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Taxes are everywhere. And moving to Spain won’t make them go away. In fact, they will become a crucial part of your new life in the country (no matter if you are a tax resident or not). But that is why we have created this article. After you finish reading this post, you will fully understand which are all the taxes in Spain for expats, how exactly the tax year works and which are all your legal obligations according to your particular case, and you will discover really useful tips that will help you save money (with allowances, deductions, and treatments with your home country).

 

Who must pay taxes in Spain?

 

Unfortunately, everyone.

Of course, Spanish nationals who live in the country must pay taxes. But foreigners too.

And even though there are important differences when it comes to the taxes to be paid depending on if you are a resident or not, both tax residents and non-residents must pay taxes in the Spanish territory.

Nevertheless, what is key here is understanding which are your specific tax obligations, and the different paths available to optimize your situation and avoid paying extra (which, in many cases, it is entirely possible to do). That is something you will learn in a second.

So as long as you live in Spain, conduct any kind of economic activity in the country, or simply own any kind of assets, you will have to pay taxes.

 

How the Spanish taxation system works + filling your tax return

 

Understanding taxes should not be that complicated. Let us demonstrate that through this section.

Unlike many countries (let’s say, the UK), the Spanish tax year goes from January to December, corresponding to a natural calendar year

This is one of the things in which taxes in Spain are quite similar when compared to the ones in the US

This just helps you understand the duration of the different tax obligations that will arise according to what you do in the country and your situation in general.

What does that mean?

That all the tax obligations that are created from the 1st of January to the 31st of December are packed together, and you will have to declare and pay them during the following year.

And that is done through your yearly tax return (which in Spanish is called “declaración de la renta”).

You will have to file your taxes from the 1st of May until the 30th of June of the following year. Not doing so in time means important economic penalties, so make sure to save the date and be prepared in advanced.

Nevertheless, if you earn less than 22.000€ per year and that money just comes from just one payer (let’s say, one company), you don’t need to file this income tax return.

In order to realize that payment, you will need to be tax-identified against the corresponding institutions. This means that you will need your NIE number, which is the identification number you will need as a foreigner to formalized any kind of legal procedure.

All the tax-related issues in Spain, both for residents and non-residents, are regulated by the Spanish Tax Agency, the institution collecting yoru taxes.

If you want to stay in touch with the latest updates in this field, visiting their site is highly recommended, as they frequently upload the last updates to the tax regulation (plus you will find all the forms required for your submissions).

 

 

Are you a tax resident or a non-resident?

 

In order to exactly understand which concrete taxes you will pay in Spain and at which exact rate, the first thing you must do is to know wheter you are a tax resident or not. 

This distinction just works for tax issues, and has nothing to do with the residence permit, and that allows you to legally live y in the country.

This means, perhaps you have a residence permit in Spain, but if you don’t meet the requirements, you may not be regarded as a tax resident for tax purposes.

Then, how do I know if I am a tax resident in Spain or not?

You will be considered a tax resident if you meet just one of the three following requirements: 

  • You live in Spain more than 183 days per calendar year, from January to December (note that the days don’t need to be consecutive in order to count).  
  • You have economic interests in the country, meaning that you realize your professional activity in Spain, whether you work for a company or you are self-employed. This is the typical case of someone who is hired by a Spanish company but spends the vast majority of the year traveling and meeting clients around the globe.
  • Your spouse and/or children live in Spain.

If you need extra information, here you can inf out all the details and implications of fiscal residency in Spain.

 

And if you have any doubt so far, you can ask anything to our lawyers here and get an instant answer:

     

     

    Which are the taxes in Spain paid by expats?

     

    Let’s recap. 

    Now you know that every year you must file Spanish taxes, and that you will have tax obligations no matter if you are a resident or not. 

    But, which are those tax obligations exactly? And how do they differ depending on your fiscal residency situation?

    What’s next is a complete list of all the taxes you will have to pay as an expat, including their specific tax rates and allowances.

     

    taxes in Spain for expats

    Infographic depicting all the taxes any expat/foreigner should pay in Spain!

     

    Income tax (for residents)

     

    First of all, perhaps the most important tax and the most commonly paid: the income tax; which is paid by tax residents in the country (those who are not residents must also pay income tax, but under the non-resident tax, which we will explore in the next section).

    But what can be considered as an income for the income tax payment?

    • Salaries obtained as an employee and what you gain as a self-employed through your invoices
    • Capital gains that come, for example, from dividends or interest rates
    • Pension contributions and benefits
    • Income that you obtain from renting a property
    • Gains generated after selling any asset
    • Etc 

    All these incomes will be liable to pay income tax, and you must include them through your income tax declaration.

    If you are regarded as a Spanish tax resident, you must pay income tax for your income and gains worldwide

    And how much should you exactly pay? 

    That will depend on the income you generate worldwide. This means that this tax is progressive, its percentage being increased the more you earn per year.

    Basically, this income tax has two different components:

    • General taxable base, which ranges between 9.5 and 22.5% in Spain, and then according to your region an extra must be added (in Catalonia, for example, it goes from 12.5 to 25%).
    • Savings tax base, going from 19 to 23% (which are capital gains and part of the interest, something we will explore later on).

    Contrary to the case of non-residents, in this case, you can have deductions and personal allowances.

    As we are talking about particular cases and there is no general advice, we suggest you contact our tax lawyers so we can provide personalized assistance by helping you optimize your taxes. 

     

    Paying for social security

     

    As a foreigner worker, you will need to contribute to the Spanish social security system, unless you receive a certificate of coverage from your home country. 

    And this leads us to understand how that income tax is actually paid.

    If you are working for a company, you receive a salary every single month. That salary is made up of a gross and a net amount (the net amount being the one you actually get on your bank account). 

    What is the difference?

    Out of your gross salary, the company that has hired you pays monthly contributions to the Social Security and income tax on your behalf. In that way, usually, when you file your income tax declaration in June you don’t need to pay extra, as the company has been deducting it for you throughout the year.

    But what happens if you are a self-employed individual? In that case, you will pay a flat fee of 280€ for Social Security every single month (even though you can decide to pay extra in order to have a better pension in the future). 

    You can learn more about self-employed or autónomo taxes here.

    A big difference stemming from tax non-residency and residency arises here, because social security contributions are deductible for residents but not for non-residents

    A special income tax regime for expats that will save you money

     

    Do you dislike the progressive tax rates that we have in Spain? Well, then you will really enjoy the application of the Beckham Law

    How can you benefit from this law? 

    If you are an expatriate who starts living in Spain, you will be able to save money with the Beckham Law, as it will allow you to pay just a flat rate of 25% on your incomes, never paying higher than that.

    This means that you will be considered as a non-resident for tax purposes. 

    Which are the conditions that you need to fulfill in order to be eligible for this rule? The most important thing is that you must not have resided in Spain during the 10 years prior to the application process for this tax exemption. Furthermore, you will need to have a job contract, and the work must be performed in the Spanish territory (although there are certain flexibilities).  

     

    Avoid paying twice: double treaty conventions

     

    Let’s say that you are a tax resident in Spain, but you obtain income from abroad too, for example in the US.

    Of course, you will pay taxes in the US as you are generating that income there, but as we said, being a tax resident in Spain implies paying taxes for your worldwide income, so would you end up paying income tax twice for the same amount generated?

    Luckily, the answer is no, thanks to what’s called double treaty conventions.

    Spain has treatments such as that with many countries, and you can find if your home country has one here.

    Non-resident tax

     

    If you are not a fiscal resident but have a property in Spain or any other kind of asset that generates incomes, then you will have to pay non-resident tax.

    Thanks to double treaty conventions, this non-resident tax will be just applied to properties and companies in which you are a shareholder.

    This tax will be 24% on the income if you are a non-EU citizen, and 19% if you are from the European Union.

    Let’s suppose, for example, that you live in the UK but have a property in Spain, and you rent it out throughout the year.

    Then you will just be taxed by all the incomes that you generate via that rental, and the bad news is that you cannot deduct any expenses in this scenario. 

    And what happens if you are not renting it, and have the property empty until summer when you visit the country? Unfortunately, you will have to pay the same tax taking into account the amount you would have paid if you were renting. 

    That is, 24 or 19% (depending on your country of origin) applied to 1,1% or 2% (depending on when the value was computed) of the cadastral value of the property.

     

     

    Spanish wealth tax

     

    Do you own a property in the country or any other asset Then you will need to pay the wealth tax in Spain, no matter if you are considered a tax resident or not.

    And we are not just talking about properties or assets in Spain, the wealth tax applies for assets worldwide if you a resident taxpayer.

    But don’t get scared: this tax is only applicable to highly valued assets. This means you have a personal allowance of 700.000€ (500.000€ in Catalonia). Assets like properties, cars, boats, investments and savings, pieces of arts,… those are the kind of assets that will get taxed here.

    Besides, if we are talking about your own property, you have an extra allowance of 300.000€. 

    Bottomline: if you have assets that are worth over 700.000€, you must pay wealth tax.

    If you possess assets of a lower value than that, you will not have to worry about the Spanish wealth tax. 

    But let’s suppose you do.

    For example, it is the case that you own a property valued at 1,5M€. How much should you pay then? The wealth tax ranges from 0,2% to 2,5%. But that percentage will only be applied to the value of the property that exceeds the corresponding allowance. Again, we are in front of a progressive tax: the higher the value of your assets, the higher the tax rate will be. 

    You must take these percentages just as a general rule because depending on the region you are living they can be higher. Furthermore, some Autonomous Communities present higher allowances. That is the case of Madrid, in which the allowance is equal to 100%, so there is no need to pay this tax. 

    This payment is done yearly (during the same time you formalize your income tax declaration) through model 714.

     

    How to reduce your wealth tax payment

     

    There are two main ways in which you can reduce the total amount of money you should pay in terms of the Spanish wealth tax.

    First of all, even though they are not many, certain assets can be excluded from this tax.

    Secondly, by restructuring your investments, you can reduce the applicable percentage.

    If you would like to exactly determine how to reduce the total amount you pay thus saving money, do not hesitate to contact us, as this may be a really specific issue we should cover carefully.

     

    CLICK HERE TO ASK OUR LAWYERS

     

    Inheritance tax in Spain

     

    If you are from the UK you will probably know this tax by the name Inheritance tax. When should you pay this tax?

    This tax is paid by the individual that accepts any given asset (the beneficiary) conceded as an inheritance. 

    Applying the basic theory to the taxes that an expat must pay while living in Spain, we should consider two situations in which this tax will be due.

    First of all, if the asset is in Spain, regardless of where does the beneficiary lives, she or he will need to pay the Spanish succession tax. Furthermore, the contrary situation also holds; in which if the beneficiary is living in Spain, regardless of where the asset is held, the inheritance tax will also be paid. 

    The exact amount will depend, again, on the region and municipality in which you are based. This means that you won’t pay the same in Catalonia in Andalucia. 

    Capital gains tax

     

    And what happens if you sell a property or shares of a company and you make money out of it? Well, again, taxes. 

    If you are a resident in Spain, you will need to pay between 19 to 23% in terms of taxes applied to the benefit obtained from the sale (of the property or shares). 

    Can you deduct anything from the price? Well, if you are a resident, yes you can: there are several bonifications to be deducted here, and to situations in which you won’t even pay it. Learn here the main exemptions on the capital gains tax.  

    Bad news if you are not because non-residents can just deduct the expenses from the lawyer, the notary, and the agency. Furthermore, non-residents outside Europe will pay a flat rate of 24%, a number that can be reduced to 19% if you live in any other European Union country

     

    Property tax & taxes when buying a property

     

    There are three different taxes you will pay in case you buy a property in Spain, depending on your situation:

    • Property transfer tax, a progressive tax that applies to second-hand properties. It ranges from 8 to 10% of the agreed price of the property.
    • For those buying a house from a developer: VAT (which will usually be 10%), and the stamp duty (1,5% in Barcelona). 

     

    VAT (Value Added Tax) or Sales tax

     

    Finally, there is this tax that usually levies consumption, which is called VAT or “IVA” in Spanish.

    It is the same tax you will already find applied in any product you purchase at a grocery store, or the extra you pay when hiring a freelancer or service provider to do a job for you.

    The standard VAT rate is 21%, even though there is also the reduced 10%, the super-reduced 4%, and there are some products that don’t apply VAT (0%), like education courses.

    You can find out all the information about the VAT tax here

     

    Spanish tax rates

     

    As we have mentioned before, from April to May every single year you will have to declare and pay your taxes through your income tax declaration.

    This declaration will include both your general and your savings incomes, which are taxed differently (there is the income tax part of the equation, then the capital gains one). 

    If we combine both, which are the exact rates you must pay according to how much you generate?

    Here you can find the general brackets:

     

    income tax brackets

     

    But be careful. 

    This would correspond to the generic case, and it does not mean that you will end up paying exactly the same as you can see in this table.

    Why?

    • First of all, because the percentage may vary according to the region in which you are living. Catalonia has different income tax rates than Madrid.
    • The percentage that is applicable to you is computed differently depending on many personal factors, such as your age, whether you are married or not, if you have children, etc.  
    • There may be several allowances or deductions that you can apply, and those will reduce the percentage too.

    Therefore, use this table as a guide, but bear in mind that in the end each case is different and you cannot rely on generics, especially with something as complicated as taxes. 

    Our recommendation? Contact us, explain your situation, and let us compute the exact percentage you must actually pay (plus some strategies to reduce it).

     

    Personal allowances

     

    If you are a Spanish tax resident, you can benefit from different allowances that will really reduce the total amount to be paid.

    Which are those allowances:

    • Money you donate any money to an NGO that is recognized by the government
    • Pension plans and contributions, up to 2.000€ per year
    • Rental or mortgage payments as long as the contract is from 2014 or before
    • Personal allowance of 5,500€ for people under 65 of €5,550, €6,700 if you are 65 to 75 years old, and €8,100 for those over 75
    • Extra allowances depending on your region. For example, in Catalonia there are allowances during the first year your children was born, if you become a widow/widower, etc.

     

    Taxes in Spain for expats calculator

     

    Would you like to know, according to your situation, which is the exact tax percentage you will need to pay in the country?

    Then our tax calculator is for you! How to use it? Really simple: Send us an email at info@balcellsgroup.com detailing the following information:

    • If you are a tax resident or not (if you are not sure, just explain your current situation)
    • Which is the income level you obtain in Spain
    • Which is your exact economic activity
    • If you have a property or you are planning to sell one

    And we will help you find out the best way to optimize and structure your taxes.

     

    Tax optimization strategies

     

    Now you already know which are the different taxes paid in Spain by expats.

    As you can see, there are several differences depending on you being a tax resident or not, and many ways to optimize the total amount paid.

    That is why we highly advise you to rely on the help of expert tax lawyers, like the one our team provides. Not only will it help you time and money, but also understand all your obligations and make sure you don’t miss any deadline (which could cost important penalties).

    We can help you with your accounting and tax planning issues, and we are ready to help!

     

    I want to talk to a tax lawyer now

     

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