Taxation is applied to all phases of a car's life, from its manufacture to its repair and spare parts. The Spanish automotive industry also has a strong influence on the Spanish economy, employing 10% of the country's workers, and accounting for more than 25% of exports.
Spanish car taxes can be grouped into two categories: the first is national taxation specific to the automotive sector and the second is local taxation applied by the different local or regional administrations of Spain.
National taxation is applicable to direct taxes (corporate tax, personal income tax) and indirect taxes (VAT and excise duties).
Local taxation is applicable to the circulation (driving) taxes connected with the possession or ownership of a vehicle.
In principle, the tax treatment of the costs related to vehicles (including indirect taxes and other non-recoverable taxes) will be the same as that for accounting purposes.
This means they will be fully deductible either as depreciation of the assets or as accounting operating expenses, provided that the vehicles are used for business purposes and that related expenses are duly supported by the relevant documentary evidence (complete invoices, agreements, etc).
If vehicles are accounted for as assets (either as tangible or intangible), the depreciation recorded in accounts, following Spanish Corporation Tax (CTA) procedures (the most common being linear depreciation at a maximum of 16% per year for passenger cars, minibuses and vans) will be allowed as a deductible expense.
The tax treatment of lease vehicles may have specific tax treatment for both lessor and lessee depending upon the type of leasing agreement.
Drivers' personal tax
For company cars used for private purposes by a company's staff, the first point to determine is the element of private use.
There are no official rules that can be applied in all cases, and the tax authority's position is that the apportionment must be made on a case by case basis. It also considers that the use of a car for commuting to work is private use, as well as weekend or holiday use.
The most common systems used by companies are either based on time or mileage, although they must be able to prove that their system reasonably represents the actual private use of the vehicles in the case of a tax audit.
The valuation of the taxable fringe benefit in the case of the use or supply of vehicles will be based on the following rules:
The acquisition cost for the buyer, including taxes on the transaction. In the case of use, 20% per year of the acquisition cost. If the vehicle does not belong to the entity who pays, the same percentage shall be applied to the market price of the vehicle if it were new.
Companies must make a payment on account to the treasury on the fringe benefits paid to employees, at the employees' general withholding rate.
But if employees use their own cars for business journeys, they will usually be reimbursed a mileage rate by their employer. For tax purposes, an amount not exceeding €0.17 per kilometre will be considered tax free and not subject to withholding tax.
Example: A company puts at the disposal of two employees two new Seat Toledo TDIs, each worth €25,000 (including tax). The vehicles are leased under an operating lease from a third party supplier. The monthly cost of each lease is €500.
One employee is in the sales department and has a private use of 30% based on a time apportionment. His personal withholding rate is 25%. The other employee is the finance director whose private use of the car amounts to 60%. Her personal withholding rate is 40%.
Sales employee: Annual value of the fringe benefit to be calculated for personal income tax: 20% x €25,000 (value of fringe benefit) x 30% (private use) = €1,500. Payment on account to be made by the company: €1,500 x 25%= €375
Finance director: Value of the fringe benefit to be calculated for personal income tax: 20% x €25,000 x 60% (private use) = €3,000
Payment on account to be made by the company: €3,000 x 40%= €1,200.
As may be seen, the relevant factors are the value of the vehicle as new (not the lease cost), and the employee's apportionment of private use and personal withholding rate.
VAT at 16% is due on the import, supply or acquisition of almost all cars. Diplomatic and international organisations are exempt from Spanish VAT on the acquisition of their cars but prior cknowledgement is required from the Spanish Tax Administration.
In general, any VAT paid on the import or acquisition of a car would be deductible by companies or professionals if the cars are bought exclusively for business use.
If the car is used partially for professional activities and partially for private purposes there is a presumption that the use of the car by the company or professional is 50%, giving the right to deduct 50% of the VAT paid on the import, lease, and repair, including the purchase of spare parts, and petrol.
As far as the Canary Islands belong to the EU Customs Territory but not to the EU VAT territory, importation of cars into the Canary Islands coming from outside the EU will be subject to Customs Duty at 6% from 1/1/2003 to 31/12/2004, under Council Regulation (EC) Nº 704/2002 of 25 March 2002; as well as to the Canary General Indirect Tax (IGIC) at 13%.
Supply of cars within the Canary Islands will be also subject to IGIC at 13%. Input IGIC incurred on purchasing the cars will be only recoverable in case of cars used exclusively for the purpose of the purchaser's business activity. No presumption analogous to that existing in the VAT Law has been implemented for IGIC purposes up to date.
In Spain a lease agreement will be treated as a supply of goods if the customer has to exercise the purchase option. If not, the lease agreement will be considered as a supply of service up to the time the purchase option is exercised and then the residual portion would be considered a supply of goods.
Tax on registration of the car
'Impuesto Especial sobre Determinados Medios de Transporte' is an excise duty and payable once at a rate of 12% (applicable to new and second-hand cars) when a car is registered for the first time within Spain for use by individuals or entities resident in Spain.
The taxpayer responsible for the payment of this excise duty is the individual or entity that registers the car in its own name, although a legal exemption allows the taxpayer to be the person or entity that uses the car.
Certain vehicles are exempt from this excise duty (taxis, hire cars, cars related to movement of residence, cars registered by disabled for their exclusive use, diplomatic posts and international organisations) but prior authorisation from the Spanish Tax Administration is required.
The taxable base for new cars is the same as the taxable base applied for VAT purposes. For second-hand cars, it is their market value at the time of registration.
Remarketing companies can recover the registration excise duty when they deliver cars outside Spain.
Annual circulation tax
An annual circulation tax (Impuesto de circulacion) is levied on all motor vehicles.
This tax is payable to the town hall where the car is registered although the Ministry of Finance establishes the basic tariffs in the National Budget (except for the Basque country that establishes its own tariffs).
Once the National Administration has published these basic tariffs, different town halls have the power to add a multiplying coefficient (up to a maximum of two, according to the type of car, regardless of the number of citizens of the town).
The rate of taxation is based on engine power for cars expressed in fiscal hp and calculated on the basis of the cubic capacity of the engine.
For accounting purposes from the lessee perspective, lease agreements are treated in two different ways by Spanish Standard Accounting Rules.
This type of agreement includes pure lease agreements as well as those with purchase options (but not those included in the categories below). These leases are booked as mere operating expenses by the lessee.
Financial lease with purchase option
(Outright purchase/hire purchase)
When a financial lease with a purchase option leaves no reasonable doubt that the purchase option will be exercised, the accounting treatment for the lessee is: the purchase value of the asset, excluding any financial cost, accounted for as an intangible asset (rights on goods under financial leasing).
This intangible will be amortised on an economic basis during the lifetime of the asset it refers to.
The total financial cost to be paid will be accounted for as a deferred asset account, to be passed on to P&L as the financial charge is accrued. A payable account for the total amount, ie purchase value plus financial charge will be booked to balance the asset part of the operation.
It is assumed for accounting purposes that the purchase option will be undoubtedly exercised where its value is lower than the residual value of the asset.
Corporation tax rate 35%
Standard VAT rate 16%
Next Budget January 1, 2004
Dates of tax year: generally the calendar year, although it is up to the taxpayer to change it for other periods not exceeding 12 months.
Financial lease agreements Under Article 128 of the CTA
These lease agreements are those that meet the following requirements: The agreement must include a purchase option that can be exercised by the lessee upon expiry of the term of the agreement. The leased assets must be used for business purposes.
The agreement must have a minimum term of two years. The lease instalments must differentiate between the element that corresponds to recovery of the cost of the good by the lessor, excluding the value of the purchase option, and the financial cost required by the lessor.
The annual sum of the element of the leasing instalments corresponding to the recovery of the cost of the good must remain equal or increase throughout the contractual period.
For accounting purposes, the lessee may book an intangible asset for the value of the purchase price of the vehicle.
This intangible asset is amortised on the basis of the economic lifetime of the vehicle, and as such would be deductible for tax purposes, provided that the expense booked does not exceed the officially approved depreciation tables (maximum 16% per annum for vehicles).
The financial costs accrued and paid annually are regarded as a financial accounting expense during the term of the agreement and are also deductible.
However, finance leases under Article 128 of the CTA have specific tax treatment for both lessee and lessor.
The lessee is allowed to take as deductible expenses
a) the financial charge paid to the lessor and
b) the element of the leasing instalments which corresponds to recovery of the cost of the vehicle, with a limit of twice the straight-line depreciation coefficient (maximum 16%).
This second point may be a real tax benefit, in the way of an accelerated depreciation.
The lessor will have to depreciate leased vehicles for tax purposes, excluding their purchase option value, within the term of the agreement.
Purchase option agreements other than those under Article 128 of the CTA
Regardless of their accounting treatment, ie booking an intangible asset to be amortised as mere operating expenses, when there is no reasonable doubt that the purchase option will be exercised, the lessee will take as a deductible expense for the tax period:
a) the financial cost accrued and accounted for as such for the period and
b) the depreciation of the leased asset calculated in accordance with the procedures allowed by the CTA (usually, linear depreciation up to 16% per annum).
There is no reasonable doubt that the option will be exercised when the option price is less than the difference between the acquisition price of the vehicle and the total of the maximum depreciation instalments over the term of the lease.
The lessor will have to depreciate the leased vehicle for tax purposes excluding its purchase option value, within the term of the agreement.
Others (operating lease and others) not included in the two above types
These lease agreements will be treated as operating lease or 'pure' lease agreements in which the lessee will treat the payments made to the lessor as deductible operating expenses for the total amount paid, provided they are duly accounted for and supported.
There is no relevant tax burden as regards Corporation Tax for the acquirer or lessee of company cars, even for cars that have some private use. The main tax burden in such case is shifted to the Personal Income Tax of the employee driving the car.