If you are a tax resident of Spain, there are certain tax rules that apply to you. In this blog post, we will go over the different types of taxes that you must pay if you are a resident for tax purposes in Spain. Keep reading for more information.
Tax Non-Residency vs Tax Residency in Spain
According to Spanish law, you will be considered a tax resident if you spend more than 183 days in the country per year. This is different from many other countries, which typically use a 12-month period for tax residency purposes.
It’s important to note that the 183 days don’t have to be consecutive. So, even if you only live in Spain for part of the year, you could still be considered a tax resident. This is something to keep in mind if you’re planning to work or start a business in Spain.
Other reasons you may be considered a tax resident in Spain are:
- Having economic interests in the country. In other words, you realize your main professional activity in Spain.
- Having a marriage in Spain or having children or a spouse living in Spain.
Being a tax resident has significant consequences. For example, tax residents will be subject to Spanish taxes on their worldwide income. While non-residents are only taxed on their income in Spain.
Difference between tax residency and residency permits
Tax residency and residency permits are two completely different things. Tax residency is determined by a number of factors, including where you live, work, and have assets. Residency permits, on the other hand, are issued by the government and grant you the right to live and work in a country. In order to obtain a residency permit, you usually need to meet certain requirements, such as having a job or being enrolled in a school. While tax residency can be complex, residency permits are typically quite simple: if you have one, you can stay; if you don’t, you need to leave.
How does the Spanish Tax System work for tax residents?
The three important things to keep in mind when filing taxes as a Spanish resident are:
- File your taxes on time. For example, Spanish tax law requires that taxpayers file their income taxes by April 30th of each year.
- Keep accurate records of your income and expenses. The Spanish tax authorities can request documentation at any time.
- Be aware of the various deductions, benefits, and double taxation treaties. This way you don’t overpay.
How to file your Spanish taxes as a tax resident?
Spanish residents who want to file their taxes will need to follow a few simple steps.
- Gather all of the necessary documentation. These include statements, tax numbers, certificates and any other relevant financial information.
- Fill out the relevant tax forms at the Spanish Tax Authorities. The form will ask for basic personal information, as well as information about income and deductions. Once the form is complete, Spanish residents can submit it online.
- Pay or receive any taxes that are owed. Spanish residents can expect to receive a refund if they have paid more taxes than they owe.
- Use the validation service on the Agencia Tributaria website. Check that your tax return is complete and accurate.
If your taxes seem complicated, you can also choose to have a professional prepare your taxes for you. This is very common in Spain.
Types of taxes in Spain for Residents
There are several different types of taxes in Spain, and if tax residents need to pay these taxes depends on their personal circumstances. Typical taxes for tax residents are:
- Income tax: Paid by anyone who earns money from employment, self-employment, investments or renting out property
- Wealth tax: Paid by residents on the size of their worldwide assets
- Value-added tax (VAT): Paid on all goods and services bought in Spain
- Inheritance tax: Paid by residents over the worldwide assets they inherit
- Property tax: Levied on owners of buildings or land
As you can see, there are a variety of taxes in Spain, and the amount that each person pays will depend on their individual situation. Below we go through each individual tax.
Income tax in Spain for Residents
The main tax you will pay is the Spanish income tax. Spain has a progressive income tax system, meaning that the more you earn, the higher percentage of tax you pay. Income tax is called IRPF in Spain. Residents of Spain are taxed on their worldwide income, regardless of where it is earned. The income tax is split into two types to calculate it.
General taxable base
The general taxable income base is the income on which all taxpayers must pay taxes at the progressive income tax rates. This includes items such:
- Rental property
- Capital gains
The income tax depends on the autonomous region where you live. The general income tax rates for residents of Spain are as follows:
- Up to 12,450 euros – 19%
- 12,451-20,200 euros – 24%
- 20,201-35,200 euros – 30%
- 35,201-60,000 euros – 37%
- Over 60,000 euros – 45%
Income tax from employment is will have their taxes deducted at the source by their employer. These are known as ‘retenciones’. The amount of tax you pay will depend on your income and your personal circumstances. When you file your annual tax return, you may be entitled to a refund if you have paid too much tax during the year.
Income tax on savings
Savings taxable income is basically composed of the interests of any financial products that you may have, such as:
- Bank deposits
- Savings accounts
- Investment funds
- Life insurance policies
- Dividends from shares
This income is taxed separately from the general income tax base. The tax rates for savings taxable income are as follows:
- Up to 6,000 euros – 19%
- 6,001-50,000 euros – 21%
- 50,000-200,000 euros – 23%
- Over 200,001 euros – 26%
As a non-tax resident, you will be taxed at a rate of 24% on any income you earn in Spain. This significantly lowers then the income tax for tax residents. If you are a tax resident and would like to pay this non-tax resident rate, you can apply for the Special Tax Regime for Expats (also known as the Beckham Law).
Social security for tax residents in Spain
According to the Spanish government, all tax residents in Spain are entitled to social security coverage. This coverage includes a number of different benefits, such as healthcare, unemployment benefits, and pensions. In order to qualify for social security coverage, you must be registered with the Spanish Social Security system.
You can do this by applying for a Foreign Tax Number (NIE) at your local Spanish consulate or embassy. Once you have a Foreign Tax Number, you will need to register for social security with the Spanish government. You can do this online or in-person at your local Social Security office. Once you are registered, you will need to make contributions to the Social Security system in order to receive benefits. The amount of your contribution will depend on your income and employment status.
If you are self-employed you will need to make monthly contributions, and if you are employed your employer will make the contributions on your behalf. The amount of your contribution will depend on your income.
Deductions of income tax for tax residents
If you are a tax resident in Spain you can deduct a number of items from your taxable income. These include:
- Charitable donations
- Social security contributions
- Energy efficiency
- Investments in companies
- Deductions for political parties
- Maternity deductions
Depending on the autonomous region, the amount you can deduct and what you can deduct may vary.
If you are not a tax resident you can’t deduct any of the items from your taxable income.
Wealth tax in Spain
In Spain, the government imposes a wealth tax on tax residents with a net worth above €700,000. However, this may vary in the region. The tax is assessed on the value of assets including real estate, cash, investments savings, art, and jewellery. The tax rates for wealth tax in Spain are as follows:
- Up to €700,000 – 0%
- €700,001 to €2 million – 1.5%
- Over €2 million – 2.5%
Inheritance tax in Spain is levied on the beneficiaries of an estate when someone dies. It is levied on the assets of the deceased person in Spain. The amount of tax that is due depends on the relationship between the beneficiary and the deceased, as well as the value of the estate. For example, a spouse or child would generally owe less tax than a more distant relative or friend. In addition, the tax rate is progressive, meaning that larger estates and people with more wealth are taxed at a higher rate than smaller ones. The calculation of inheritance tax can be quite complex.
The Spanish government also offers a number of exemptions and deductions that can reduce the amount of tax owed. For example, there is an exemption for inheritance between spouses, and certain charitable donations are also deductible. Spanish inheritance law is different from that of other countries, so it is important to seek professional advice if you are inheriting an estate in Spain.
Value-added tax (VAT) is a type of tax that is applied to the sale of goods and services. In Spain, VAT is known as Impuesto sobre el Valor Añadido (IVA). The standard rate of IVA in Spain is 21%, although there are reduced rates for certain items, such as food (10%) and accommodation (4%).
Most businesses in Spain are required to charge IVA on their products and services, and therefore you will need to pay it whether you are a resident or non-resident.
Double treaty conventions
The Double Tax Treaties in Spain are agreements between Spain and another country, which aim to avoid the same income being taxed twice. For this purpose, the treaties establish the rules according to which the income will be taxed in each of the countries. These rules establish that, in general, the income obtained in a country by a resident of the other will only be taxed in that first country.
In this way, it is arranged that, for example, a Spaniard who obtains income from France is not taxed both in France and in Spain for said income.
The Treaties also regulate other aspects such as, for example, when a company carries out activities in several countries. These regulations seek to prevent tax evasion and promote investment between the countries concerned.