In addition to the taxes on all ordinary citizens, there are also certain taxes that only companies or self-employed people have to take into account. One of them is the IAE. Any person or group of people who start a commercial activity is obliged to register for this tax. It is very important to know about it and what it consists of. Therefore, we will begin by explaining the IAE, what it is and when it has to be paid, among other questions.
IAE, what is it?
The Tax on Economic Activities (IAE) is a provincial tax, managed by the local councils, which must be paid by self-employed persons and legal entities for the business, professional or artistic activity they carry out within Spanish territory. This activity must involve the self-management of means of production and human resources, either one or both, on their own account. Its purpose would be to intervene in the production or distribution of goods or services.
In other words: a person or entity must pay a constant tax (a fixed amount independent of the profits obtained) on the basis of the activity in which it engages, for the mere fact of working. This is why we have mentioned above that when someone starts a commercial activity, he or she is obliged to register with the IAE (tax office) to which he or she belongs at the Tax Agency. The tax rate depends on the territorial area in which the activity is carried out. There are 3 types: national, provincial and municipal.
Types of activities
Likewise, the activities can be divided into 3 types of development, with a different tax for each one of them. It is important that, as a company (including the self-employed), you know which of the 3 categories explained below you should join:
Business. As the name itself indicates, these are activities that are carried out in a business organisation. In this type, the means of production and human resources, or one or both, are managed on one’s own account. The objective would be to intervene in the production or distribution of goods or services.
Entrepreneurial activities are:
- Independent livestock farming (livestock must graze primarily on land that is not farmed or forested by the owner of the animals).
- Mining activities.
- Industrial activities.
- Commercial activities.
- Service activities
The activities that are not considered to be business activities and are therefore exempt from IAE are:
- Agricultural activities.
- Dependent livestock activities.
- Forestry activities.
- Fishing activities.
Professional activities. These are carried out by a natural person on their own account and on a personal basis. They are a manifestation of personal capacity, so personal qualities are essential for their development.
Artistic. As in the case of professional activities, artistic activities must be carried out by a natural person or an entity.
Who is exempt from IAE?
We have to add a fact: although everyone is obliged to register, they do not always have to pay the tax. There are 2 exceptions that exempt companies and freelancers from this tax burden:
- Companies during their first 2 years of activity.
- From the third year onwards, all self-employed persons, SMEs or any other type of company that has not earned more than €1,000,000 in the penultimate year of the current tax return.
- Public administration entities
- Foundations and non-profit companies.
- Individuals
This is good news for all those small companies or self-employed and SMEs, as they are not obliged to pay this tax if they do not reach the minimum amount to do so.
Epigraphs
Registering for one IAE or another will depend entirely on the activity you carry out. You can consult the list of epigraphs of the Tax Agency and look for yours. You must indicate the corresponding number on form 036 when you register as a legal entity with the Tax Office.
The headings are divided into the 3 categories explained above (business, professional and artistic). But within each one there are many options. You will have to look for the one that best suits your activity. If you have any doubts, ask the tax authorities to be sure. It may also happen that you carry out several activities within the IAE. In this case, you will have to register for all the necessary ones.
The tax rates are determined through its tariffs, which establish a catalogue of activities divided into sections, divisions, groupings, groups and epigraphs. Each of these will be taxed according to the valuation of the tax elements included in each heading, in addition to a series of notes that limit the development of the activity.
The classification of activities is fundamental for understanding and correctly applying this tax. It should be borne in mind that the assignment of one heading or another means a different form of taxation and, consequently, a saving.
Once you have registered with the Tax Authorities, you must choose the form in which you want to pay the tax: direct, normal, simplified or objective (also known as modules). Some headings do not allow you to choose between direct or objective assessment. In this case, you will be obliged to pay tax according to your IAE. You should bear this in mind, as your tax obligations will depend on it. The code will influence the way your business works.
How does the tax work?
The registration process (compulsory) starts with a declaration of the economic activity. There are 2 forms (840 and 848), as well as a census declaration document (form 036 or 037), which must be filled in and submitted. The latter will record the type of activity of your business.
Once you have complied with this requirement, you must start to file your tax return according to the sector that corresponds to you, remembering that, from the third year of operations, you will be obliged to pay IAE.
How much IAE tax do I have to pay?
For each IAE a different rate is applied and they are all published in the BOE (Official State Gazette). However, to all of them we have to add other expenses. To calculate the total amount to be paid we must take into account:
- The quota of the tariff ( the minimum quotas appear in the BOE).
- The weighting coefficient. It is used to adapt the tax to the situation of the company. The final result is the weighted quota.
- The situation coefficient. Local councils can include a scale of coefficients on the weighted quota. This will weight the physical location of the premises within the municipality. Therefore, businesses will pay more or less depending on their location.
- The provincial surcharge (it is fixed on the weighted quota).
Now you have the total quota that will be accrued every 1st January. You pay for the whole year and it is due from the beginning of the next fiscal year. But remember: although you are obliged to register with the IAE, it is very likely that in the end you will not pay the tax.
When do you have to pay?
The first thing to bear in mind is who is liable to pay the tax. For IAE, individuals are exempt from paying the tax. Only entities with an annual turnover equal to or greater than €1,000,000 will have to pay the tax. In this case, an exemption from payment is established for the first 2 years from the start of the activity.
Individuals or groups that are not obliged to pay the tax are only required to register in the census of activities. They will have 1 month from the start of the activity. If necessary, the corresponding declarations of variation or deregistration must be submitted.
Although the IAE specifies that payment is due on 1 January of each year, except in the case of registration (in which case the accrual of tax will coincide with the start date of the activity), the payment period depends on the type of quota for which the tax is payable. Therefore, each tax administration must approve the voluntary payment period, provided that it is not less than 2 months.
If this period is not approved, the voluntary payment period is between 1 September and 20 November. Thus, the IAE is paid in the municipality where the activity is carried out, so it is necessary to take into account the tax calendar approved by each local council in their tax ordinances.
The IAE tax rate depends on the rules contained in each of the headings mentioned above. Generally, it is calculated on the basis of the activity quota (which may depend on the legal population, hospital beds, capacity of spectator venues, stars or hotel categories, etc.) and/or the surface area quota.
The revision and updating of the parameters serve to achieve a correct tax assessment of any person or group, adjusting it to their actual activities. It is very important to have legal assistance that can advise you when carrying out all the IAE procedures. At Blegal we offer a professional, well-trained and diverse team that works closely together to ensure that each client has what they need.
We work with an eye to the future of your business and can help you pay only what you are entitled to for your business activity. If you have any questions or need advice on any legal matter, please contact us or visit us at our offices in Plaça Urquinaona – we’ll be happy to help!
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