LEGAL - Changes in the Tax Legislation

As from the 1^st of January of this year, there are some important changes in the Spanish tax legislation concerning personal income tax for residents, non-residents and Spanish companies.

On the Personal and Business Income Tax the existing system has been simplified and the tax rates reduced from five to four levels.  The maximum rate has been reduced from 45% to 43%, and the minimum increased from 15% to 24%.  The exempt minimum allowance to submit a return increases from Euros 3.400 to Euros 9.000.

The Investment Income and Capital Gains Tax will be taxed at a flat rate of 18%, simplifying the existing system.  Non-residents selling their Spanish property will have their Capital Gains Tax reduced from the previous 35% to 18%, and the withholding tax on the sale of the property has also been reduced from 5% to 3%.

There has also been a reduction on the corporation tax rate, depending on the level of profit, which for higher rate payers is down from 35% to 32.5% and from 30% to 25% for the lower rate payers.  The 32.5% will be further reduced to 30% from the 1^st of January 2008.

The special regime which allowed property holding companies to benefit from a 15% tax rate on Capital Gains, has been terminated as per 31^st December 2006.  These companies will now pay taxes at the general regime stated above.  The legislation offers the possibility to dissolve and liquidate the company in the first half of 2007 and revert the assets to the shareholders.