Spain’s Royal Decree 637/2014 expanded the scope of the social security contributions base by including more items of employees’ remuneration subject to tax. This Decree covers remuneration that is subject to social security taxation and determines the rules for the valuation of different compensation elements received by employees. These new rules could reduce the employees’ net remuneration by bringing more elements of compensation into the social security tax net, and they may raise employers’ administrative burdens.
Amendments were enacted by Royal Decree 637/2014 in Spain that expand the scope of the social security contributions base by including more items of employees’ remuneration subject to tax.1
The new amendments could impact current remuneration plans, as some items of remuneration that have customarily not been subject to Spanish social security contributions are now taxable. As a result, the new rules could have the effect of reducing the employees’ net remuneration by bringing more elements of compensation into the social security tax net.
From the employers’ perspective, the rules may raise their administrative burdens initially, as they need to make the necessary adjustments to withholdings in respect of the newly-included items of remuneration. In addition, employers may wish to revise their compensation plans, in order to mitigate the impact of the new rules for themselves as well as for their employees.
In terms of cross-border employment costs, the new rules may have the effect of raising employers’ compensation-related costs (depending on their taxation and compensation policies) vis-à-vis their international assignees.
The benefits-in-kind shall be valued at the average cost to the employer (where that benefit is provided as a concession to the employees), except in the following cases:
Other items are excluded from the contributions base (see second paragraph of Article 23, according to the provisions of Article 109.2 of the Consolidated Text of the General Law on Social Security).
The new rules stipulate a deadline of September 30, 2014, for charging and collecting the social contributions in respect of the expanded base.
Social security costs are typically among the main costs for international assignments. Please note, under the new rules, contributions to the system must be made irrespective of the nationality of the employees. However, it is important to analyze each particular situation in light of applicable international social security agreements and EU regulations.
1 For more information (in Spanish) on Real Decreto 637/2014, de 25 de julio, por el que se modifica el artículo 23 del Reglamento general sobre cotización y liquidación de otros derechos de la Seguridad Social, aprobado por el Real Decreto 2064/1995, de 22 de diciembre see the “Novedades” Web page of the Ministerio de Empleo y Seguridad Social at: http://www.seg-social.es/Internet_1/Novedades/index.htm.
Or go the website for the Boletín Oficial del Estado de sabado, 26 de Julio de 2014, p. 59692 at: http://www.boe.es/boe/dias/2014/07/26/pdfs/BOE-A-2014-7969.pdf.
2 The amendments entered into force on the day following the Decree’s publication, and modify article 23 of the General Regulations on contributions and settlement of other rights granted by Social Security, and adapt the changes that were introduced in Article 109 of the General Law on Social Security.
3 The term “delivery” means the vehicle is bought by the employer, granted to the employee, and the employee becomes the owner of the vehicle (and this is deemed a benefit-in-kind). The delivery is valued as the full price paid by the employer together with taxes and insurances.
The information contained in this newsletter was submitted by the KPMG International member firm in Spain.
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