and ways to classify them according to their nature, although the most common is to distinguish between direct and indirect taxes. The division is due to the taxable event that they impose, that is, the action or possession on which they apply.

Indirect taxes are applied on an indirect manifestation of economic capacity and tax production, traffic or consumption . The main characteristic of indirect taxes is that, unlike direct taxes, they do not depend on the personal characteristics of the taxpayer, but on the product itself. That is, they do not have a direct impact on the taxpayer’s income, but on the consumption that they make.

In this sense, indirect taxes will mainly tax consumption, so we will pay them when buying a good or using a service, for example. This is what happens with VAT, the indirect tax par excellence, although not the only one.

Why indirect taxes exist

Beyond VAT is one of the main sources of funding for the State and other indirect taxes are used to increase the collection of municipalities, from the Tax Agency explain why the existence of these taxes. In this sense, justifies its creation by the consideration that the consumption of these goods on which the tax applies generates a series of social costs, something true in cases such as taxes on tobacco or alcohol, but not so much with the General VAT.

Indirect taxes in Spain

Perhaps the best way to understand what these types of taxes consist of is through the main direct taxes in Spain

VAT

The VAT or Value Added Tax is the best known indirect tax and perhaps the one that best exposes what this type of taxes consist of. The VAT taxes the acts of consumption and is financed by the final consumer, since the tax is paid on it. It is a regressive tax, since all citizens are not charged equally.

The operation of the VAT is relatively simple: each of the companies in the production chain of an article or the concession of a service adds VAT for its participation and it is the final consumer who must face the added value. The companies can then be reimbursed for the input VAT, which can be defined as the one that pays for the services it needs to carry out its activity. It is regulated by Law 37/1992, of December 28, and Royal Decree 1624/1992, of December 29.

In Spain there are currently three types of VAT, the general, located at 21%, the reduced, at 10% and the super reduced, limited to basic goods and which is 4%.

Five things you should know about how VAT works

Tax on Patrimonial Transmissions

Its full name is the Tax on Patrimonial Transmissions and Documented Juridical Acts . This tax is levied on the circulation of goods and rights on the one hand, and the expense of money or income that we have on the other. It is regulated by Royal Decree 1/1993, of September 24 and Royal Decree 828/1995, of May 29.

The Transfer Tax applies, among other things, to the purchase of second-hand goods where it is not possible to apply VAT. When you buy a used car or a second-hand home, you will pay this tax and not the VAT. This tribute is given to the autonomous communities and here we explain how it works.

Special taxes

The list is broad, but in general terms it is about taxes that fall on certain goods such as alcohol and alcoholic beverages, hydrocarbons, electricity, tobacco or the registration of means of transport . This type of tax is regulated by Law 38/1992, of December 28 and Royal Decree 1165/1995, of July 7.

These taxes include, among others, taxes on hydrocarbons that are behind 50% of the price of gasoline if we also add VAT or taxes on tobacco or alcohol and alcoholic beverages.

This category would also include the registration tax, which is levied on the first registration of any vehicle in the country and is paid depending on what contaminates the vehicle. In summary, the more CO2 the car emits the more taxes you will have to pay to register it.

Local taxes

Apart from these taxes of a state nature, there are also other indirect taxes that are local and even regional. Here are some of them

• IBI or Property Tax that must be paid for the simple fact of owning a home.
• Tax on Vehicles of Mechanical Traction or Tax of Circulation that is paid by the simple fact of having a vehicle (car, motorcycle, caravan …) that can circulate through Spain.
• Tax on Economic Activities or IAE that is paid to be able to exercise an economic activity, that is, to have a company.