Investing in Madrid, for some years now, has been synonymous with an excellent option for both national and foreign investors. There are several factors that cause this situation:
- Free economy with low tax pressure
- Direct access to large markets and natural bridge with Latin America
- Availability of labor talent at competitive costs
- First level infrastructures
- Technological hub of southern Europe
- Unique quality of life with first class public services and firm commitment to the Sustainable Development Goals
- Powerful entrepreneurial/innovative ecosystem
In the current context of “fiscal war” between Autonomous Communities and between them and the State, with short and medium-term economic prospects that are not very encouraging, the need to save taxes for companies and investors is more evident than ever.
Focusing on fiscal aspects, for some years now the Community of Madrid has been committed to a low fiscal pressure to favor, among other aspects, foreign investment, both national and international, in its territory. This incentive economic policy has materialized in a continuous tax cut for 17 years and a trend towards the definitive abolition of own taxes.
Below, briefly, we mention the main tax incentives that currently benefit both individuals with high net worth and investors who are considering transferring their individual tax residence to the Community of Madrid.
In the Community of Madrid there is a bonus of 100% of the fee.
However, those individuals with assets of more than 2,000,000 euros must comply with the formal duty of presenting their tax return, but without income.
Tax on Inheritances and Donations
In the Community of Madrid, only 1% of the quota corresponding to the Tax levied on inheritances and donations between parents and children, as well as between spouses and de facto partners, is paid. Therefore, there is a 99% bonus for these assumptions.
Peculiarities regarding certain donations
A reduction of 100 percent of the donation received is established, with a maximum of 250,000 euros, for donations between relatives belonging to kinship groups I (descendants and adopted children under 21 years of age) and kinship group II (descendants and adopted children of 21 years of age or more, spouses, ascendants and adoptive parents), as well as between blood collaterals of the second degree (siblings) when the destination of the donation is:
- The acquisition of the habitual residence of the donee
- The acquisition of shares and social participations in companies or cooperatives
- The acquisition of goods, services and rights for the development of an individual company or a professional business
Requirements regarding the donation:
- The donation must be made in a public document
- In the case of a donation in cash or a deposit in a current or savings account, at sight or in term, it is necessary to justify the origin of the funds, stating it in the public document in which the transfer is formalized
Bonus on acquisitions inter vivos and mortis causa between relatives of group III:
On the other hand, in general, inheritances and donations acquired by the brother, uncle or nephew of the deceased or donor are subsidized by 15 percent of the quota in the event that the taxpayer is a blood relative of the second degree and of the 10 percent if it is third grade. This bonus has been modified upwards up to 25% for all the groups indicated above (siblings, uncles and nephews). This modification will foreseeably enter into force this month of October after its publication in the Official Gazette of the Community of Madrid.
Personal Income Tax
The IRPF is a state tax that is partially ceded to the communities that can introduce, among others, changes in the rates and in the number of brackets in their regional scale.
Reductions in the tax rate of the regional scale
As of 2022, a new reduction of 0.5 percentage points will come into force in all sections of the regional scale. With this reform, the minimum rate is set at 8.5% for the lowest incomes and 20.5% for the highest incomes. These modifications make Madrid the community with the lowest rates on its regional scale.
Deduction for investment in newly or recently created entities
Tax residents in the Community of Madrid can apply a personal income tax deduction for the amounts invested in shares or participations in new or recently created companies.
The percentage of deduction, in general, is 30 percent of the investment. The applicable deduction limit is 6,000 euros per year. An increase of this deduction to 40% with a limit of 9,000 euros is foreseen.
In addition, in the case of investment in labor companies (limited or anonymous) or cooperatives, as well as in entities created or owned by universities or research centers, the deduction percentage rises to 50 percent of the investment and the limit of deduction is increased up to 12,000 euros per year.
It is no longer necessary to meet the previous requirement that the investor contribute their business or professional knowledge appropriate for the development of the company in which they invest.
Deduction for investment in entities listed on the Alternative Stock Market
The deduction is 20% of the amounts invested. You cannot own more than 10% of the entity’s capital and the participation must be held for at least two years.
The entity must have its domicile in the Community of Madrid.
This deduction is incompatible with the deduction for investment in newly or recently created entities. There is this other deduction in personal income tax for those who acquire shares in entities listed on the Alternative Stock Market.
Deduction for donations to foundations and sports clubs
The percentage of deduction will be 15 percent of the amounts donated to foundations constituted in accordance with Law 1/1998, of March 2, on Foundations of the Community of Madrid.
These foundations must pursue cultural, assistance, educational or health purposes or any other of a similar nature to these. In addition, they must be registered in the Registry of Foundations of the Community of Madrid.
It can also be applied to donations made to elementary and basic sports clubs referred to in articles 29 and 30 of Law 15/1994, of December 28, on Sports of the Community of Madrid, which are registered in the Registry of Sports Associations of the Community of Madrid.
The deduction base for deductible donations cannot exceed 10 percent of the taxpayer’s taxable base.
Deduction for the promotion of self-employment of people under 35 years of age
For those under 35 years of age who begin the exercise of their business or professional activity, a deduction of 1,000 euros may be applied in the IRPF of that year.
This requires that the exercise of economic activity be continued for at least one year.
Tax on Onerous Patrimonial Transfers
The Community of Madrid has one of the lowest rates in the purchase of real estate with a general rate of 6%.
Madrid Town Hall
For investments in the city of Madrid, the new applicable tax benefits would be the following:
- The general rate of the Real Estate Tax (IBI) for 2022 goes from 0.456% to 0.428%. Madrid becomes the third provincial capital of the common regime with the lowest general IBI rate in Spain, only behind Santander and Zaragoza.
- The percentages of the Tax on the Increase in the Value of Urban Land (municipal capital gains) for transfers mortis causa in favor of ascendants, descendants and spouse are increased by five points.
As of 2023, the percentages of the capital gains tax bonus for transfers mortis causa in favor of ascendants, descendants and spouse are increased, expanding the existing one in 2021 by five points, up to 95% (legal maximum), depending on the cadastral value for residence and business premises.
- The discounts in the Tax on Economic Activities for the start of activity and for the creation of employment and those for the promotion of renewable energies and the promotion of the use of collective transport are maintained
Any company that starts its activity will be exempt from paying the Economic Activities Tax (IAE) fee during the first two tax years and the 50% bonus of the municipal fee will be extended to these entrepreneurs during the third, fourth and fifth tax periods, after the start of its activity.
Tax credits aimed at promoting the implementation of renewable energy in residential buildings and industrial facilities are maintained. In this section, the discount of 25% to 50% of the IBI for non-residential use properties is maintained and the limit of the fiscal benefit in this tax is increased from 20% to 30% of the real cost of the work. A discount of 50% of the IAE fee is also established for the installation of systems for the use of solar and geothermal energy.
On the other hand, a bonus of between 10% and 50% is maintained in the IAE fee for companies in the city of Madrid that implement transport plans that affect at least 20% of their workforce through the acquisition of subscriptions of annual public transport or through contracting the transport service. This measure aims to improve energy efficiency and contribute to changing patterns in the movement of workers in the city of Madrid.
To the extent that the Community of Madrid and its capital have numerous tax benefits that could be applied, it is essential to be properly advised.
That is why at addwill we have a multidisciplinary team of tax specialists who can offer the best advice according to the needs of the investor. You can contact through the email email@example.com or by clicking here.