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Tax News
Message only for clients that have completed their property during the year 2007 (ONLY DURING 2007)
Wealth Tax
This tax has to be paid by all people who are non-resident and own a home in Spain. Each owner is regarded as an independent taxpayer, therefore they each file separate returns.
This tax is payable in the year following the purchase of the property. For example, if a non-resident bought a house on 12th July 2007, he or she will have until 31-12-2008 to pay this tax. Since in Spain the tax year is the same as the calendar year, in 2008 we pay tax on our income in 2007.
The tax is calculated pro rata the number of days between becoming the owner of the home and 31st December.
The main data which are taken into account when calculating this tax are:
. Date of purchase.
. Number of owners, address of the home.
. NIE and passport: as usual, one has to have a NIE - Tax ID Nº for Foreigners - in Spain in order to pay taxes.
. Council tax bill.
. Price paid for the home.
Amounts still outstanding on the mortgage, if one exists. This matter is very important, because the capital sum which the taxpayer has left to pay on the mortgage each year, will considerably reduce the resulting tax payable.
Get in touch with our tax department and our advisors will take care of your tax payments.
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2008 CRISIS
A QUESTION OF CONFIDENCE
Over recent weeks countries have been putting together different rescue packages to resolve the serious international crisis as soon as possible, and to overcome the crisis of confidence suffered by all players in the economy: investors, businesspeople and consumers.
The measures taken can be divided into three groups. The first group includes measures aimed at preventing the collapse of banks by strengthening their equity, either by providing new capital, or by buying shares which are often low quality. The second group consists of measures that try to unlock interbank lending, while also restoring depositor confidence by guaranteeing all or part of their deposits. The last raft of measures were designed to facilitate lending to companies (in particular SMEs), and consumers (mortgages) in order to stave off an economic recession by promoting growth.
The first initiatives taken to rescue banks, such as the US rescue package, focused on buying toxic shares to shore up financial institutions and restore depositor trust. However, it has been the British rescue package, approved by the Government after several unsuccessful measures, which has been adopted as a model.
The first to follow the British example was the EU, which accepted the broad outline of the package in the Ecofin summit of 12 October, followed by the US Administration, which has adopted a radical change of strategy by discarding the idea of buying toxic shares in favour of providing capital to banks that it feels need it.
This decision has not been an easy one because it involves the partial nationalisation of the finance sector in the Western world, a world based on a market economy in which interventionism has been taboo for many years. It is therefore an exceptional measure which will be effective for 2008 and 2009, and for a maximum period of 5 years. In addition, banks that are eligible under the rescue schemes will have to comply with several conditions and restrictions on dividend payments, remunerations, bonuses and executive pay, and undertake to pass on liquidity to companies and consumers.
The most important central banks initially reacted to the lack of liquidity in the system by injecting capital. However, these injections of money failed to restore confidence, and the central banks decided that decisive and concerted action was called for. As a result, the most influential regulatory bodies (FED, ECB, Bank of England) reduced interest rates by half a point, which led to rates of 1.5% in the US, 3.75% in the European Monetary Union, and 4.5% in the United Kingdom. However, neither the stock markets nor the financial markets responded positively to this initiative.
Within a few days, all countries had recognised the need for concerted action to coordinate measures that would restore consumer confidence in the system, At the Ecofin summit, they declared that their objective was to restore confidence in the interbank market, thereby increasing liquidity and restoring appropriate and efficient financing conditions for the economy.
The conclusions of the Europe Council stressed the importance of stimulating lending to companies and households, as a necessary prerequisite for growth and employment. They therefore agreed to a measure that would guarantee new bank debt until the end of 2009. The aim was to try and ensure that the financial measures taken by states and central banks do not merely bail out banks, but also stimulate economic recovery. However, it is not yet clear how this is to be achieved.
In Spain, thanks to the tougher approach taken by its regulatory bodies, the problem in the financial system does not appear to be one of solvency, but rather a serious lack of liquidity. In macro-terms, the enormous financing needs created by the current account deficit have prevented investment in toxic assets from being higher, but now these external financing needs have worsened the liquidity crisis.
In a plan approved through two Decree-Laws, the Government is authorised to intervene, on an extraordinary basis, and provide capital to banks that have problems and voluntarily request funding. The possibility of mergers between banks and savings banks has also been mooted with a view to strengthening the system.
In contrast to the measures approved in the US, the Spanish Government has approved the creation of a 10 billion fund to buy assets from banks, which may be extended to 30 billion in 2008, and raised to 50 billion in 2009. A second Decree-Law, which follows the framework of the EU plan, approved the creation of 100 billion worth of state guarantees in 2008 for financial products such as commercial paper, bonds and loans, but does not set an amount for 2009. The maximum maturity of the above-mentioned instruments is limited to five years, and the costs, requirements and obligations of the banks will be established by the Ministry of the Economy.
In conclusion, we can say that the first steps towards re-establishing confidence and resolving the international financial crisis have been taken. What is needed now is a reform of the financial system to prevent this kind of crisis from happening again. However, at the moment Spain’s most urgent priority is re-establish confidence by providing liquidity to companies (SMEs) and households. If it does not succeed in staving off a recession and reversing the downward trend of economic activity, employment will rise and the levels of default will continue to grow.
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Financial News
Today better than tomorrow
If you want to enjoy the high interest rates that are being paid on deposits at the moment, contact your bank as soon as possible. By tomorrow it may be too late.
If you want to enjoy the high interest rates that are being paid on deposits at the moment, contact your bank as soon as possible. By tomorrow it may be too late.
The two interest rate cuts made by the European Central Bank (ECB) in less than a month mean that offers that are attractive now will lose their appeal in a few weeks´ time.
The purpose of banks and saving banks is to make money. They get resources in the interbank market, and make a profit by charging more for loans than they pay for deposits. The difference is known as the financial margin, one of the pillars of banking business.
In recent times the return on deposits has reached its highest levels since the start of the decade. The reason for this increase is twofold. In the first place, lack of liquidity forced banks to attract resources at almost any price, and secondly, a rising Euribor gave them more leeway when paying for their customers´ savings.
It must be remembered that in 2003, when the Euribor stood at just over 2%, an all-time historic low, banks paid customers an average of 1.9% for new term deposits.
At that time, the price of money was forecast to go up, which meant that banks paid more for medium and long-term deposits than for deposits which had an earlier maturity date.
Now, however, quite the opposite is true. In September, the last month for which data is available, banks offered an average return of 4.8% on term deposits, but the rate of return for deposits which had a two-year term or longer was only 2.8%. Why? Because the banks believe the Euribor is going to fall over the coming months.
A few days ago, the chief of one of the banks that pays most for deposits issued the following message; “If you want a high rate of return on your deposit, make it quickly. We may pay less for your money tomorrow”.
At the present time it is still possible to find banks that pay 10% for one-month deposits, 8% for three-month deposits, and 6.1 % for deposits which mature on 31 March. These rates are much higher than inflation, and avoid the risks in volatile financial markets.
Savings banks tend to pay a slightly higher rate of return than banks. This has been attributed to their liquidity problems, but whatever the reason, they offer higher profitability.
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