Paying tax in Spain.
The number of times Spanish Solutions are asked “how much tax do I pay in Spain” increases every week. Here, we’ll try to explain some of the basic details regarding the tax situation for expats in Spain.
We’d like to thank our inhouse accountant, Mari Carmen Gomez Poveda of MC Consultants in Torrevieja who gave us the up to date information this week. It is valid as of July 2019. Please read the disclaimer at the bottom of this piece.
People like you and me performing activities in Spain are subject to tax. It is based on worldwide income. If you have a rental property abroad, or a business, you must declare it here in Spain.
Non-residents are taxed on Spanish income. Ana in Spanish Solutions is the contact person for those looking to pay their NRT effortlessly anywhere in Spain.
Non residents are also taxed on capital gains earned only in Spain. As in most European countries, there are a bunch of tax exemptions which often apply to expats.
Tax rates in Spain 2018.
Taxable Income Bands in Euro | Spanish Income Tax Rate |
0 – 12,450 | 19% |
12,451 – 20,200 | 24% |
20,201 – 35,200 | 30% |
35,201 – 60,000 | 37% |
60,001 + | 45% |
Income Tax in Spain.
What is it and who pays?
The most obvious type of income tax is employment income.
Taxable income in Spain includes all payment received for personal services. That means salaries and wages, pensions, expenses for certain business related activity, payment in kind, (if you get a company car for example) and other allowances paid in cash.
Ex patriate Spanish residents who have with overseas duties have an income exemption of up to €60,100. Maria Carmen will tell you what conditions are needed to be met.
Clients enjoy a limited 30% reduction to tax where their income is irregular employment income. (Consultants fall into this category) This income exemption of up to €60,100 applies if it is earned over two years or more and as with most of this advice … certain terms and conditions must be achieved.
Taxable self employment and business income: This includes all income from professional, artistic, industrial and commercial activity in Spain.
Residents in Spain pay taxes on self-employment and business profits at the applicable Spanish rates.
Non residents currently are subject to a flat 24% rate. Residents pay 19%. This is applicable to residents of European Union [EU] member states. Don’t ask us about Brexit just now!
The tax is on gross self-employment and business income. Mari Carmen will explain how to legally reduce the bills by deducting certain ligimite expenses related to the business. We deduct salaries, advertising, rent and rates, that sort of thing. How important it is to keep a very good record of all of these expenses! This is assuming you are earning a profit however and relief for business losses may be available, subject to terms, limits and conditions.
Directors’ fees are considered ordinary taxable income in Spain.
Non-resident clients are subject to tax on directors fees at a flat rate of 24% and its 19% for residents of other European states.
Spanish Resident individuals are subject to tax on rental income too. For tax residents here in sunny Spain, income from property rental may be reduced by 60% . should the property be destined for living as opposed to office use.
Non-residents are obliged to declare and pay tax on such income at the same flat rate of 24%. Again, the figure is currently 19% for EU residents and EEA member state residents.
For Spanish real estate used to live in and which is not rented, the Spanish law presumes an income of 2%, based on the cadastral value. We discuss this castrol value of property in many other posts. Needless to say, it is a matter of much discussion, especially after the value of Spanish property fell so dramatically after the world wide credit crunch.
Movable property in Spain includes but is not limited to, interest, royalties, dividends, and industrial property.
While determining net income from personal property in Spain, some limited administration expenses are legitimately deductible.
Both Spanish tax residents and their non-resident counterparts are subjected to tax on profit from dividends, interest and CGT. (regardless of how long you own the property for) at the following rates:
- 0- 5,999.99: 19%
- 6,000 euro to €49,999.99. 21%
- 50,000 plus: 23%
Not taxable in Spain (assuming there is a double tax agreement) is:
- Income from public debt.
- Non-resident bank accounts.
- Income derived from the sale of shares.
- Interest income and CGT from bonds and securities issued by resident entities or individuals (assuming the client is a resident of an EU country).
- Income from a reimbursement in investment fund from official Spanish markets
Sometimes members of a family decide to file separate tax returns. Here, the actual owner of the property is the one to whom the income is attributed.
For husbands and wives, 50% of the income is attributed to each spouse, under the so called community property regime.
Spanish income derived from “employer provided stock options” up to a yearly limit of 12,000 euro will be exempt from tax, assuming the terms and conditions are met.
Double tax agreements.
We mention this above and its important.
A person living in Spain may use their foreign tax credits in order to avoid double taxation. Also referred to as the imputation method.
The favourable double tax treaty is signed by Spain with 90 other countries, including:
Andorra; Argentina; Australia; Austria; Cyprus; Belgium; Bosnia; Brazil; Bulgaria; Canada; Chile; China; Columbia; Costa Rica; Croatia; Cuba; Cyprus; The Czech Republic; Germany; Denmark, Estonia; Finland; Romania; France; Greece; Hungary; Iceland; India; Ireland; Israel; Italy; Japan; Latvia; Lithuania; Luxembourg.
Slightly different agreements exist with Spain and:
New Zealand; Mexico; Netherlands; Norway; Poland; Portugal; Russia; Saudi Arabia; Serbia; Slovakia; Slovenia; South Africa; Sweden; Switzerland; United Arab Emirates; The United Kingdom; USA; Uruguay; and others.
Our clients are considered residents in Spain for tax purposes if they spend more than 183 days in a calendar year here. Also they are resident if their primary interests are here- This can be down to the kids being in school in Spain, your business is in Spain and your home is here. The accountant explained it; If you live here, you live here.
Residence in Spain is determined on a full-year basis.
This is interesting:
Spanish nationals who give up Spanish tax residency are taxed the same as a resident for the next four years if the person is moving to a so called tax haven.
An employee relocated to Spain who meets the terms and conditions for being considered Spanish resident can decide to pay tax under the NRT (non-resident taxpayer) rules.
Of course this is subject to certain conditions, especially ; you cannot have been a Spanish tax resident in the last ten years; the move to Spain must be with a work contract; (the exception being that for a professional athlete, but ask Messi or Ronaldo- this is hardly clear either!!). You can’t be employed by a Spanish company, they must be based abroad.
In this special case, the tax rate of 24% applies up to 600,000 euro.Employment income over and above this figure will be taxed at the rate of 45%.
As we have heard in the news, it will depend on the autonomous community in which the taxpayer resides. Rafa Nadal was another who ran into trouble on this one.
In simple terms the person is subjected to tax on this employment income at a rate of 24%, effective for the first year of residence in that area and the following five consecutive years. (This is so delicate, please check it with your accountant in person!)
CGT.
Capital gains taxes in Spain are calculated on the difference between the selling price of an asset and its buying price.
CGT is taxed at a rate of 19% for the first 5,999.99 euro; 21% on the amount from 6,000 to 49,999.99; 23% thereafter.
For our Spanish tax residents, (exclusively) capital losses which are incurred on sales of Spanish assets may be offset against CGT. You can (subject to terms and conditions) carry forward loses in Spain for four years.
If as spoken about above, a husband and wife fall under the community property regime their CGT is divided 50/50.
Gift tax in Spain.
We ́ve had thousands of enquiries about this in Spain and right now (July 2019) it’s the hottest topic in terms of how to save inheritance tax in Spain.
This law is on the verge of changing.
Estate and gift tax rates in Spain in 2019 vary dramatically depending on the autonomous region you live in.
We have had clients reduce their heirs potential inheritance tax bill to pay as low as almost ZERO.
If you have a property in the Valencia/Murcia areas, you should speak directly to Amanda in Spanish Solutions today!
Social security in Spain.
Everyone must join the Spanish social insurance system. It cannot be avoided is you live and/or work here. It has changed twice in the past two years but currently stands at:
The rate of this tax for employer is a hefty 30.15% of salary.
The rate is 6.35% of salary for employees.
How to pay your tax in Spain.
The easy answer is to hire a professional.
Non-resident clients in Spain file tax returns within one month of the date when taxable income from Spanish sources is due. In certain cases, subject to conditions… etc etc, non-residents in Spain may file returns quarterly.
On a family tax return, Family members may file one tax return that includes the total family income. These family members are jointly and individually liable for the payment of tax in Spain.
If one member of the husband and wife team has a tax liability, while the other has a refund, they can offset each other’s taxable amounts.
For residents ́ tax returns, tax is due with the return. Interest will accrue on any unpaid amount, even if it is a genuine mistake- it is so important to get it right!
Normally, 60% of the tax bill may be paid in June; The rest paid by 5 November, without having to pay interest.
If any excess tax is withheld, the excess is refunded to the taxpayer. It happens and is a nice bonus when it does!
Non-residents in Spain who have a taxable income, have to file a tax return unless the entire amount due is subject to withholding tax.
Declaration of assets located outside of the country.
A relatively new Royal Decree (1558/2012 to be precise form 2012), established new requirements for tax residents of Spain. Now, we are obliged to declare our assets, properties and income located outside of Spain.
Resident taxpayers with similar assets located abroad, (again… while meeting certain terms and conditions) have got to file this information by 31 March. Very severe penalties for not doing so may be imposed.
Conclusion!
We could have called this article, “Certain conditions apply”.
Tax is difficult and especially so in Spain.
We advise our client never to take short cuts. Those days are long gone where the Spanish government will not realise you have an income in the UK or wherever you are from originally. Rightly so, they are checking this information.
We think if you play by the rules, take advantage of the laws and certain deductions and breaks (Donation tax right now in Spain, is a massive example) it is fair and it works!
Lastly, please remember the figures here are accurate to the absolute best of our knowledge but subject to change. Please use the article for research only rather than as a substitute for professional financial advice.
If you have questions especially about:
- Non resident tax in Spain.
- Income tax
- Donations in Spain,
- Rental taxation in Spain
We really want to help you!
Disclaimer
All this content is provided by Spanish Solutions. The firm accepts no responsibility for its accuracy.
Tax legislation and administrative practices in Spain may change. This reference document is a summary of potential issues to consider when paying tax in Spain. This summary should not be used as a substitute for professional tax advice. It is every individual’s responsibility to disclose your income to the Spanish tax authorities.
This information detailed here does not constitute advice. No liability is accepted by Spanish solutions and the views expressed are subject to change.
40 Comments
Margaret Armstrong
If myself & my husband become permanent residents of Spain this year , as non-workers using my husbands private pension & rental income from a UK property we jointly own to live off until we can claim UK state pensions in 6 years , what amount of taxes might we have to pay in Spain please ?