Below we offer some very basic points on tax in Spain for residents and non-residents.
It is every person’s obligation to pay the correct amount of tax; not one euro less nor one euro more!Tony Robbins.
Tax is stressful. Tax in Spain is worse. Anyone who has had any dealings with the Agencia Tributaria (The Spanish tax authority) will know what we are talking about.
Here we mention some of the latest rules and regulations. Rafael Hernandez, our Spanish tax expert is available to discuss in more detail with our clients at any time.
Let’s start with the Spanish tax rates.
Spain’s tax bands currently are the following:
- Up to €12,450: 19%
- €12,450–€20,200: 24%
- €20,200–€35,200: 30%
- €35,200–€60,000: 37%
- €60,000–€300,000: 45%
- more than €300,000: 47%
There have been a few additions to the rules this year.
The tax rate for savings income exceeding €200,000 increased by 3%.
The Spanish Government this year also implemented two new tax reforms. The FTT tax, or financial transaction tax and the DST, digital service tax are new. These reforms are aimed at large corporations and high earners.
The bands are the basic Spanish tax rates on employment income. Tax rates in Spain are not the same across the country and clients total tax liability is confusing. Clients need to use the state’s general tax rates plus the relevant regional tax rates to find the accurate amount.
Spanish tax deductions and allowances.
It’s not all bad news. Deductions are key to reducing your tax liability in Spain.
All residents in Spain receive certain tax deductions. The personal allowance is the following;
- €5,550 under the age of 65
- €6,700 from age 65,
- €8,100 from age 75.
A resident with children under 25 living at home, you can claim additional allowances:
- €2,400 for the first child.
- €2,700 for the second.
- €4,000 for the third.
- €4,500 for the fourth.
- €2,800 additionally for each child under three years.
Those with a parent or grandparent living at home, with a total income less than €8,000, can claim one of two allowances.
- €1,150 if they are over 65
- €2,550 if they are over 75.
Once they receive correct advice, clients claim tax deductions for:
- Spanish pension contributions.
- Social security system payments in Spain
- Expenses associated with buying and renovating your main home
- charitable donations
The latest new tax reforms reduced taxpayers’ pension contributions for tax purposes to €2,000. Previously it was €8,000. This limit of €8,000 is still valid if the increase comes from company contributions. Any increase cannot exceed 30% of the sum of net income from employment and economic activities received.
Capital gains tax in Spain. (CGT)
Spain’s capital gains tax is not crystal clear. Like it is worldwide, CGT in Spain is the tax on profits from selling a property or other investments.
You may be eligible for an exemption if you are over age 65 and selling your main home. People may also be eligible if they are under 65 and selling their main home to buy another main home in Spain. Readers of the blog can see now why we say to our clients, talk to us before you buy or sell your property in Spain! If you bought your Spanish property before 1994, you may be liable to pay more tax than before.
Current the rates are;
- First €6,000, 19%.
- €6,000–€50,000, 21%.
- €50,000–€200,000, 23%.
- more than €200,000, 26%.
Spanish wealth tax
The Wealth tax in Spain is payable on the value of your assets. This year the Spanish government increased the highest tax band rate by 1% in autonomous communities where they have yet to approve their own rates. Assets valued at more than €10 million can be taxed up to 3.5%, depending on the particular region.
There is a €700,000 tax-free allowance. Property owners here are allowed a further €300,000 against the value of their main residence.
Inheritance and gift tax in Spain
This is worthy of a whole blog all to itself. It is currently the tail end of 2021, and as far as we know, everything is about to change.
Previously, non-residents in Spain paid around 80% more than Spanish residents on inheritance tax. The Spanish Supreme court ruled this was illegal. Since then, non-residents who paid the higher rate in the past are entitled to a refund.
In 2017, some regions updated their inheritance and gift tax policies, others did not. Many families found themselves not having to pay inheritance tax at all. Valencia is about to introduce a change and we await to see what it means. Check your specific region’s laws with Rafael in Spanish solutions.
The rate is around 1–7% for all, depending on the region.
Tax in Spain for married couples
Married couples can choose to be taxed separately or together. You should compare the Spanish tax rate and speak to Rafa before you decide. There is a married couple’s allowance of €3,400 called a declaración conjunta for the second taxpayer. Additionally, there is a general allowance of €5,550 granted to the first taxpayer. This applies to couples either in a heterosexual or same-sex marriage.
Spanish property tax
So many of our clients were told that they did not have to pay tax on their property in Spain by over-eager real estate agents; not true, unfortunately.
Can we say it again; Please talk to us before you buy or sell your property in Spain.
If you sell a property in Spain, you have to pay a property transfer tax, also known as ITP, Impuesto Transmisiones Patrimoniales. Plus Valia is another tax and is charged by the local authority on the increase in the value of the land. If it’s an apartment the cost is approximated.
IBI tax is payable if you are living in your Spanish property on 1 January in any given year. It is also called the Impuesto Sobre Bienes Inmuebles (local tax). The amount payable is the rental value of the property times a tax rate set by the local town hall. This tax is due for non-residents and residents.
Property owners may need to pay the basura, a rubbish collection tax. Of course, Spanish property owners may also need to pay income tax at flat rates on potential rental income.
Tax in Spain for non residents.
The income tax rate for non-residents in Spain is 24%. It is 19% if you are a citizen of an EU state. Yes, I know, Brexit. That is why we have a tax expert working with our British clients in Spain!
Spanish non-resident taxes are due at the following rates;
- CGT as already mentioned is taxed at a rate of 19%.
- Investment interest and dividends are taxed at 19%. These through double taxation agreements are usually less.
- Interest tax is ZERO for EU citizens. (finally good news)
- Royalties are taxed at 24%.
- Your pension will be taxed at progressive rates, from 8% to 40%.
To apply to pay income tax as a non-resident of Spain, you need to get a Modelo 149. The Modelo 150 is where you sign off on your income tax declaration. A Modelo 210 will be required if you are a non-resident property owner in Spain.
Foreigners working on an assignment in Spain.
If you are working on a special contract with a Spanish company, there is a unique tax regime. This is often referred to as Beckham’s Law since 2003. It was allegedly set up so that Posh and Becks did not have to pay tax on his worldwide image rights (Gillette and Adidas) when he joined Real Madrid.
You may or may not play for Real Madrid. You’ll pay a 24% tax rate on income up to €600,000 if employed on assignment in Spain.
You’ll pay 47% however on income in Spain that exceeds €600,000. Temporary relocated employees now pay 3% tax on income above €200,000 that is generated from CGT, dividends or interest.
If you are a Spanish tax resident and have not been resident in Spain in the last 10 years, you can apply to be taxed under this regime. You must do so within six months of arriving in Spain. You can reduce your taxation level for up to five years if you deal with this properly.
Register to pay Spanish tax: residents and non-residents
Spanish solutions of course deal with the tax affairs of thousands of ex-pats living in Spain. Literally thousands.
If you decide to do it yourself, first, you need to register to pay tax in Spain previously mentioned Agencia Tributaria. This is true whether you are a resident or non-resident in Spain. You’ll need your NIE or Foreigner’s Identity Card, which you can get through the local Foreigner’s Office (Known here as the Oficina de Extranjeros). You can apply in your local police station within 30 days of landing in Spain. The Modelo 30 is needed to register your obligation to pay Spanish tax as a resident or non-resident for the first time, or even to change your details. The easiest way to obtain an NIE is through Spanish Solutions.
Tax in Spain; Filing your tax return.
You must file a Spanish tax return in the first year of tax residency. Telling the authorities that you didn’t know is not a good defence. (Yes, talk to Spanish Solutions before you move to Spain!!)
After year one, you don’t have to file a Spanish tax return if;
- Your income from all sources is less than €8,000
- you have less than €1,600 of bank interest or investment income
- if your rental income is less than €1,000
- you earn less than €22,000 as an employee, as in this case, your employer will have already deducted your Spanish income tax.
As always please check with a professional before making your declarations or deciding whether or not the rule applies to you.
The tax year in Spain runs in line with the calendar. You must file tax returns between 6 April and 30 June of the following year. There are not any extensions on filing tax returns in Spain.
Even if you choose not to work with Spanish Solutions, we can, hand on heart say managing your tax in Spain will be much easier with the help of an accounting and tax advice professional.
IVA (VAT) in Spain
There are three levels of IVA (Impuesto Sobre el Valor Añadido) in Spain:
- 21 % General rate on goods and services.
- 10 % Reducido rate on items such as; exhibitions, health products, non-basic foods, transport, tolls, amateur sporting events, rubbish collection, pest control, wastewater treatment.
- 4% Superreducido on essential foods, medicine, books, and newspapers.
The government increased IVA from 10% to 21% on alcoholic drinks and drinks containing added natural and derived sweeteners and/or sweetening additives just this year. Excluded from the hike are baby milk and drinks considered as food supplements for special dietary needs.
VAT payers in Spain must submit all invoices online to the tax authority in Spain within four days of the date of issuance; no later than the 16th day of the month following its issue.
Corporate tax rates and rules in Spain
Spain has a general rate of corporate tax of 25%.
New companies pay a reduced 15% for the first two years of business.
A reduction of 10% in tax may be granted to profits locked into a special reserve for 5 years. Spanish SL Companies must file tax returns within six months and 25 days after the end of the accounting period. Payment generally is made in instalments during April, October, and December. These instalments usually are 18% of the tax liability.
Am I a Spanish tax resident or non-resident?
We are asked this all the time.
My account from years past Alex Sanchez used to tell clients;
If you live in Spain, you’re a resident.
Alex was trying to say that people should know where they live! The clearer explanation is that;
- if you have been living in Spain for 183 days in any year (not necessarily consecutively)
- if you have your main vital interests in Spain (your family!)
- Or if your business is here in Spain, then you are classed as a Spanish resident for tax purposes.
In this case, you must submit a Spanish tax return.
You pay income tax on your worldwide profits if any of the following is true; your annual income from employment is more than €22,000; you run your own business in Spain; receive rental income of more than €1,000 a year; have capital gains and savings income of more than €1,600 a year or it is your first year declaring tax residency in Spain.
You must declare all your assets abroad worth more than €50,000 (Form 720) every year.
If, on the other hand, as Alex Sanchez would explain, you live in Spain for less than six months (183 days) in a calendar year, you are a non-resident. In this case, you only pay tax on the money you earn in Spain.
Tax is liable on your income at flat rates and no allowances or deductions are permissible. If you own Spanish property, whether or not you rent it out, you will need to submit a tax return. You must also pay Spanish property taxes for non-residents as well as local Spanish property taxes.
Conclusion: Spanish tax is difficult.
Clients of Spanish Solutions are very lucky to have one of the most capable tax advisors at hand in the shape of Rafa Hernandez. You can read more about Rafa on the blog post we dedicated to him.
It is possible to go it alone but we strongly recommend that you speak to Rafa before you open your business in Spain and especially if you intend to buy or sell a property in Spain.
We have special deals available to ensure you pay little or nothing to Rafa, once you use Spanish Solutions to take care of your conveyancing.
Why not speak to us first, before you even start searching for an estate agent in Spain?
We can save you many thousands of euros!