The Spanish government passed the General Budget Law for 2021, which includes pension contributions changes and other tax measures impacting employment.
The new changes entered into effect on 1 January 2021.
In Spain, employees are allowed to take a personal tax deduction for amounts they contribute to a qualified pension, up to the lower of a maximum of 30% of their net employment and business activities income or certain set deduction limits. The Spanish government has decreased the annual individual contribution limit to qualified pension plans as well as employees’ tax deductions from EUR 8,000 to EUR 2,000. Employees are still able to take a personal tax deduction up to EUR 8,000 for contributions their employer makes to a company pension plan on their behalf.
Since the law does not establish a joint tax deduction limit between company and individual plans, the maximum personal income tax deduction allowed is now EUR 10,000 (EUR 2,000 through an individual pension plan and EUR 8,000 through employer contributions to a company), where it does not exceed 30% of the individual’s net wages/business income.
In addition, the maximum deductible contribution amount that can be made by a taxpayer to their spouse’s pension plan also decreased from EUR 2,500 to EUR 1,000 per year.
Insurance premium tax
The tax rate applied to insurance premiums increased from 6% to 8%.
The personal income tax rate for individuals transferred to Spain increased from 45% to 47% for income above EUR 600,000. Employers should plan for the impact on international assignment budgeting. The tax rate for income below EUR 600,000 remains unchanged at 24%.