How are payroll taxes different from personal income taxes

Treasury we are all, in the metaphorical and in the real. The Spanish allocate 43% of their average salary to pay taxes, according to a study by the Intitut Économique Molinari. Seen in another way, a Spaniard works until June 8 to comply with the State and the rest of the year for his own benefit. So that you understand how the Tax Agency collects, we explain the main difference between indirect and direct taxes.

Taxation in Spain can be divided into two categories depending on the income or assets that are taxed: direct taxes and indirect taxes. Both types of levies are the Treasury’s main source of revenue and the basis on which public spending is based.

direct taxes

Direct taxes are levied on a person’s wealth, income, or any other direct manifestation of wealth. For example, a house, a piece of land or a salary. You pay the State for what you have and for what you earn. These are the best known in Spain:

  • Personal Income Tax (IRPF) . Tax all income from work and capital that you have had during a fiscal year.
  • Corporate Tax . It is applied on the benefit obtained by companies.
  • Inheritance and Gift Tax .
  • Tax on Real Estate (IBI) . It taxes the possession of a home.
  • Tax on Economic Activities (IAE) . Supervises entrepreneurial activity.

Tax on Mechanical Traction Vehicles (IVTM) . Also known as the road tax you pay for owning a car.

“Direct taxes are levied on wealth, income, or any other direct manifestation of a person’s wealth”

indirect taxes

Indirect taxes, on the other hand, are levied on the indirect manifestation of people’s wealth. Therefore, they are applied to the consumption and transmission of goods or rights. They don’t depend on what you have, but on what you buy. For example, you pay it when you shop at the supermarket. These are the most common in Spain:

  • Value Added Tax (VAT) . It taxes the acts of consumption and you pay it at the time of acquisition. There are three types of VAT depending on what you consume:
    • General VAT (21%) . It applies to most products and services, from clothing to plumbing services to household appliances. Basically, it taxes everything that is not in the following two types of VAT.
    • Reduced VAT (10%) . In this category, food products, pharmaceuticals, water and the purchase of homes, among others, are taxed.

Super-reduced VAT (4%) . It applies to essential goods and services, such as basic foods in the shopping basket or books and newspapers, among others.

“Indirect taxes, on the other hand, tax the indirect manifestation of people’s wealth”

  • Tax on Property Transfers and Documented Legal Acts (ITP) . It taxes the circulation of goods and rights on the one hand, and the spending of money or income that we have on the other. For example, the purchase and sale of a second-hand home and the fact of having to document this act.
  • Special taxes. They are taxes that fall on certain goods such as alcohol, hydrocarbons, electricity, tobacco or the registration of means of transport.

If you are worried about the savings you have left after paying accounts with the Treasury, you should take a look at the Pibank Payroll Account . It offers you a return of 0.50% APR (Annual Equivalent Rate) from the first euro if your average monthly balance exceeds €5,000, with a monthly payment of interest. In addition, it allows you to withdraw money at all ATMs for free in Spain and the world. And without commissions, none.

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