Spain has highest Property Taxes among OECD Countries

Property taxes take Spain to the highest level of property tax of all developed countries. Spain already reaches the Italian level, traditionally the country of the Organization for Economic Cooperation and Development (OECD) with the highest tax burden on property. The tax reforms of the last year sink the Spanish tax system another three places in the property tax ranking of the International Tax Competitiveness Index 2021 prepared by the Tax Foundation. The experts of the think tank Americans reach this conclusion after measuring and comparing the tax base and the amount of property taxes. Also, study whether countries apply other types of property taxes. In the case of Spain, almost unique in the study, the tax experts underline how wealth tax, inheritance and gift taxes, taxes on property transfers, taxes on corporate assets, capital rights or taxes on financial transactions. “Although it is an important element when measuring the neutrality and competitiveness of a country’s tax code, property taxes represent on average less than 5% of tax revenue totals in the European OECD countries “, says Daniel Bunn, Vice President of Global Projects of the Tax Foundation and expert in European tax policy. The list of Spanish taxes that affect housing is the longest of all countries of the OECD. The properties are subject to Income Tax charged to the owner for second homes, Wealth Tax, Income Tax for Non-Residents for rent, Annual Real Estate Tax (IBI), Inheritance and Donations Tax, the Tax on Patrimonial Transmissions, and the Tax on the Increase in Value of Urban Land, the so-called municipal capital gain. This situation weighs down the fiscal competitiveness of the real estate sector in Spain compared to the rest of developed countries. “Spain has multiple property taxes that they distort with separate liens on transfers of real estate, net worth, inheritances and financial transactions, “says the Tax Foundation report. The CCAA manage to lower the tax burden thanks to their exemption and bonus policies for some of these taxes. However, this situation is alleviated thanks to the taxation of the autonomous estates. In Spain, some autonomous communities offer reductions and exemptions from these taxes. The case with the most tax aid for housing is that of the Community of Madrid. The region has a 100% Wealth Tax subsidy. In addition, in the Community of Madrid the taxpayer only pays 1% of the tax corresponding to the tax levied on inheritances and donations between parents and children; also between spouses and domestic partners. Furthermore, Children under 30 years old may apply in Income Tax a 30% deduction of the amounts intended for rent, up to a maximum of 1,000 euros per year.  Fiscal policies like these in the autonomous communities mean that the tax pressure indicator does not skyrocket even further. “Spain has a territorial tax system which exempts both foreign dividends and capital gains income from taxes “, highlights the report by the Tax Foundation. On the opposite side to Spain is Estonia, the country with the least tax on housing. The country has the most efficient property tax system among OECD countries. Estonia’s property tax only applies to the value of land, making it one of three OECD countries – along with Australia and New Zealand – that exclude from the tax base the value of buildings or structures in the earth. Estonia does not apply any other type of property tax covered in the International Tax Competitiveness Index. Italy, by contrast, ranks worst in the property tax component of the index. In addition to the comparatively high real estate tax collections, Italy imposes a wealth tax on financial assets and property held abroad, and levies inheritances, real estate transfers, share issuance and transactions. Spain would occupy its position in the absence of exemptions and discounts for the regions. It is the country that has the most figures to tax the wealth of the entire European Union. It is the only Member State that has a Wealth Tax. In addition, it includes in its tax regulations Successions and Donations, which -although it is more common in the environment- maintains the highest level with rates that reach up to 81.6%. A recent report by the Tax Foundation describes the extent to which OECD countries depend on various sources of tax revenue. In 2019, property taxes accounted for on average just 4.5% of tax revenue in the 27 European OECD countries. The UK is the most dependent on property taxes in 2019, accounting for 12.4% of total tax revenue. They are followed by Luxembourg and France, with 9.7% and 8.9%, respectively. Estonia has the least dependence on these taxes, with only 0.6%.