Taxes in Spain

In this article, you can find the Spanish tax rates of VAT, income tax, property taxes, and taxes for residents and non-residents in Spain. 

If you both live and work in Spain, you will need to pay income tax for your income and assets. Also, you will need to file a Spanish tax return. Your residency status will determine if you must pay taxes on your worldwide income, or only on Spanish-based income. 

If you are a resident in Spain, you will need to pay taxes on your worldwide income. Taxes are on a progressive scale in Spain. Yet, tax deductions are also available. If you are a non-resident, you will pay taxes only on your Spanish income. This is usually at a flat rate.

 Your Spanish income also includes potential income on your Spanish property even if you don’t rent out your property. In addition to property income, Spanish tax is also required in property ownership, investment interest, and goods and services (VAT) in Spain. 

In Spain, state and regional governments divide taxes. So, Spanish tax rates can be different in different regions. Spain has 17 autonomous regions. Each of them determines their own tax rates. The changing rates include income tax, property tax, wealth tax, capital gains tax, and inheritance tax. 

Also, if you work in Spain, you must pay Spanish social security taxes as well. 

The Spanish tax year includes the dates between January 1st and December 31st. 

Taxes for residents in Spain

An individual is regarded as a Spanish tax resident if they have been living in Spain for six months (183 days) or more in the calendar year. It does not have to be consecutive. Additionally, if their main vital interests are in Spain, they are also deemed as Spanish tax residents. The main vital interests include your family or your business in Spain.

If you are a Spanish resident, you must submit a Spanish tax return. You may also need to pay Spanish income tax on your worldwide income if:

  • Your annual employment income is more than €22.000
  • You are self-employed in Spain or if you conduct your own business
  • You take a rental income that is more than €1.000 a year
  • You have income from capital gains and savings of more than €1.600 a year
  • It is your first year declaring a tax residency in Spain.

In Spain, the taxable income is the income that is left after deductions for contributions to social security, pension, personal allowance, and professional costs. 

If you work for a Spanish related company or a permanent establishment of the non-resident company in Spain, the Spanish entity or the permanent establishment you work in have to make the withholdings. 

The withholdings on income from employment are calculated according to a progressive rate.

Tax resident individuals must report the following assets and rights located outside of Spain, by filing a 720 Form to the tax authorities:

  • Accounts of which the individual is the titleholder, or in which they are a representative, an authorized person, or beneficiary. Or accounts in which they have disposal powers
  • Securities, rights, insurance, and life or temporary annuities
  • Real estate or rights on the real estate.

You must declare your assets abroad by using Form 720, also called Modelo 720. However, if the assets’ or rights’ value is less than €50.000, you don’t need to report them. 

It is important to note that Form 720 is required only for regular tax residents. It does not apply to individuals who are granted under the Special Tax Regime. 

Taxes for non-residents in Spain

You are considered a non-resident if you live in Spain for less than six months (183 days) in a calendar year. This means that you will pay taxes only on the income you earn in Spain. Taxes on your income will be at flat rates with no allowances or deductions. As a non-resident, if you own a property in Spain, you need to submit a tax return and pay Spanish property taxes for non-residents along with local Spanish property taxes. This applies whether you rent the property out or not. 

The general tax rate of 24% applies to work income and a rate of 19% applies to capital gains and financial investment income which arise from Spanish sources. Certain tax rates apply to some other types of income as well.

Other than the general 24% rate, if you are a resident in another EU state or European Economic Area (EEA) country, the rate is 19%. Other types of taxes for non-residents are as follows:

  • Capital gains from transfers of assets: 19%
  • Interest: 19%. It is tax-exempt for EU residents. Normally, DTA (Double Taxation Agreements) establish lower rates
  • Dividends: 19%. Again, DTA establishes lower rates. 
  • Royalties: 24%. Normally, DTA establishes lower rates
  • Pensions: Taxed at progressive rates (between 8% and 40%).

Non-residents have to file their returns on a separate basis. Usually, payers of Spanish-source income are required to withhold the tax at source on each complete payment.

If you want to apply for paying income tax as a non-resident, you need to use “Modelo 149”. Then, you can make your income tax declaration on “Modelo 150”. If you are a non-resident property owner, you need to make your tax declaration on “Modelo 210”.

What is DTA?:

As mentioned above, they are double taxation treaties to avoid double taxation in both countries. Spain has signed several agreements with other countries as well. You can follow the up-to-date list of agreements on the website of the Spanish tax authority (“Agencia Tributaria”). Currently, it has signed DTA with around 90 countries. 

How to register to pay taxes in Spain

First, you need to register with the “Agencia Tributaria”, which is the Spanish tax authority. You need to register whether you are a resident or non-resident. While registering, you must show your Foreigner’s Identity Card (NIE) number. You can obtain this number through the local Foreigner’s Office (“Oficina de Extranjeros”) or through a police station. You can do this within 30 days of your arrival in Spain. Then, you need to fill out Form 30 (“Modelo 30”) to register your liability to pay Spanish tax for the first time. You also need this form to change your details. On Form 30, you can find English-language guidelines as well, to help you fill out the form. 

Special taxes for foreigners working on an assignment

A special tax regime is available for foreigners who come to work in Spain on an employment agreement with a Spanish company. It is known as Beckham’s Law, named after the famous footballer. According to this regime, taxes apply only to Spanish income at a rate of 24%. The rate is available up to gains of €600.000. A rate of 45% applies to amounts of more than €600.000. Also, there is no capital gains tax payable on interest outside of Spain.

You can apply to benefit from this regime within six months of arrival in Spain. The conditions are as follows:

  • If you are a Spanish tax resident (spending more than 183 days a year in Spain), and 
  • If you have not been a resident in Spain in the last ten years
  • Relocation to Spain especially to accept a job offer from a Spanish employer
  • Your duties are carried out in Spain at least 85% of the time
  • You earn an amount up to €600.000 a year.

You can benefit from this regime for a maximum of five years. 

Filing tax returns in Spain

Everyone must file a tax return in the first year of their tax residency. After the first year, if your income from all sources is less than €8.000, and if you have less than €1.600 of bank interest or investment income, you don’t have to file a tax return. Also, if your rental income is less than €1.000, or as an employee, you gain less than €22.000, you also don’t need to file a tax return. The reason is that your Spanish income tax will have been deducted by your employer, in that case.

To make an income tax declaration, you need to see “Modelo 100”. In this way, you can learn how to complete and submit your tax return. Also, you can find information about previous tax returns and payments made. You will need your digital identification certificate to benefit from this service.

Tax deductions in Spain

If you are a tax resident of Spain, you will receive certain tax deductions. The basic personal allowance for anyone under 65 years of age is €5.550. After 65 years of age, it is €6.700, and €8.100 over the age of 75.

If you have children under the age of 25, and if they are living with you, you can get an additional allowance of:

  • €2.400 for the first
  • €2.700 for the second
  • €4.000 for the third
  • €4.500 for the fourth child.

Additionally, an allowance of €2.800 is available for each child under three years of age. Also, if your total income is less than €8.000, and if you have a parent or grandparent who is living with you, you can get an allowance of €1.150 if they are over 65. The amount is €2.550 if they are over 75 years of age.

In general, you also have a right to tax deductions in Spain for:

  • Payments for the Spanish social security system
  • Spanish pension contributions
  • Costs of buying and renovating your main home
  • Your charitable donations.

General deductions from income

The social security contributions are deducted from an employee’s gross work income if they are compulsory and directly connected to the work they do in Spain.

About general deductions from the taxable base

  • A general deduction of €2000 from the individual’s net employment income (handicapped workers have a right to a higher deduction)
  • If you have a net employment income up to €13.115, you can reduce from your taxable base by an additional amount of €5.565. If you have a net employment income between €13.115 and €16.825, you can reduce your taxable base by an additional amount of €5.565 minus the result of multiplying by 1.5 the difference between the net employment income and €13.115.
  • Joint filling reduction: It is €3.400 in general.
  • Reduction for geographic mobility 
  • Child care reduction
  • Disability reduction
  • Reduction for contributions made to disability welfare
  • Reduction for contributions made to welfare systems
  • Reduction for alimony payments which are made to a separated spouse in accordance with judicial decisions
  • Reduction for contributions that are made to Spanish registered or certain EU Pension plans which fall under the scope of the EU Directive 2003/41/CE.

Property taxes in Spain

If you own a property in Spain, and if you live in it on January 1st in any given year, you are required to pay a local property tax, “Impuesto sobre Bienes Inmuebles (IBI)”. Local authorities determine the amount. This applies to both residents and non-residents in Spain. Another tax is called “basura”, which is a rubbish collection tax. As a non-resident property owner, you may also need to pay an “imputed income tax” at a flat rate on potential rental income on Spanish property.

When you sell a property in Spain, you need to pay a property transfer tax, which is “Impuesto Transmisiones Patrimoniales (ITP)”. The local authority charges a tax on the increase in the value of the land (the “plus valia”) when a property is sold.

Capital Gains Tax in Spain

The capital gains tax is the tax on profits from selling a property or profits from other investments. You can find the amounts below:

  • Up to €6.000: 19%
  • Between €6.000–€50.000: 21%
  • More than €50.000: 23%

It is worth noting that if you bought a property before the year 1994, you may be obliged to pay more tax than before. The reason is that the tapering tax on capital gains tax has been canceled. 

Corporate taxes in Spain

It is advisable to consult a financial professional about your situation. However, the following information may at least give you an idea.

In Spain, the general corporate tax rate is 25%. For recently-formed companies, the rate is 15% for the first two years of business. A reduction of 10% tax may be available for profits which are locked into a special reserve for a duration of five years.

Company tax returns have to be filed within six months and 25 days after the accounting period’s end. You can make payments by installments in April, October, and December. Usually, each installment is 18% of the tax liability. 

VAT (IVA) in Spain

VAT (value-added tax) is called “Impuesto sobre el Valor Añadido (IVA)” in Spain. There are three types of VAT in Spain. 

  • “General” : 21% on goods and services
  • “Reducido” : 10% on passenger transport( i.e; rail and bus fares), toll roads, amateur sporting events, exhibitions, health products, non-basic foods, rubbish collection, pest control, and wastewater treatment
  • “Super Reducido” : 4% on essential foods, medicine, books, and newspapers.

There is also a recent VAT policy in place obligating all VAT payers, and especially freelancers to submit all invoice data online to the “Agencia Tributaria” (Spanish Tax Agency)  within four days of the date of issuance. It should not be later than the sixteenth day of the month following its issuance.

Inheritance and gift tax in Spain

With recently changed rules, non-residents from the EU/EEA countries are treated the same as residents. Before the recent rule, the government charged non-residents at a rate of around 80% more than the residents. The rate now is around 1%–7% for all, depending on the region. Also, you may receive a refund if you have paid a higher rate in the past. This means between January 1, 2011, and 2015. 

Some regions in Spain also changed their inheritance and gift tax policies in 2017. In this way, many families did not have to pay inheritance tax. It is advisable to check the laws in your region. Also, better consult a specialist for these types of taxes. 

Wealth tax in Spain

In Spain, you pay your wealth tax on the value of your assets on December 31st of each year. Normally, the wealth tax was abolished in 2009 in Spain. However, it has since been reintroduced.

If you have a wealth of more than €700.000, you will pay a wealth tax rate of 0.2%–2.5% on net assets. In different regions, variations also exist. Homeowners are allowed a further €300.000 against their main residence’s value. 

Tax in Spain for married couples

You can be taxed separately or together if you are married. Spain does not put a limitation on the type of marriage. It can be either in a heterosexual or same-sex marriage. In Spain, a married couple’s allowance (declaracion conjunta) is available. For the second taxpayer, the allowance is €3.400, and for the first taxpayer, a general tax allowance is €5.550. It is advisable to check the Spanish rates before you decide how to pay your taxes.

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