New Year, New Tax?

Published on 28 December 2022

In Spain, the answer is yes. Despite a surprising lack of coverage in the media regarding this topic, any person working in Spain and registered with the Spanish Social Security (including the self-employed) must become familiar with a new concept as of 1 January 2023: the Intergenerational Equity Mechanism (Mecanismo de Equidad Intergeneracional or “MEI”).

Monika Bertram Abogada +34 91 319 96 86

But what is the MEI?

MEI is a new tax, which replaces the old Sustainability Factor (factor de sostenibilidad), regulated in the Fourth Final Provision of Law 21/2021, of 28 December, to guarantee the purchasing power of pensions and other measures to reinforce the financial and social sustainability of the public pension system (published in the Spanish State Gazette BOE on 29 December 2021). The purpose of the MEI is to fill the public retirement fund in order to be able to pay pensions to the baby boomer generation in Spain, i.e. the people born between 1957 and 1977, when they will start retiring this year.

At the hand of the MEI at least until 2032 an additional contribution of 0.60% must be paid, 0.50% will be paid by the employer and the remaining 0.10% by the employee. Thus, from January 2023, the contribution rate for so-called “common contingencies” (contingencias communes, meaning non-labour-related accidents or illnesses) will increase from 28.30% to 28.90% and be distributed as follows:

Hence from January 2023 and at least until 2032, workers will see their salaries reduced and companies will see their business costs increase. Self-employed, however, will have to bear the full 0.60% increase directly.

This is just one of a whole series of changes foreseen for 2023. A few have come under the spotlight:

  1. Increasing the Minimum Wage (Salario Mínimo Interprofesional) to a monthly gross amount of between EUR 1,046.00 and 1,082.00, in fourteen payments.
  2. Passing the Employment Law, which would empower the Labour Inspection to review the objective causes alleged in Collective Dismissal Proceedings (Expedientes de Regulación de Empleo or “ERE”) by elaborating a report.
  3. Passing the Families Law, which could include, among other things, the following measures: (i) Granting a new paid leave of five days a year to care for persons living in the same household or family members (up to second-degree relatives). (ii) Granting a parental leave of eight weeks, to be taken continuously or intermittently until the child reaches eight years of age. (iii) The extension of the parenting subsidy (ayuda de la crianza) of EUR 100.00 (gross per month) to working mothers with children between 0 and 3 years of age.

As is evident, especially considering that general elections will take place in Spain at the end of 2023, we will surely witness a battle of legislative novelties that will certainly not leave society indifferent.

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