Taxes for Residents in Spain
As a resident of Spain, you are subject to tax on your worldwide income. The income tax for individuals is called Impuesto sobre la Renta de las Personas Físicas (IRPF). It is a progressive tax system, meaning the tax rates increase with higher income levels. You will fall into different wealth tax rates and brackets based on your income to determine your tax liability.
If you live in Spain, you must file a Spanish tax return. You may also be required to pay Spanish income tax on your overseas earnings if:
- Your annual salary at work exceeds €22,000
- You are self-employed in Spain or run your own business, you earn more than €1,000 per year in rental income, and you have more than €1,600 in capital gains and savings each year
- It is your first year in Spain claiming tax residence
In Spain, taxable income is the amount left over after deductions for social security, pension, personal allowance, and professional expenses. It is important to note that deductions, allowances, and exemptions are available to reduce the taxable base.
Tax residents in Spain must disclose certain assets and rights outside the country by submitting a Form 720 to the tax authorities. This form, also known as Modello 720, must be filed to report the following:
Accounts: Individuals must declare accounts in which they are the account holder or have authority as a representative, authorized person, or beneficiary. This includes accounts in which they have disposal powers.
Securities and insurance: Rights related to securities, such as stocks and bonds, as well as insurance policies and life or temporary annuities, must be reported.
Real estate: Ownership or rights over real estate outside of Spain should be disclosed in Form 720.
It is important to note that assets or rights valued at less than €50,000 are exempt from reporting. However, individuals under the Special Tax Regime are not required to submit Form 720 for tax purposes. Remember, compliance with Form 720 is mandatory for regular tax residents in Spain to ensure transparency and accurate reporting of overseas assets.
Taxes for Non-residents in Spain
You are a non-resident if you have lived in Spain for less than 183 days. Non-residents in Spain are generally taxed only on their Spanish-sourced income. Here are some pointers about non-resident taxation in Spain:
- The tax rate for non-residents varies depending on the income earned, such as rental income, capital gains, or dividends.
- Non-resident individuals are subject to Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes – IRNR).
- The tax rate for rental income earned by non-resident individuals is generally 24 percent.
- Non-residents may also be subject to a withholding tax on certain types of income, such as dividends or interest.
- Non-residents who are tax residents in a country with a Double Taxation Agreement (DTA) with Spain may benefit from reduced tax rates or exemptions.
- Foreign non-residents must obtain a Non-Resident Identification Number (Número de Identificación de Extranjeros – NIE) to fulfill their tax obligations.
- Non-resident property owners are subject to a flat rate of 19 percent on rental income derived from Spanish properties.
What is DTA?
A Double Taxation Agreement (DTA) is a bilateral agreement between two countries to eliminate or reduce the double taxation of income for individuals and companies. These tax treaty agreements clarify which country has the right to tax specific types of income, preventing taxpayers from paying taxes on the same income in both countries. If your country has a DTA with Spain, it is essential to understand its provisions and how they affect your tax obligations.
How to register to pay taxes in Spain?
You must register with the Spanish tax authorities to fulfill your tax obligations in Spain. As a resident, you will obtain a Tax Identification Number (Número de Identificación Fiscal – NIF) by registering at the nearest Tax Agency office. Foreign non-residents can obtain a Non-Resident Identification Number (Número de Identificación de Extranjeros – NIE) by applying at the local Foreigners’ Office (Oficina de Extranjería). To register your duty to pay Spanish tax for the first time, you must fill out Form 30 (“Modelo 30“). You will also need this form to update your information. English-language directions are also available on Form 30 to assist you in filling out the form.
Special Taxes for Foreigners Working on an Assignment
A special tax regime is available in Spain for foreign individuals who come to work in the country under an employment agreement with a Spanish company. Commonly referred to as the Beckham Law, named after the renowned footballer, this pay income tax regime offers specific tax benefits. Here are the key points:
- The applicable tax rate is 24 percent for income up to €600,000, and a higher rate of 45 percent is applied to amounts exceeding €600,000.
- Capital gains tax on interest earned outside of Spain is not payable under this regime.
- To qualify for this regime, certain conditions must be met, including being a Spanish tax resident (spending more than 183 days a year in Spain) and not having been a resident in Spain within the last ten years.
- At least 85 percent of your work duties must be carried out within Spain.
- The maximum annual income eligible for this regime is €600,000.
Filing Tax Returns in Spain
In the first year of becoming a tax resident in Spain, it is mandatory for everyone to file a tax return. However, after the initial tax year only, certain conditions determine whether an individual must file a tax return. Here are the key points:
- If your income from all sources is below €8,000 and your bank interest or investment income is less than €1,600, you are not required to file a tax return.
- Similarly, if your rental income is below €1,000 or your employment income is below €22,000, you are exempt from filing a tax return. This is because your employer would have already deducted your Spanish income tax in such cases.
If you need to file a tax return, use “Modelo 100,” the specific form for income tax declaration in Spain.
Tax Deductions in Spain
To alleviate the tax burden, Spain provides various deductions that taxpayers can claim. These deductions can help reduce the general taxable income base and potentially lower the overall tax liability. Let’s take a look at some of the general deductions available:
- Employment-related deductions: Expenses related to employment, such as professional training, work-related travel, and uniforms, may be deductible.
- Deductions for investment in specific assets: Certain investments, such as contributions to pension plans, can qualify for deductions.
- Deductions for rental income: If you receive rental income, you may be eligible for deductions related to property maintenance, repairs, and mortgage interest payments.
- Deductions for education: Educational expenses, such as tuition fees for yourself or your dependents, can be deducted.
Deductions for donations: Contributions to eligible charities and non-profit organizations may be deductible.
Property Taxes in Spain
Property taxes in Spain are primarily governed by the Impuesto sobre Bienes Inmuebles (IBI), also known as the Real Estate Tax:
- The tax rate for the IBI can vary across municipalities and is typically a percentage of the cadastral value, typically ranging from 0.4 percent to 1.1 percent.
- Property owners are responsible for paying the IBI, regardless of whether the property is occupied or vacant.
- The tax revenue generated from the IBI is primarily used to fund local public services and infrastructure in the municipality where the property is located.
- The payment of the IBI is typically made annually, and property owners receive a notification or bill from the local tax authorities indicating the amount due and the payment deadline.
- In addition to the IBI, there may be other local or regional taxes related to property ownership, such as the municipal capital gains tax (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana – IIVTNU) or the garbage collection tax (Tasa de Recogida de Basuras). These taxes can vary depending on the specific municipality or region.
Capital Gains Tax in Spain
Capital gains tax may be applicable when selling assets such as property, stocks, or businesses. In Spain, the tax rate on capital gains can vary depending on the type of asset and the length of time it was held. Deductions and exemptions may apply, particularly the property transfer tax for individuals selling their primary residence.
Corporate Taxes in Spain
The corporate tax, or Impuesto sobre Sociedades, is imposed on companies operating in Spain:
- The corporate tax in Spain is known as the Impuesto sobre Sociedades. It applies to companies and legal entities operating in Spain, including resident and non-resident entities.
- The standard corporate tax rate in Spain is currently set at 25 percent. However, reduced rates may be available for small and medium-sized enterprises (SMEs) or companies engaged in certain activities or industries.
- Companies are required to file an annual corporate tax return, reporting their income, expenses, and other relevant financial information. Deductions, allowances, and exemptions specific to business activities and investments may be available to reduce the taxable base.
VAT (IVA) in Spain
Value Added Tax (Impuesto sobre el Valor Añadido – IVA) is a consumption tax applicable to the sale of goods and services in Spain. It is similar to the sales tax in other countries. The standard VAT rate is 21percent, but ten percent and four percent reduced rates apply to specific goods and services. Businesses are responsible for collecting and remitting VAT to the tax authorities.
Inheritance and Gift Tax in Spain
In Spain, when receiving an inheritance or gift, individuals may be subject to an inheritance tax and gift tax (Impuesto sobre Sucesiones y Donaciones). The tax rate and exemptions vary depending on the relationship between the donor and the recipient and the value of the assets transferred. Considering these taxes when planning and managing inheritances or gifts is important.
Wealth Tax in Spain
Wealth tax (Impuesto sobre el Patrimonio) is levied on individuals’ net worth. The tax applies to residents and non-residents who own significant assets in Spain. The tax rate is progressive, with higher rates applied to higher levels of net worth. Certain deductions and exemptions may apply, and it is essential to evaluate your assets and liabilities to determine your wealth tax obligations.
Tax in Spain for Married Couples
In Spain, married couples can file their income tax returns jointly or individually. Opting for joint filing can have certain tax advantages, as the tax brackets and deductions may be more favorable for couples. It is recommended to assess both options and determine the most advantageous approach based on your circumstances.
Understanding the tax system in Spain is essential to ensure compliance with tax obligations and take advantage of available deductions. While this blog provides a comprehensive overview, it is always advisable to consult with a tax professional or refer to official sources for the most up-to-date and accurate information regarding your specific tax situation. You can confidently navigate the Spanish tax system by staying informed and fulfilling your tax responsibilities.
Frequently Asked Questions about Taxes in Spain
Are taxes high in Spain?
Taxes in Spain can vary depending on the type of tax and individual circumstances, but overall, Spain’s tax rates are generally in line with other European countries.
Do you pay house tax in Spain?
Yes, property owners in Spain are required to pay the annual property tax known as Impuesto sobre Bienes Inmuebles (IBI).
What is the tax rate for non-residents in Spain?
The tax rate for non-residents in Spain varies depending on the type of income earned but generally ranges from 19 percent to 24 percent.
Do foreigners pay taxes in Spain?
Yes, foreigners living and working in Spain are subject to Spanish tax laws and are required to pay taxes on their Spanish-sourced income.
Can I live in Spain without paying taxes?
If you are a tax resident in Spain, you are generally obligated to pay taxes on your worldwide income. However, tax treaties and exemptions may apply depending on your specific circumstances.
Do US retirees pay taxes in Spain?
US retirees living in Spain may be taxed on their worldwide income. It is recommended to consult with a tax professional to understand the specific tax obligations and potential tax agreements between the US and Spain.
How much is sales tax in Spain?
The standard Value Added Tax (VAT) rate in Spain is 21 percent. However, ten percent and four reduced rates apply to certain goods and services.
What is the personal tax allowance in Spain?
As of the latest information available, the personal tax allowance in Spain is €5,550 for individuals under 65. Higher allowances apply to individuals over 65 or with disabilities.
How much is the tourist tax in Spain?
Spain does not currently impose a nationwide tourist tax. However, some regions or municipalities may have local taxes or fees that apply to tourists, such as the “tourist tax” in the Balearic Islands or Catalonia’s tourist tax on overnight stays.