If you are a foreigner living in Spain, this really interests you. Because it is highly likely that you need to file your income tax return, and in this article you will learn exactly how. We will analyze how the process works, how much exactly you need to pay, all the deductions and allowances that will save you money, and many other useful tips that will really help you out. Get ready, you are about to discover how a tax declaration can be made simple!
What is the income tax return?
As you already know, unfortunately receiving any type of income implies pay taxes on that amount.
And that is true no matter the country where you are in.
The exact percentage applied to the income you receive is called income tax, and the way to declare how much of that tax you must pay to the Tax Authorities is something done through your income tax declaration.
Hence, this “declaración de la renta” (as it is called in Spanish) is the process of drafting a document in which you are going to include and specify all the incomes you have obtained and generated throughout the year, so that the Spanish Tax Agency can charge or reimburse any money that was left.
This declaration is done once per year in case you are required to (something you will discover in a second).
Does it mean paying taxes?
That is key to understand.
Doing your tax declaration does not mean paying taxes necessarily.
In fact, that is something you may have done throughout the year directly when receiving your salary.
That is, in Spain, you have your gross salary, which differs from the amount you actually perceive on your bank account at the end of each month. That difference between gross and net salary is made up of social security contributions and income tax payments.
Then, your tax declaration just checks if there is any amount that was paid extra or that is left to be paid, so that the government can then pay you or charge you the difference.
After submitting your tax return, there are two possible results:
- Its status is to be paid (“a pagar”), so you must pay the resulting amount
- Its status is to be returned (“a devolver”), in which case the government owes you money
What affects this declaration?
Planning in advance and fully understanding how this process works will be essential.
Because your income tax declaration depends on many factors, such as:
- Your age
- If you are married
- If you are renting
- If you have any kind of disability
- If you recently bought a property
- How much income you have generated throughout the year
- And many other personal circumstances
As you can see, your personal situation makes all the difference.
Depending on each of those factors, you may benefit from certain allowances and deductions, which will significantly reduce the total amount to be paid.
Furthermore, if you are an expat in Spain who receives income from abroad, you may benefit from double treaty conventions between your country of origin and Spain.
That is why It is always a wise idea to consult with a tax specialist before filling out your tax declaration so you can finally end up saving money.
Do I need to submit my income tax return in Spain?
There are several requirements to consider in order to determine if you should actually file your income tax return in Spain or not.
But the first and most important one is tax residency. If you are a tax resident in Spain, you must submit your tax return in the country, something that is true if:
- You live in Spain for more than 183 days per year (which can be seen through passport control)
- Your center of economic interest is in Spain
- Your spouse or children who economically depend on you currently live in the Spanish territory
If you meet any of these three conditions, you will be regarded as a tax resident (you can find all the details in this article, as well as all the implications being a tax resident entail), which means that you will have to pay taxes in Spain on your worldwide income and declare them through your annual renta declaration.
If the answer to the prior question is yes, then you must file your income tax return as long as:
- You receive over 22.000€ per year (or more), coming from work or pensions (both in Spain and abroad)
- Your income has not been taxed in Spain or comes from more than one payer (like two different jobs, or a job and unemployment benefits), and you have earned over 14.000€
- You have pensions over 12.000€ from abroad
- Other specific situations that must be analyzed case by case
Spanish tax return deadlines
First of all, bear in mind that the Spanish tax year is equivalent to the natural year (that is, it goes from the 1st of January to the 31st of December; unlike countries like the UK).
That being said, you will formalize your tax return for any specific year from the 1st of April to the 30th of June of the following one.
For example, the income tax declaration for 2021 will be submitted from April to June of 2022 (this is the same period of time during which you must declare and pay your wealth tax, if applicable).
If you don’t file on time, you may incur a penalty that depends on how late you are. This penalty can range from 5 to 20% of the tax due, so make sure to save the date and submit all the documents on time.
Furthermore, remember that from January to March you must declare your worldwide assets through model 720 (as long as you have assets valued over 50.000€).
Finally, if you are under the special regime for displaced workers (also known as the Beckham Law), you must use form 151 (and not in general one) to declare your taxes annually.
How to file it
Nowadays, your income tax return must be filed online. You will need to request a draft, and you can do it following this link.
In that link you will also find all the extra links and information, like how to submit extra documents that were missing, etc.
Payments or reimbursements are done by direct debit.
That is, as the Spanish Tax Authorities already have your bank account information, they will automatically charge or pay you the amount due.
Also, it is worth considering that in case you need to pay any specific amount, you can do it in two parts: 60% after filing your return, and the remaining 40% on the 5th of November.
Tax rates: discover how much you actually need to pay
Which are the specific incomes that will generate the obligation to pay income tax and hence be within your declaración de la renta?
- Income you receive from work (salaries, retirement pensions, pensions for disabled individuals, maternity benefits, unemployment benefits, etc.)
- Income from movable capital (dividends, interest on accounts, interest on deposits, etc.)
- Income from real estate capital. For example, if you receive income from a rented apartment. If that rented apartment is also your main home (and you don’t use it as an Airbnb or seasonal rental), there is a 60% reduction applied when you subtract all expenses. If you have it empty, the tax office assumes the yield that you would pay for that apartment if you rented it (and pay IRPF accordingly).
- Capital gains. Benefits obtained from the sale of real estate or financial assets (when for example you sell your house or shares of a company).
- Income from economic activities as a self-employed individual.
This list can be classified into two big groups, and both are treated differently when it comes to your income tax return and its corresponding payment:
General income taxable amount
For the general incomes you receive, we are talking about a tax that ranges from 19% to 45%, like this:
But the exact percentages depend on your Autonomous Community.
The final percentage is made up of two parts:
- The first part is determined by the Spanish central government and goes from 9.5% to 22.5%.
- But then, each region ads up their own percentages, which can go from 12.5% to 25%.
When we say taxable savings, we are referring to capital gains and part of the interests you receive. Here taxation is easier, as there are just 3 brackets:
- Up to 6.000€, 19%
- From 6.000€ to 50.000€, 21%
- Over 50.000€, 23%
There are certain allowances you can benefit from:
- 5.500€ per year as an individual
- If you are older than 65 years old, 6.700€ per year
- If you are older than 75, 8.100€ per year
- If you are legally married and formalize a joint income tax declaration, then entitled to an extra 3.400€
This does not mean that you will subtract these different amounts to the income tax to be paid you finally obtain. No. This amount corresponding to your particular case has to do with the way the exact income tax percentage is computed, but it is never directly deducted.
What can you deduct from your income tax payment?
The following are a list of possible deductions you will be able to exclude from your tax base:
- Pension plans and their contributions. Until now it was up to €8,000 per year, but from now onwards the amount has been reduced to just €2,000.
- The mortgage or rent of the house where you are currently living, but under certain conditions (and not everybody will be able to benefit from this), like just rents or mortgages which are old, signed before 2014.
- Donations to solidarity entities such as NGOs (but bear in mind that not just any NGO is valid, they must be entities under the corresponding law, and they must send an annual certificate).
- Extra regional deductions. For example, in Catalonia there is the right to deduct 300€ in the same year your child is born, 300€ the year you become a widow or widower, amounts devoted to the promotion of the Catalan language, etc.
Hence, finding yourself in the exact same situation, your declaration can drastically change according to your region.
Extra strategies to save money
Furthermore, you can also benefit from the different double treaty agreements between the country from which you obtained incomes and Spain. That is, if you paid taxes there, you won’t need to pay taxes again in Spain (as that would generate two payments for the same income).
Spain has agreements with over 80 countries (which you can find here), so it is likely that you can benefit from this measure.
If you are from the UK and also a fiscal resident in Spain, we suggest your read this article in which you are going to find a complete list of deductions and taxation regulations for your particular case.
Finally, Beckham’s Law is another really interesting option that can save you money. If you meet the requirements, you will just need to pay a flat fee of 24% on your income instead of a progressive rate that can reach 50%.
It is true that there are extra deductions you can benefit from.
But those entirely depend on the region in which you are currently living, so our recommendation is to contact our team of tax lawyers so that we can analyze your situation and find the best tax optimization strategies that will save you money.
We will also draft and submit your income tax return for you, making sure you are not missing anything and that you properly do it on time:
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