Deduction for taxes paid abroad

Regulations: Art. 32 Wealth Tax Law

In the case of a personal obligation to contribute , and without prejudice to the provisions of International Treaties or Conventions, the lesser of the following two amounts shall be deducted from the rate of this tax, based on assets located and rights that could be exercised or had to be fulfilled outside of Spain:

The effective amount paid abroad for personal tax that affects the assets computed in the Wealth Tax.
The result of applying the average effective rate of the Wealth Tax to the portion 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 tax rate by the taxable base. The average effective tax rate will be expressed to two decimal places. The average effective rate of tax is determined according to the following formula:

TMG = Full share x 100 ÷ Taxable base

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

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

BLE = PN x Taxable base ÷ Taxable base

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

Example

Mrs. VGC, resident in Ávila, presents the following data in her Wealth Tax return for the year 2023:

Taxable base: 1,450,000
Taxable base: 750,000
Full share: 3,240.36

His declaration included a property located abroad that he owns and whose purchase price was 200,000 euros. Of the aforementioned amount, 40,000 euros are pending payment as of 31-12-2023. Due to a personal lien affecting the aforementioned property, 350 euros have been paid abroad for the year 2023.

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 the tax paid abroad.

Solution

Tax actually paid abroad for the property: 350
Amount that would have to be paid in Spain for the property:
- of taxable base taxed abroad⁽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 portion of the taxable base taxed abroad is determined by subtracting the amount of the debts corresponding to the property from the acquisition value of the property, 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 for 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)