taxation for employers tenerife
Let's assume you want to start up a business in Tenerife - one that will employ staff. In other words, your company name will be followed by "SL", which stands for sociedad limitada (limited company). Once it's all set up (which is an adventure in itself), you'll need to be aware of your tax obligations, both for your business and for your employees.
Known, in Spanish, as Impuesto de Sociedades, this tax on business earnings is fixed at a standard rate of 32%. But, before you start panicking, this only applies to companies with large turnovers, in excess of 3,000,000 euros per year. While it would be very nice to be head of such a company, yours will probably fall into the "small or medium" company category.
In this instance, the tax percentage is reduced to 25 on the first 120,202 euros earned (nice round figure), above which it reverts to the higher rate. It's still a sustantial chunk, though.
The Spanish tax year is perhaps more logical than the one, say, in the UK. It runs from January 1st to December 31st. Tax returns should be submitted to the Agencia Estatal de Administracion Tribularia (the Spanish tax office) so later than July 25th of the following year.
If you have a business in Tenerife, but are not resident there yourself, you still have to pay this tax.
The letters stand for Impuesto de Actividades Economicas and is a local tax, as opposed to the one above, which is national.
The good news is that it's only levied on businesses with an annual turnover in excess of 1,000,000 euros. Call me pessimistic, but it's unlikely that your business will fall into this category.
It's advisable, though, to still register to pay IAE, even if you don't have to. This can be done at your local town hall or government office.
Known, in Spanish, as IVA, or Impuesto Sobre el Valor Añadido, this is a tax levied by your business on your customers, which you then have to pass on to the government. The "IGIC", found on bills in restaurants and shops, falls into this category, too.
Securidad Social is, of course, not strictly a tax, but it's included here as it's an additional expense for the employer.
Both your business and its employees must be registered with the social security system, in order to qualify for such things as pensions, the health service and unemployment benefit.
Employees are expected to donate a percentage of their wages towards this, but you, as the boss, pay something as well. It depends on the size of the employee's salary and is calculated at approximately 6% for the employee and 30% to be paid by the business owner.
If you use capital investment to set up your business, make sure the transaction is legally notarised. This way, it may be liable for tax relief.
The Canarian Offshore Zone (ZEC) exists to offer member companies a corporation tax at a rate considerably lower than that mentioned above.
taxation for employers tenerife
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