Spain: Law on New Non-Profit Organization Tax Regime Enters Into Fore

7 March 2003

Report from IBFD correspondent A. de Juan Ledesma, Estudio Juridico Fiscal & Consilivm, Madrid

Law 49/2002 of 23 December 2002, which introduces the new tax regime for non-profit organizations (NPOs), entered into force on 25 December 2002. The new regime abolishes Law 30/1994 of 24 November 1994 (see TNS-42 (1995)) and generally applies from 1 January 2003. The main features of the new regime have been significantly amended from the draft law submitted by the government to the State Council on 11 March 2002 (see TNS-260 (2002)) during its consideration by the parliament. Specifically, various proposals were discarded, in particular the requirement that at least 70% of the amount resulting from applying the legal interest rate to the total value of an NPO should be spent on the NPO's purposes and that an NPO would have to renounce its voting rights in excess of 3% in participations in listed companies and could not appoint directors in such companies.

In summary, Law 49/2002 establishes the following tax regime for NPOs:

  1. with regard to corporate income tax, the new regime provides for a complete exemption for donations and contributions, fees from associates, grants, income from movable and immovable property (i.e. dividends, interest, royalties and rents), capital gains, attributed income (e.g. in respect of international fiscal transparency) and income from qualifying business activities;
  2. the exemption in (1) is extended to ancillary activities connected with exempt qualifying business activities if the
    aggregate amount of the net income from these activities does not exceed 20% of an NPO's total income and for business activities, in general, the turnover of which does not exceed EUR 20,000;
    with regard to local taxes, an NPO is granted tax benefits, e.g. exemptions, on the communication of a request for such benefits by the NPO to a local tax authority (previously, a request for the benefits had to be submitted by the NPO and this had to be approved by the relevant local tax authority); (4) to be eligible for the new regime, the requirement that an NPO must spend at least 70% of its income on financing its purposes continues to apply as in the former regime, but the period in which the expenditure must be incurred is extended to within 4 years (previously, 3 years) of the receipt of the income;
  3. the partial tax exemption for non-exempt income, under which the taxable base is subject to corporate income tax at a rate of 10%, is retained; and
    the tax credit in respect of donations to an NPO is increased from 20% to 25% for resident and non-resident individual income tax purposes. A tax credit of 35% is available in respect of corporate income tax purposes. To encourage donations for certain non-profit activities, these credits can increase to 30% and 40% for individuals and companies, respectively.

This item was reprinted with the kind permission of the International Bureau of Fiscal Documentation [IBFD]. It originally appeared in the IBFD's "TAX NEWS SERVICE HEADLINES" 28 FEB 2003 [Reference: TNS-42 (1995); TNS-260 (2002)] and may not be reprinted without the express permission of IBFD. For more information, please visit IBFD.