IRPF, or income tax, is a direct, personal andsubjective tax levied on individuals' income. The Economic Agreement classesit as a coordinated, or agreed tax regulated by the autonomous community,the point of connection being the taxpayer's habitual residence. In otherwords, each Provincial Council taxes taxpayers with their habitual residencefixed in the corresponding province of the Basque Country. 

Features of personal income tax  

The overhaul of the IRPF (Personal Income Tax System) in 1999, resulted in a high degree of consistency between the income tax models in use in the three Basque provinces.

To see the rules governing IRPF (Personal Income Tax) in each of the provinces making up the Autonomous Community of the Basque Country use the on-line Local Tax Code, which brings together the tax regulations applicable in Alava, Bizkaia and Gipuzkoa.

The taxpayer's income comprises earnedincome, return on economic activities and capital (investments and property),plus profits and losses from assets and attributed earnings. A series ofearnings are also specifically exempt from the Tax. 

Once total earnings and deductible expenses for each source of income have been calculated and any specific treatments have been applied (rebates on earned income, the number of years in which they were generated, updating of acquisition value, re-investment in habitual residence, compensation and integration of income, etc.), the IRPF tax assessment basis, formed by the general and special Tax assessment bases, is arrived at.

The special tax assessment basis comprises equity profits and losses generated over periods of more than one year and which come to light when assets are transferred.. 

The general tax assessment basis is then used tocalculate the general payment basis, which is the result of applying thereductions for annual alimony and maintenance payments, contributions tomutual funds, pension schemes and pension funds, as well as for joint taxreturns. 

A tax scale is then applied to the general paymentbasis to obtain the Tax quota. A special rate of 15% is applied to thespecial payment basis, which will itself coincide with the special taxassessment basis.

The tax scale comprises six brackets with marginal rates ranging from a minimum of 15% to a maximum of 48% for the highest incomes.

Any deductions or allowances due are then applied to the tax quota. Such deductions include family allowances (for offspring under the taxpayer's responsibility, for maintenance for children and forbears living with the taxpayer), deductions for physical disabilities, deductions for investments and financing of the acquisition of taxpayer's habitual residence, deductions for rental of taxpayer's habitual residence, deductions for the promotion of economic activities, deductions for stakes held by employees in their companies, deductions for donations, deductions for double taxation and other deductions. 

The amount arrived at after reducing the tax quota by the amounts of applicable deductions is the payable tax quota or, to put it another way, the actual amount of tax payable by the taxpayer. 

Finally, the settlement will be equal to the differencebetween the quota and the amounts already paid on account.