Taxation is a key aspect of any investment or economic activity in general. Depending on how attractive it is, returns can vary substantially. It is therefore an issue on which we must have clear ideas from the beginning, despite the difficulties that this entails.
And I say difficulty because the tax framework for real estate investments in Spain has undergone many changes in recent times, creating a certain “legal uncertainty” and lack of control. And past instabilities tend to be highly correlated with future insecurities.
The government in power, depending on its ideological prejudices, usually legislates in one way or another.
How are business profits taxed in Spain?
Having said this, let’s get into the merits. The first thing you need to know is that, in fact, Taxes are paid for trading in Spain.
Trading is fiscally placed in the same spectrum as investing in the stock market. Namely: Buying and selling stocks for cash, ETFs, futures, options, warrants, FX and CFDs are subject to the same taxation.
We see here how there are no distinctions, a priori, between the products most suitable for trading and those intended for actual investment (mainly based on the duration or duration of the positions); or between those who have leverage and those who do not.
Well, the advantages deriving from investment and trading products They are considered income from movable capital or capital gains. (we will explain the difference shortly). Both are integrated into the tax base of personal income tax savings.
But let’s go in parts. In principle, personal income tax is the main direct tax paid by Spanish citizens. It is calculated on the income earned during the year.
As for the taxable base of savingsthis is the portion of your personal income tax that includes the returns and increases your money generates. That is, what you earn by investing, saving or selling assets.
These are the current sections that apply to the savings tax base:
- Up to €6,000: 19%.
- From €6,000 to €50,000: 21%.
- From €50,000 to €200,000: 23%.
- From €200,000 to €300,000: 27%.
- Over €300,000: 30%.
For example, If a trader obtains 12,000 euros in profit, the first 6,000 euros are taxed at 19% and the remaining 6,000 euros at 21%, with a consequent payment of approximately 2,400 euros (net of a series of compensations and any reductions).
As you can see, the income comes from the savings tax base They don’t come from your workbut from your assets (in money, shares, real estate, etc.).
The profits you obtain from your work, economic or professional activity are integrated into the general tax base, together with other sections.
What is the difference between capital gains and capital gains?
Both concepts are part of the basis of saving, but they do not mean the same thing:
- Returns on mobile capital: income from the performance of financial products, such as interest on deposits, stock dividends or bond coupons.
- Capital gains: profits obtained from the sale or transfer of assets, such as stocks, ETFs or cryptocurrencies.
To distinguish them without problems, think about the following:the operation involves a sale (transfer of assets)?
If the answer is yes, it is a capital gain (or loss).
Because of this, Most trading profits are considered capital gains.since they derive from the purchase and sale of goods.
Conversely, if dividends on stocks or interest paid on bonds are taxed as capital income.
How to declare trading operations in income?
With the current tax framework, trading and investing in the stock market is much more attractive than in the past, especially for higher income earners or those traders and investors who earn higher profits.
Let’s take a practical example. A trader who receives no income other than that from his trades realizes a capital gain on his trades of €120.00 per year. Currently you will pay 23%: €27,600.
However, when you once had to pay taxes at your marginal personal income tax rate, you could have paid more than double.
It should also be noted that expenses and commissions deriving from trading and investments are deductible. Therefore, the following formula must be applied at the end of the tax period:
Capital gains – Losses – Commissions = Final result
Finally, comment that today you have to use box 288 and then option 5 in your tax return (Spain).
If you want to learn how to handle all this step by step and with real examples, we have a fiscal course specific for traders where we explain it in a practical way.
Can business losses be compensated?
Yes; if you suffer losses from the sale of stocks, cryptocurrencies or any financial assets can be offset against other capital gains that you obtained in the same tax year.
In the case of cryptocurrencies, tax management can be more complex due to traceability and the variety of platforms. If you work with digital resources, our cryptocurrency coursewhere we show how to correctly declare these operations.
This just means that you are taxed on the net resultthat is, the difference between profits and losses.
Furthermore, if the balance is negative, personal income tax rules allow for compensation up to 25% of the positive balance of income from movable capital obtained that year. This reduces the taxes you pay on dividends or interest you may have earned.
If you still have a negative balance you don’t lose it: the law allows you to do so save those losses for the next four fiscal years.
This way, if you make profits again in the next few years, you can use these losses to reduce your tax base and, therefore, pay less taxes in the future.
Example:
If a trader wins €4,000 in stocks but loses €2,000 in cryptocurrencies, he will only pay taxes on €2,000.
If in another year you make $3,000 in losses and no profits, you can use those losses over the next four years to reduce future capital gains, thus paying less personal income tax when you make profits again.
Common mistakes of traders with the Treasury
Many individual investors get involved errors in filing the tax returneither through ignorance of the regulations or through failure to maintain detailed control of their operations. Sometimes it is essential to improve the theoretical basis and discipline. This is why we also recommend reviewing our business bookswhere we explain the methodology, risk management and control of operations.
These errors can lead to sanctions, obligations or, simply, paying more taxes of those necessary.
Therefore, it is important to know the tax obligations of trading and maintain good accounting organization throughout the year.
Specifically, These are the most common errors:
- Don’t declare small profits thinking they don’t matter.
- Forget to include broker commissions or fees, which increase your real profit and make you pay more taxes.
- Do not report foreign accounts, brokers or platforms using Form 720 or Form D-6.
- Don’t take advantage of the ability to offset losses with savings-based gains.
- Do not keep transaction receipts (extracts, tax returns or intermediary certificates).
- Submitting the return after the deadlines or not viewing the tax data before sending it.
- Do not declare transactions with cryptocurrencies, thinking that they are not controlled by the Treasury.
