For sure, one of the main taxes you will pay in Spain and in any other country. And due to that universality, income tax can be one of the most complicated taxes out there. And this creates many doubts. How much IRPF tax must be paid in Spain? Do I have to pay twice if I also pay this tax in my home country? Are there any exemptions or allowances? In this article you will find the answers to those questions and more useful information that will help you optimize your income tax payments as an expat.
What is the income tax (“IRPF”)?
The income tax, also called IRPF (“impuesto sobre la renta de las personas físicas”) in Spanish, is a direct tax applied to the difference between the incomes earned by an individual minus the expenses that can be deductible according to the Spanish tax system.
This means that, if you obtain any income, no matter if it is as a self-employed conducting your own activity/business or as a result of your job as an employee, you will pay taxes upon that.
That is why the Spain income tax is also called or referred to as salary tax.
But this payment is a bit more complex than that. According to your specific situation, the percentage to be paid will differ. It is not the same being a resident or a non-resident: the percentages vary.
Furthermore, depending on your job, activity or personal situation, it is possible to reduce your salary tax payment. So yes, there is no one-size-fits-all solution here. But don’t worry: we will cover everything you need to know now.
Do I have to pay income tax as a foreigner in Spain?
Yes, you have to. And that is true no matter your situation: you will have to pay income tax as a foreigner. In the very moment in which you register any kind of income in the Spanish territory, there’s an IRPF tax payment associated with it.
The exact amount, nevertheless is what will differ depending on your situation. That is something we will cover in a minute.
But expats living in the country must pay the corresponding amount. And this rule also holds even if you also pay it in your home country. Then you will need to opt and find a double taxation agreement between Spain and your country.
Do I need to file an income tax return?
The answer in the vast majority of situations will be yes. But, to be more precise, you will need to file an income tax return provided that:
- You have recently changed your job (during this year), and your last employer has paid you more than 1.500€ in the previous month within this same year.
- You earn more than 22.000€ per year
- You are a tax resident in the country
And when and where should you do it?
You should file it at your local tax office, during the months of May and June. The corresponding form is the 100, which you can download here.
Bear in mind that you will be filing the tax return of the previous year.
Income tax for residents
As we have just mentioned, your resident status directly affects your income tax payment percentage. We will now explore the case for residents in the Spanish territory.
Remember that if you spend more than 183 days per year in the country, you will be regarded as a tax resident.
And residents in Spain pay income tax on the income they receive worldwide, no matter the country that money is coming from.
What does this mean? For example, let’s say you have an e-commerce store and sell products worldwide. Then, you will be taxed in Spain for the sales produced both within Spanish borders and for those abroad.
But it is possible that one of those countries makes it necessary for you to also pay tax on your incomes there. That is completely normal. As we also explained, Spain has double-treatment conventions with many countries regarding taxes.
So individuals don’t end up paying twice for the same income.
And if there is no double-taxation agreement with your country of origin, you will be able to deduct the foreign tax paid in your income tax return. So you are safe either way.
And now maybe the question you were looking for…
How much income tax should I pay as a resident in Spain?
Let’s now cover the exact percentages that will be applicable depending on your situation.
But, for that, we need to understand that in Spain incomes are divided into general income and savings income. And the percentages will change accordingly:
Income tax on savings income
In this category of income, we find anything like interests and dividends, incomes obtained through annuities or gains made when transferring assets. As for 2020, the exact tax rates on savings income are:
- 19% for incomes in this category that are up to 6.000€
- 21% for savings income that moves between 6.000€ and 50.000€
- 23% for savings income above 50.000€
Income tax on general income
In the category of general income, we find the incomes not included in the previous section (taking into consideration the incomes obtained worldwide).
This means that income obtained both by self-employment and employment in any company (your salary), your pension, incomes from gambling and lottery wins, as long as any other gain made when selling an asset, etc. will be included here.
Nevertheless, giving an exact scale as we did before is more complicated here. And that is because tax percentages change across regions. It is competence from each Autonomous Community in Spain to set their own scales.
But, with the aim to provide some guidance, we will go over the numbers from the main areas in the Spanish territory:
- In Cataluña, general incomes are taxed at 21,5% up to 12.450€, and when the income is over 175.000€, 48%.
- In Madrid, the first stage is a bit lower: 19,5% up to 12.450€; and the same 48% for incomes above 120.000€.
- And, finally, in Valencia, you would enjoy the best situation out of them all. 19% for incomes up to 12.450%, and 43,5% over 60.000€.
How does personal income tax affect your payroll?
By law, companies are required to withhold a percentage of personal income tax from the workers’ payroll.
This deduction is not the same for each person. The percentage withheld will depend on the gross salary, the family situation, the type of contract and the duration of the contract. In addition, the percentage may vary annually and is defined by the Tax Agency.
So, it is as if you were advancing part of the tax every month, which you will later regularise in your tax return.
Once you have declared your income to the Tax Office, if you have been retained no more than you are entitled to, the income will be returned to you. On the other hand, if less has been withheld, you will have to pay the remaining part of the tax.
Calculating income tax on the payroll: Spain salary after tax
How much exactly is the salary tax in the Spanish territory? As explained above, the percentage is different depending on the worker and his or her circumstances.
Your family situation influences the percentage of income tax you have to pay. For example, if you are disabled, single, married or widowed, if you have children under 25, if you have dependents such as people over 65, disabled, etc. These are all conditions that will make your percentage change.
Your salary also has an influence. There are some parameters that indicate what percentage you should pay according to your salary. Let’s look at the existing income tax brackets to find out which one corresponds to you.
In Spain the average salary is € 1.600 gross per month, so you can compute how much income tax people usually pay.
Personal income for self-employed workers (“autónomos”)
The personal income tax is a tax that must also be paid by the self-employed worker since, as its Spanish name indicates, it is a tax on individuals.
However, the tax system is different from that of workers. It is not withheld from the payroll, but from the invoices you send to your suppliers (even though, depending on the model chosen, that won’t be the case). You can learn more about that in our freelance tax article.
Moreover, usually the withholding is not applied equally to each self-employed person. As a general rule, self-employed workers must apply a 15% income tax, but there are cases where different percentages can be applied. Let’s see the differences:
- If you are self-employed and carry out professional and artistic activities, you must apply 15% on your invoices.
- However, first-time self-employed workers will only pay 7% during the first registration year and the following two.
- If you are registered as a self-employed worker in a module, the deduction will be 1%.
- Carrying out agricultural, livestock, or forestry activities means that the IRPF deduction is 2%, and if they are pig-fattening and poultry farming activities, only 1% will be applied.
- Finally, no deduction should be applied if your client is an individual.
How is income taxed for UK citizens living in Spain?
Due to a special double-treaty convention between Spain and the UK, many assets do enjoy their own peculiarities when it comes to taxation.
That is why many questions arise among expat UK community in Spain.
We get asked many questions like: will my UK pension be taxed in Spain? Which are the available allowances I can access?
If you would like to learn more about it, like what happens not only with pensions but also with interests, dividends, and other assets, you can learn more about income taxation for citizens from the United Kingdom in Spain here.
Income tax for non-residents
But what happens if you stay for less than 6 months in the country and you are not considered a tax resident? Are the conditions the same?
No, the situation varies radically: you don’t need to pay income tax anymore.
As a non-resident, you will be liable for any income that you obtain in Spain, only. Worldwide income won’t be considered.
For example, let’s say you are currently living in the US, but visit Spain during the summer because you have some business operations running there.
In that case, the rental income you obtain from a Spanish property you own, dividends from a company you have invested in,… These would be incomes that create income tax payments, but taxed under the non-resident tax.
Nevertheless, non-residents from any European Union country, Iceland or Norway will pay a flat rate of 19%. If you are from any other country, a 24% fixed rate will be applied to your incomes in Spain.
Owning a property as a non-resident in Spain
Let’s focus for a second on one of the most typical sources of income that many non-resident expats have in the country. We are referring to the property income or the rental income obtained from having a property.
If you have a property in Spain and you would like to rent it, you will need to pay income tax on that rental.
Nevertheless, you are allowed to deduct the part that is proportional to the cost of running and maintaining the property as long as you can demonstrate you are a resident within the EU.
This means that, after deducting from the income that the house or flat generates the day-to-day expenses, like the home insurance or any maintenance cost that exists, you will obtain the net rental income.
And that is the amount to which you will apply or the 19% or the 24% income tax depending on your country of origin.
If you were a tax resident in this situation and met the requirements, you would be able to apply a 60% reduction on the net rental income.
Alternative ways of saving income tax
Finally, we will explore an optimization strategy that not so many foreigners moving to Spain know about: the Beckham Law.
As you have seen, the income tax payment consists of a raising percentage that increases any time your incomes raise. But with the application of the Beckham Law, you can pay for 5 years a flat rate, no matter your income.
Would you like to enjoy an important tax reduction? Then the Beckham Law will be your best ally.
Income tax online calculator
What we have covered up till here where the general dispositions that the tax law states. Nevertheless, the tax system in Spain is really complex, and according to your specific situation the general rule won’t be applicable or you will be able to benefit from deductions and personal allowances.
That is why our best piece of advice after reading this post is relying on expert tax lawyers that can assess your situation and manage your taxes for you.
If you would like to know how much income tax do you need to pay according to your case… Then send us an email with your nationality, activities and other relevant information and we will compute it for you. We will send you all the allowances that will enable you to save money on your tax payment.