The New Spanish Government and Tax Laws

Spain has had a new minority government since mid-January 2020. Prime Minister Pedro Sanchez must find different majorities on a case-by-case basis. Tax and legal reform proposals were already on the table under the new government. But what exactly is to be expected?

The new Spanish government is a coalition between the Spanish Socialist Workers Party (PSOE, traditionally left-wing) and the left-wing coalition United we Can (UP, populist left). As it does not command a majority in parliament, it needs external assistance from a variety of other parties, mostly nationalists from different regions.

The government has vowed to maintain the financial orthodoxy required by the European Commission, having named moderate socialists for key economic ministries. However, the Ministry of Labour will he beaded by a member of the United We Can coalition. The minister has vowed to reform the employment laws. There is expected to be big struggle between the moderate and the radical wing of the government over this issue.

Our recommendation to clients is to assume some higher general taxes and labour law restrictions and to consult us for specific investments.

Christian Koch, Partner, Lawyer, ECOVIS Legal Spain v. Carstenn-Lichterfelde Abogados, Madrid, Spain

The government has pledged to increase social spending with, for example

• increased pensions
• investment for disabled persons
• increased spending on education
• increased spending on health care

At the same time, it has also agreed to contain the public deficit. As a result, some increase in taxation is expected to compensate for the increased spending, explain the experts from Ecovis.

The government has already approved some minor tax increases (the so-called Google Tax, suspended at least until December due to pressures from the US, and the Tobin Tax on financial transactions), pending approval from parliament. Further tax increases have been announced, for example

• increases in personal income tax for high-level salaries
• higher corporate taxes for big firms, especially financial companies
• less deductions in corporate taxes

Some other sectors that will be affected by current policy proposals are real estate, as many proposals have been floated concerning rent control and limitations in the rental market and tourism operations, banking, energy (with some kind of green deal) and the automotive sector (with a war on diesel vehicles and traffic restrictions in big towns).

However, the government is only just beginning its work and the economy, which though still growing is not performing as well as in the past, could derail these proposals.

So, is Spain still an attractive country for foreign investors? Generally speaking, yes, as the fundamentals of the economy will not change, even with a populist left party as a junior coalition member, say the Ecovis consultants.

For further information please contact:

Christian Koch, Partner, Lawyer, ECOVIS Legal Spain v. Carstenn-Lichterfelde Abogados, Madrid, Spain
Email: christian.koch@ecovis.es