IRPF Spain: How to calculate Personal Income Tax

Are you an expat or a self-employed individual living in Spain? Are you wondering how the Personal Income Tax (IRPF in Spain) works and what you need to do to accurately calculate it? This can be a confusing area of tax understanding for many expats moving abroad. However, in this article we will break down concisely all the information needed about IRPF so that you can confidently know exactly what your obligations are, and how to stay on top of them each fiscal year.

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What is IRPF?

IRPF (Impuesto sobre la Renta de las Personas Físicas) is the personal income tax in Spain. It is a direct tax that is applied to the income earned by individuals who are residents of Spain. The IRPF tax rate in Spain is progressive. This means that the more income an individual earns, the higher percentage of tax they will pay. Tax rates for different income brackets range from 9% to 52%.

How does IRPF work in Spain?

The income tax is designed to levy taxes on almost all the income an individual earns. This includes salaries, public pensions, investments, gambling winnings, rental income, and insurance payouts.

The tax authorities categorize this income to differentiate between earned income and savings income. Earned income is subject to general rates, while savings income is subject to specific brackets and scales.

Who pays IRPF in Spain?

Residents in Spain have to pay personal income tax (IRPF) on any income obtained in the country or worldwide. This includes employment income, rental income, capital gains, and other forms of personal income. IRPF is also due on foreign-sourced income if the individual is a Spanish tax resident. Non-residents in Spain must only pay personal income tax on any Spanish-sourced income obtained, such as rental income from a property in Spain.

Individuals earning more than € 22,000.00 a year

The personal income tax rate for individuals earning more than € 22,000.00 annually is progressive from 23% to 45%. There is also an additional surcharge of 3% on any taxable base above € 150,000.00. Individuals earning less than € 22,000.00 a year are subject to the personal income tax rate of 19%, which applies regardless of how much income is earned within the taxable base.

Non-Residence

If you are a non-resident in Spain and have income sourced in Spain, you may be subject to Spanish tax laws and required to pay Spanish income tax. The Spanish tax system requires non-residents to pay taxes on income earned in Spain. This includes employment income, rental income, capital gains, and other types of income. The tax rates for non-residents vary depending on the type of income earned and the country of residence.

You must file a tax return with the Spanish tax authorities to determine your tax liability. The tax return should include all income earned in Spain during the tax year and any deductions or credits you may be entitled to. Failing to pay this tax will result in charges and penalties from the Spanish Tax Agency should you decide to sell your property. This tax must be paid yearly, from January 1st through December 31st of every year for the past year’s taxes.

Spanish Resident

If you are a Spanish resident, you will be taxed for your worldwide income. The personal income tax in Spain is progressive. It starts at 0% for those earning up to € 12,450.00 per year, and goes up to a maximum of 45% for individuals earning more than € 22,000.00 a year. In addition to personal income tax, individuals may be subject to other taxes, such as wealth and capital gains. Wealth tax is a direct personal income tax on the net worth of individuals, while capital gains tax is imposed on any profits derived from the sale of an asset.

In order to avoid double taxation, Spain has signed double taxation agreements with more than 90 countries worldwide. If you have paid taxes in another country and your home country has signed a double taxation agreement with Spain, you may be eligible for a tax credit or refund on the Spanish income tax you paid. When there is no treaty between your homeland and Spain, you can take advantage of foreign tax deductions and any foreign compensation. Your Spanish Lawyer will be able to work out these amounts for you.

You are expected to submit your personal income tax return to the Spanish Tax Agency (Agencia Tributaria) before December 31st each year, covering all income earned from January 1st to December 31st of the previous year. Non-residents who spend more than 183 days in Spain are deemed residents for taxation purposes, regardless of whether they have secured a residence permit or not.

How much tax do you pay in Spain?

To determine the amount of IRPF tax an individual must pay, they must first calculate their taxable income. This includes income from employment, self-employment, investments, and other sources. Certain deductions and allowances are also available to reduce taxable income, such as expenses related to work, contributions to pension plans, and some family-related deductions. You must keep in mind that the exact amount due will depend on your region. To provide an estimate of what to expect, here are the income tax bands that the Spanish government state for 2023:

From 0 to 12,450 euros: 9.5% state rate and autonomous rate, or 19% total rate.
From 12,450 euros to 20,200 euros: 12% state rate and regional rate, i.e. 24% total rate.
From 20,200 euros to 35,200 euros: 15% state rate and regional rate, or 30% total rate.
From 35,200 euros to 60,000 euros: 18.5% state and regional rate, or 37% total rate.
From 60,000 euros to 300,000 euros: a 22.5% state and regional rate, or 45% of the total rate.
Over 300,000 euros: 24.5% state rate and 22.5% regional rate, or 47% total rate.

In Spain, everyone has a non-taxable personal allowance. How much this is will depend on your circumstances, and further allowances depend on your family, marital status, or several dependents.

Notice that to calculate IRPF in Spain, the Tax Agency offers you a free and simple program on its website.

Filing your Spanish tax return

All tax residents must file a Spanish annual return known as the Declaración de la Renta. During May and June, every individual must file their own income tax return.

In order to file your Spanish personal income tax return you will need to present all of your personal information. This includes your name and date of birth, personal tax identification number (NIF), a valid Spanish address, any personal income earned over the past year, and proof of residence. You must also provide information about any taxable capital gains from investments or property sales and details regarding rental income and employment income earned.

Once you have submitted your personal income tax return, the Spanish Tax Agency (Agencia Tributaria) will review it and may require additional information or documents before levying any personal income tax. The agency then has up to four months to send a notification of taxation. The notification outlines the total personal income taxes due for the year. From there, you can make arrangements to pay any personal income taxes due directly to the Spanish Tax Agency.

As a Spanish resident, you must submit a tax return and pay income tax at a progressive scale rate determined by your autonomous community.

A word from SpainDesk

To sum up, Spanish citizens need to understand how their income is taxed and how this tax is calculated. Knowing the IRPF Spain tax system allows expats living in Spain to benefit from understanding their obligations and allowances when filing a Spanish income tax return. Nobody wants to pay more taxes than necessary – understanding how to calculate taxes will help you optimize your finances. Furthermore, speaking with a qualified financial consultant during the preparation period of your IRPF declaration, can easily avoid confusion, incorrect representation of facts, or double taxation.

Taxation is inherently complex. In addition, the IRPF is one of the most complicated taxes to calculate, if not the most. This is the reason why it is convenient to have professional help and advice. SpainDesk has developed a wealth of expertise in the rule of law and accounting in Spain. We offer expert services in all aspects of Spanish law, for individuals and businesses. We will guide you through the process of establishing your company in Spain and provide prompt responses to any queries you may have. Contact us today!

Disclaimer: Information on this page may be incomplete or outdated. Under no circumstances should the information listed be considered professional legal or financial advice. We highly recommend seeking guidance from a legal or financial expert if you lack extensive knowledge or experience dealing with any of the procedures outlined in these articles.