000-40,000 = 160,000 Euros. Once the net value of the property has been determined, it is reduced in the proportional part of the reduction by tax-free threshold: (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)