Paying taxes in Spain

Paying taxes in Spain
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Updated 2021-07-09 15:04

If you are a foreigner living in Spain for more than 183 days in a calendar year, you are classed as a resident for tax purposes and will have to pay tax on your income. Even if you have not obtained a formal residency permit, you must still pay tax.

Spain has signed double tax treaties with several countries such as Argentina, the UK, Chile, China, Bolivia and Cyprus, which means that foreigners shouldn't pay twice on the same income. If you have decided to settle and work here, it is advisable to check whether there is an agreement between Spain and your home country. Ask the Spanish agency responsible for tax and customs systems (Agencia Tributaria).

Good to know:

The tax year in Spain is different from that in many other countries, running from January 1 to December 31. Given that the country's tax system is complicated, and rules and regulations are changing all the time, it is probably best to engage the services of an accountant to prepare and file your tax returns. Although you can file your own returns, there's more chance of you making mistakes or missing deadlines, resulting in fines.

If you are legally resident in Spain, you pay tax on your worldwide income, while non-residents only pay tax on income generated in the country.

Are you a tax resident in Spain?

Individuals are resident in Spain for tax purposes if they meet any of the following criteria:

  • You spend more than 183 days per year in the country
  • You have a regular residency permit
  • Your core economic interests in Spain
  • Your spouse lives in Spain

Income tax in Spain

Income tax in Spain or IRPF (Impuesto Sobre la Renta de las Personas Físicas) is a direct tax paid to the government that generally varies between 19% and 47%. It is deducted at a progressive rate according to your salary.

In Spain, income consists of general income and savings income.  

General income includes:

  • All earned income such as salary, self-employment income and pension income
  • Business income
  • Rental income
  • Royalties

Savings income includes:

  • Interest income
  • Dividends
  • Capital gains on the sale or transfer of assets
  • Purchased annuity income 
  • Income from life assurance contracts

As of July 2021, the income tax rates are as follows:

  • 19% for the first 12,450 euros
  • 24% for incomes ranging from €12,450 to €20,200
  • 30% for incomes ranging from €20,200 to €35,200
  • 37% for incomes ranging from €35,200 to €60,000
  • 45% for incomes ranging €60,000 to €300,000
  • 47% for incomes over €300,000

The tax rates for savings income are:

  • 19% for the first €6,000 of taxable income
  • 21% for the following €6,000 to €50,000 of taxable income
  • 23% for the following €50,000 to €200,000 of taxable income
  • 26% for any amounts over €200,000

You must file your tax declaration (declaración de la Renta) between the 1st of May and the 30th of June. This will be for the previous year. You can do this online or with an accountant. Note that as a resident, you may be eligible for deductions and personal allowances.

Personal tax allowances

If you pay tax in Spain you can benefit from several personal allowances that will reduce your tax burden. As of July 2021 these include:

  • For people under the age of 65 the personal tax allowance is €5,550
  • For people over 65 it is €6,700
  • For people over 75 it is €8,100

Pension plans and contributions, up to €2,000 per year. There are also deductions for charitable donations and the costs of buying and renovating your main home.

You can also claim the following additional allowances:

  • For the first child - €2,400
  • For the second child - €2,700
  • For the third child - €4,000
  • For the fourth child - €4,500

Tax returns in Spain

The cut-off day for filing your annual tax return is June 30 at the latest. This will cover your income for the previous year. Note that income tax is deducted at source by employers. When filling out tax returns, you will need your N.I.E. number - foreigners' identification number.

Warning:

Additional declarations may apply depending on your type of work, for example, if your clients are located outside of Spain, or you run your own company. You are advised to check with your gestor (tax adviser).

Other taxes

Apart from tax paid on income, Spain has a wealth of other taxes that expats should be aware of. For example:

Capital gains tax:

Capital gains is the tax you pay on the profits from the sale of an asset such as a property. Whenever you sell an asset for a value greater than the initial purchase price paid, capital gains tax is due. The rate at which you pay capital gains tax is set out below:

  • 19% for the first €6,000
  • 21% for €6,000 to €50,000
  • 23% for €50,000 to €200,000
  • 26% for €200,000 plus
  • 19% for non-residents

Wealth tax

In Spain, residents and non-residents are liable for a tax on their assets known as the wealth tax. Spanish residents have to pay tax on their worldwide assets, while non-residents pay tax on their Spanish assets only.

The tax rate you pay depends on the region of Spain in which you are a resident, and it's only applicable to highly valued assets. In addition to the tax-free allowance of €700,000 per person, homeowners have an extra allowance of 300.000€. So, the bottom line is if you're a homeowner, you must pay wealth tax if you have assets worth over 1 million euros.

Assets that are taxed include real estate properties, cars, jewellery, savings, boats, investments, and art pieces.

VAT (Value Added Tax)

VAT is a type of consumption tax that applies to the sale of goods and services. VAT is charged to consumers on the prices they pay and collected by businesses who are then responsible for reporting it to the government.

If you are VAT registered, you will have to declare your VAT through a form known as modelo 303. You can do this online. In Spain VAT is known as IVA which stands for impuesto al valor agregado. You will also have to submit an annual summary of VAT with modelo 390. 

The general VAT rate in Spain is 21%, and it applies to most goods and services. There are also reduced rates:

  • 10% applies to health products, sports and entertainment activities, newly built properties and hotels.
  • 4% applies to newspapers, magazines, books and some food items.
  • Zero-rated VAT goods and services include some gold coins and intra-community and international transport.

Inheritance tax

If you are resident in Spain (Spanish national or expat), you have to pay inheritance tax on bequeathed assets, regardless of whether or not the deceased lived in Spain.

The inheritance tax rate applied depends on several factors, including the relationship between the donor and beneficiary, the value of the beneficiary's assets, the amount being inherited, where the deceased person was resident and the region and municipality where the beneficiary is based.

How to save taxes in Spain

In Spain, there is a special tax regime called the Beckham Law where you can keep on being taxed as a non-resident even though you are living in the country. This could mean you end up paying less tax than someone who is a regular tax resident in Spain.

You are eligible to apply for the Beckham Law tax regime if:

  • The reason you are moving to Spain is because of work, and you have an employment contract (excluding professional sportspeople)
  • Acquiring a board of director position (with some restrictions of ownership.

You are not eligible for this tax regime if you've been a tax resident in the country for a period of ten years before the tax year you move to Spain

Under this regime, only your Spanish income and gains are taxable in Spain, and only your Spanish assets would be liable for wealth tax.

To benefit from the Beckham Law, you must inform the tax agency by completing the 149 form. You have to do this within six months of registering with the social security service authorities. If you fulfil all the requirements, you will pay income tax at a flat rate of 24% instead of the progressive tax rates for a period of six years.

Note that the Beckham Law tax regime is not available to pensioners or self-employed people.

Overseas assets

In Spain, it is the law for foreign residents to notify the tax authorities of worldwide assets over €50,000 they own or control. This can include property, shares, assets held in bank accounts and life insurance policies. The purpose of the law, which came into effect in 2013, is to cut down on tax avoidance. Failure to declare foreign assets can result in several financial penalties and even criminal charges.

Independent workers in Spain

Independent workers, including freelancers (autónomos), are responsible for paying their income tax and making their social contributions. It is, therefore, advisable to hire an accountant or tax adviser for assistance. Independent workers pay the same tax rates as everyone else.

How to register to pay tax if you're an independent worker

As an independent worker, you will have to register with the Agencia Tributaria, the country's tax authority (also called the Hacienda). You will also have to register with the Spanish social security system. To register for tax:

Visit the tax agency's website to book an appointment at the closest tax office to where you live.

At the tax agency, you will have to select a business activity category that corresponds to the work you will be doing as a freelancer.

Complete form 036 or 037 (Tax register of business persons, professionals and withholders - Tax register declaration of registration, modification and removal and simplified tax register declaration), whichever is the most appropriate for your case. You can also fill in the forms online.

You will need to bring several documents with you to the tax agency - your NIE, passport, photocopy of your passport and details of your Spanish bank account. You may also need to bring certificates validating your studies if you work in some business areas such as medicine and the law.

Good to know:

You can hire an accountant or gestor to help you register to pay taxes and to accompany you to the tax agency.

How to register for social security

After registering with the tax authorities, you have 30 days to register with the social security system. Unless you make the required monthly payments, you won't be able to access public health facilities nor receive a Spanish state pension. To register, you must fill in a form acknowledging your autónomo status and bring along your passport and a photocopy, NIE, the tax certificate you received from the tax office and the 036 or 037 form.

Tax tips for freelance workers

Whether you are a full-time or part-time freelance worker in Spain, you will have to pay tax on your income.

Make sure you set enough money aside to pay your tax bill when the time comes. Your previous year's tax bill plus knowledge of the income tax rates will give you a good idea of how much you should set aside.

Know which deductions you can take to offset your tax bill, and don't be shy about claiming anything that's owed to you. Your gestor will be able to advise you.

Keep your invoices and receipts organised and accessible. This is often easier said than done, but it's worth the effort to ensure you don't miss out on any deductions and that you pay the correct amount of tax. As paper can easily get lost, it might be a good idea to invest in a scanner and immediately scan paperwork into your computer.

Good to know:

Non-residents who rent out a property or have any other asset that generates an income pay tax. Non-residents who own a home in Spain but who do not rent it out and don't have another income source will pay income tax based on the value of their property.

Useful link:

Agencia Tributaria - Personal Income Tax

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