What UK investors need to know about the Spanish Transaction Tax

If you are thinking of investing in Spanish stocks, you should know about the Spanish Transaction Tax. Find out more about this tax here.

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The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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Are you a UK investor looking to diversify your portfolio by adding some Spanish stocks? Then it’s important that you know about the Spanish Transaction Tax.

In this article, we break down this tax, including how the tax is applied and paid. We also tell you of the impact that the tax could have on your investment.

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What is the Spanish Transaction Tax?

It’s basically a tax that is levied on the purchase of shares in Spanish companies. The tax became effective on 14 January 2021.

How much is the Spanish Transaction Tax?

The rate of the Spanish tax is 0.2% for every applicable investment.

The tax is levied regardless of where the person purchasing the shares is located and where the transaction takes place.  

When do I pay the tax?

The tax will be levied every time you purchase shares in a Spanish company.

However, because it is an indirect tax, you as the investor will not be paying the tax to the relevant authorities directly. Instead, it will be handled by the financial service provider or broker who facilitates and completes your purchase.

Essentially, the broker will pass on the tax costs to you and then remit them to the appropriate authorities on a monthly basis.

Does the tax apply to the shares of all Spanish companies?

In a word, No. The Spanish Transaction Tax only applies to the shares of:

  • Companies with a market capitalisation of more than €1 billion. Spanish tax authorities will be publishing the list of companies to which the tax will be applied every year. The list will contain companies that exceeded the threshold on 1 December of the previous year.
  • Companies admitted to trading on the Spanish market, a regulated market of another EU member state, or a market considered equivalent in a third country. Shares of Spanish companies listed on the London Stock Exchange (LSE), for example, will be subject to this tax.

[middle_pitch]

What is the impact of this tax on investors?

The Spanish transaction tax ultimately means a higher cost of acquiring shares from Spanish companies, and thus a potential reduction in profitability for UK investors who buy shares in these companies.

The tax is also likely to harm UK investors who have money in investment funds or pension plans that invest in Spanish companies.

While diversifying your portfolio with foreign stocks is a good way to hedge against the risk that comes with investing in domestic companies only, UK investors looking for exposure to Spanish companies will have to take into account the Spanish Transaction Tax and consider the implications it may have on their profits.

The good news is that many other foreign investments offer good if not better value and may potentially have lower transaction costs. For example, check out these three investment trusts for emerging markets that Freetrade thinks are worth a look.

Of course, as with any other investment, don’t forget to do your research first. And remember that past performance does not guarantee future results.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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