Corporate Tax

Regulations governing Corporate Tax in each territory can be viewed in the Provincial Tax Code (Código Foral Vasco), a computer application that integrates the tax regulations of the historical territories of Araba, Bizkaia and Gipuzkoa.

Definition and connection points in the Economic Agreement
Corporate Tax is a direct and personal tax that taxes the income of companies and other legal entities. The Economic Agreement dedicates section three of chapter one (articles 14 to 20) to this tax and classifies it as a tax based on regional regulations. Therefore, the competent institutions in the Historical Territories may regulate this tax without any type of limitation, respecting the harmonisation principles established in the Agreement.
Basque regulations governing this tax apply to entities whose tax address is in the Basque Country. If the total volume of operations of an entity in the previous financial year exceeds 6 million euros a year, the requirement also demands that the entity should perform over 25% of its operations in the Basque Country, under the terms specified in the Economic Agreement. This point of the regulations obviously implies that an entity will only be subject to one set of regulations, Provincial or Common.
The Agreement also includes a point concerning the levying of the tax. The levying of the tax corresponds entirely to the Provincial Treasury Department when the tax address is in the Basque Country and the total amount of operations for the previous year does not exceed 6 million euros, wherever the operations took place.
In the case of this tax, as in the Value Added Tax, an entity may, applying one single set of regulations, share the results of its liquidation between several Administrations if the operation being taxed has been performed in more than one territory. This circumstance occurs when an entity operates in both territories and the volume of its operations exceeds 6 million euros. In this case, the payment of the tax will be based on the proportion of the operations performed in each territory during the financial year.

Corporate Tax Features
During 2007, Araba and Bizkaia approved relevant Provincial Regulations that partially altered the Provincial Laws governing Corporate Tax. The most relevant measure was a reduction of the general tax from 32.6% to 28%, as well as the rate applied to small enterprises, which is now 24%.
Additional measures included the rationalisation and update of tax incentives with a view to making them as efficient as possible, concentrating tax expenses on activities considered as essential for corporate competitiveness. Among these we can stress those connected with technological research, development and innovation, the manteinance and improvement of the environment and the efficient use of energy sources as well as those that contribute to the employment of groups that have specific difficulties to find jobs.
Finally, new regulations have been issued concerning linked operations, making the valuation at market prices and of asset holding companies mandatory.
However, the three Provincial Laws are still very similar, and it is expected that the certain aspects in which they differ shall be solved in the near future, with a view to achieving the greatest possible level of harmonisation in the three Historical Territories.
Not affecting more detailed information via the Regulations governing Corporate Tax in each Historical Territory, the main features that are generally included in these Regulations are as follows:

1. 1.- Taxable item: It represents the income obtained by the taxable person, irrespective of its source or origin.
   
2. 2.- Taxable amount: The taxable amount is calculated on the basis of the accounting result and is corrected in accordance with the adjustments provided for in the Provincial Regulations. This may be reduced, if appropriate, by compensating negative taxable amounts from previous tax years.
   
3. 2.1.- Amortization.
4. • Provincial Regulations include a simply and practical amortization table.
   • In general, companies are free to amortize tangible or intangible assets not in excess of 600 euros, and new assets acquired with a view to reducing and correcting the contaminating impact of their activities. Also included are those items of tangible and intangible assets that relate to the cleaning of contaminated land.
   • Companies will be free to amortize tangible and intangible assets, except buildings, used for R+D, as well as R+D costs as intangible assets.
   • Possibility of amortizing Goodwill and other intangible assets with an annual limit of the fifth part of the total amount.
   
5. 2.2.- Valuation rules: corrections:
   A simple system is established to correct capital gains in order to eliminate the effect of inflation on income obtained in the transfer of patrimonial items of tangible and intangible fixed assets.
7. 2.3.- Compensation of negative taxable amounts:
   • Negative taxable amounts may be compensated against positive taxable amounts during the fifteen tax periods immediately following.
   • Reinvestment in extraordinary profit
   • The following may not be integrated in the taxable amount:
   oIncome obtained from the transmission of fixed tangible or intangible assets if these are used for commercial purposes and if the amount transmitted is invested in new fixed assets.
   o If a securities portfolio is transferred, 60% of the income obtained if the shares transferred granted a participation of at least 5% and had been owned for at least 1 year in advance.
   • The reinvestment period will go from the year before the delivery or availability of the items to be reinvested and the 3 following years.

1. 3.- Tax Basis: The tax basis is the result from applying reductions included in the Provincial Regulations to the taxable amount, and which may never result in a negative amount.
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2. 4.- Tax Rate: General rate: 28% (32.6% in Gipuzkoa).
   
3. 5.- Deductions
4. 
   5.1.- Deductions to provide incentives to invest in tangible fixed assets:
5. Deduction for investments in new material fixed assets: 10% of the amount invested.
   
6. Deduction to promote information and telecommunication technologies: 10% of the amount invested and expenses incurred (only in Gipuzkoa).
   
7. Deduction for actions aimed at protecting and disseminating Cultural Heritage, as well as investments in film productions and the publishing of books:
   
8. Cultural Heritage: 15% of the amount invested or expenses incurred.
   
9. Film productions: 20% for the producer and 5% for the co-producer.
   
10. Publication of books: 5% of the investment needed to publish the books.
11. 5.2.- Deductions to provide incentives for financing companies:
12. Reserve for productive investments: 10% deduction on provisions for this special reserve.
    
13. Reserve for the acquisition of equity securities: 5% deduction for the acquisition of variable yield securities (only in Gipuzkoa).
14. 
    5.3.- Deductions to provide incentives to perform certain activities:
15. Deduction for research and development activities:
    
16. 30% on expenses incurred in this concept and 50% for any expenses incurred in excess of the average amount incurred during the previous two years.
17. 10% on investments incurred in tangible assets (except property and land exclusively used for these activities).
    
18. Deduction on technological innovation activities:
    
19. 15%/20% of expenses required to obtain quality assurance certificates and projects ordered from Universities or certain institutions.
    
20. 10%/15% of expenses incurred in industrial design, production process engineering and the acquisition of advanced technology.
    
21. Deductions on environmental conservation and improvement activities and on a better use of energy sources:
    
22. 30% on investments on equipment included in the Basque Clean Technology List.
    
23. 15% on investments in fixed tangible assets used to reduce and correct pollution impacts.
24. Deduction on export activities: 25% on investments made in connection with certain export activities (only in Gipuzkoa, although this deduction can be applied in Araba and Bizkaia until 2011 based on percentages that decrease progressively year after year until the said deadline, when it will be abolished).
    
25. Deduction on professional training costs: 10% on professional training costs for company personnel (additional 15% if the costs exceed the average over the previous two years).
    
26. Deduction on local investments and expenses to provide first cycle education for children: 10% on investments and expenses incurred (only in Gipuzkoa).
    
27. Deduction on corporate contributions to employment pension plans, corporate social welfare plans, social friendly societies or voluntary social welfare entities that operate as a corporate social instrument: 10%.
    
28. Deduction due to the creation of employment for groups with special difficulties in this aspect: 3,000 euros for each person/year which implies an average increase in staff concerning the said groups over the previous year, if the said increase is maintained for two years.
    
29. In Gipuzkoa, the said deduction is applicable to the creation of employment in general, and the amounts are:
    
30. 3,606.07 euros for every person/year average increase in staff with an open-ended contract over the previous year, if the said increase is maintained for two years.
    
31. 4,507.59 euros in the case of work sharing agreements.
    
32. 3,005.06 euros, additional to the above-mentioned amounts if the person contracted belongs to a group with specific labour insertion difficulties.

1. 6.- Special regime from small and medium size enterprises:
2. The Provincial Regulations promote small and medium size enterprises through the establishment of a special tax regime which consists in:
   
3. Special rates for small enterprises: 24% (in Gipuzkoa the applicable rate is 30% on the taxable basis between 0 and 100,000 euros and 32.5% on other taxable bases).
   
4. Freedom to amortize small enterprises and apply an amortisation that results from multiplying the maximum coefficients established on the tables for medium sized enterprises by 1.5.
   
5. Deduction on investments on renewable energy sources: 15% on investments (only in Gipuzkoa). [move up]

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Value Added Tax ( VAT)

Definition and connection points in the Economic Agreement
VAT is an indirect tax on consumption and is levied on three types of operations:

1. Delivery of goods and services performed by businessmen and professionals
2. Intracommunity acquisition of goods
3. Import of goods.

The Economic Agreement classifies this tax as an agreed tax based on common regulations. (see articles 26 to 29 of the Economic Agreement). The features of this tax has implied that in the agreement between the Basque Country and the State, the capacity to levy the tax by each Administration has been shared, as the regulatory capacity of the Basque institutions is limited to the aspects connected with the management of the tax.
In accordance with the Economic Agreement, the Basque VAT is governed by the same basic principles, regulations, levies, exemptions, payments, bases, rates and deductions as those established by the State.
The Historical Territories of Araba, Bizkaia and Gipuzkoa have their own VAT regulations that only differ from those of the State in the payment deadlines and in the approval of statement and payment forms.
Regulations governing VAT in each territory can be viewed in the Provincial Tax Code (Código Fiscal Foral), a computer application that integrates provincial tax regulations.
Concerning the levying of the tax, as in the case of Corporate Tax, it is paid to the Provincial Councils by taxable persons whose tax address is in the Basque Country, if the total volume of operations in the previous year does not exceed 6 million euros, wherever their operations are performed.
Furthermore, an entity may, applying one single set of regulations, share the results of its liquidation between several Administrations if the operation being taxed has been performed in more than one territory. This circumstance occurs when an entity operates in both territories and the volume of operations exceeds 6 million euros. In this case, payments are made in proportion to the volume of operations performed in each territory throughout the financial year. [move up]

Income Tax (IRPF)

Regulations governing INCOME TAX in each territory can be viewed in the Provincial Tax Code (Código Fiscal Foral), a computer application that integrates provincial tax regulations of the historical territories of Araba, Bizkaia and Gipuzkoa.

Definition and connection points in the Economic Agreement
Income Tax is a direct, personal and subjective tax levied on individuals' income. The Economic Agreement contemplates this tax as an agreed tax based on autonomous regulations, where the connection point is the regular place of residence of the taxpayer. In other words, it will be levied by the relevant Provincial Council based on the place of residence of taxpayers in the Basque Country. It is regulated by section two of chapter one, articles 6 to 13, both inclusive.

Income Tax Features ( IRPF )
This tax has been extensively altered in 2007 with the new regulations that came into force on 1st January. The said modifications have greatly harmonised Income Taxes between the different Historical Territories in the Basque Country.
One of the most innovative aspects of the new tax is the elimination of differences that had existed in the levying of income from savings. They are now granted the same tax treatment and are all levied at the same rate.
Taxpayers' income is based on their salary income, economic activities and shares (tangible and intangible), apart from the gain or loss of property and other income. Furthermore, there are a number of exemptions.
In order to establish the taxable base, income is classified into general income and savings income. The latter includes income from real estate, including homes and other buildings, as well as income from the transmission of assets. The rest comes from general income.
Regularly, income and expenses are calculated for the taxable period when the income is accrued and the expenses incurred.
The calculation of the general taxable basis and of the savings taxable basis is obtained by the quantification of overall income and deductible expenses that correspond to each tax source, together with the application of specific cases (bonuses on labour income, number of years during which they were generated, updating of acquisition values, reinvestment in the regular home, ...) and, then, after the integration and compensation between the different types of income based on whether they belong to one or other type of income (general or savings).
Once the general taxable base has been obtained, which is the result of applying reductions for the payment of pensions and yearly payments on food, contributions to social pension systems and joint payment of taxes. On the other hand, the tax basis that corresponds to savings is obtained by reducing the taxable amount in the remnant, if any, from the reduction for the payment of spousal support and food support.
The Tax table is applied to the general taxable amount to obtain the overall quota, while a fixed levy of 18% is applied to the savings tax basis.
The tax table includes five tranches that go from 23% minimum to 45% maximum for the highest incomes.
Once the overall quota has been calculated, any relevant deductions are applied: general deduction, family and personal deductions (for descendents that require care, payment of food support for children, ascendants who live with the taxpayer due to incapacity, age), deductions on contributions incurred to protect assets belonging to the person suffering from an incapacity, deduction on investments and finance for the acquisition of the regular home, deductions on rent for the regular home, deductions on the promotion of economic activities (investments and other activities, participation of workers in the company, deposits in credit institutions for the investment to commence economic activities), deductions on donations and other deductions (double international payment and fees paid to unions).
Two new aspects concerning deductions are the creation of a general deduction on self-liquidations and, now, the application of deductions for the acquisition of the regular is levied on each taxpayer individually rather than based on each property.
The amount that results from reducing the overall quota after deductions is the payable quota, i.e., the amount to be paid by the taxpayer.
Finally, the result of the calculation will be equal to the difference between the payable quota and the amounts paid in advance.