Income Tax Spain: Model 100 (Residents)

Introduction

Understanding the intricacies of income tax in Spain is crucial for residents. From salaries to investments, various sources contribute to your taxable income. Let’s explore the essential aspects of Spain’s Personal Income Tax (IRPF) system, including its categories, tax rates, obligations, and deadlines.

What is Income Tax?

Personal Income Tax or Impuesto de Renta de Personas Físicas (IRPF) is a tax to be paid by all physical residents in Spain on their income. Income is to be understood as salaries earned as an employee, income generated as a freelance professional, pensions, interest income on accounts, bonds or deposits, rent, profits generated by Real Estate or stock transactions etc. There are basically four categories of income to be distinguished:

• Rendimientos de Trabajo: Income earned as an employee for a company, both primary and secondary benefits
• Rendimientos de Capital Mobiliario: Income derived from investments in financial or monetary assests
• Rendimientos de Capital Inmobiliario: Income derived from the ownership of tangible assets like real estate
• Rendimientos de Actividades Económicas: Income generated by a freelance business activity

As a fiscal resident in Spain, your worldwide income has to be declared in Spain, even if you already pay taxes on income you generate in other countries. Generally, double taxation is avoided by tax agreements between nations, but this needs to be checked, verified and reflected in your tax declaration.

The IRPF is a direct and progressive tax, meaning that you pay a higher percentage if you have a higher income. This system is established by a scale system, taxing higher brackets with higher rates, but only that bracket and not the entire income. On a national base, there are six scales that are configured as follows:

• Until €12.450 the tax rate is 19%.
• From €12.450 to €20.200 the tax rate is 24%
• From €20.200 to €35.200 the tax rate is 30%.
• From €35.200 to €60.000 the tax rate is 37%
• From €60.000 to €300.000 the tax rate is 45%
• Above €300.000 the tax rate is 47%.

However, these rates may vary by the Spanish autonomous regions that have the right to configure an autonomous regional income tax and may modify the brackets and increase or decrease the rates to be applied. It is for this reason that you may be paying significantly more or less depending on the region you live in, with the total maximum rate fluctuating between 43% in Madrid to 54% in Valencia.

For financial income derived from capital, savings, investments, dividends and similar, including investments in crypto currencies, a different scale applies:

• Until €6.000 the tax rates is 19%
• From €6.000 to €50.000 the tax rate is 21%
• From €50.000 to €200.000 the tax rate is 23%
• From €200.000 to €300.000 the tax rate is 27%
• Above €300.000 the tax rates is 28%

Part of your personal income tax obligations are automatically paid during the year, for example in IRPF retentions in your payslip, retentions in your sales invoices if you are a professional or through quarterly tax declarations 130 and 131 for freelancers. These “advance payments” will be taken into account when presenting your annual tax declaration.

Who must declare income tax?

As mentioned, as a general rule, all residents in Spain must present an income tax declaration, even if you are a non resident from a fiscal point of view or if you benefit from the Beckham or 7p exemptions. However, there are a number of exceptions:

• You have worked for one Spanish company and your gross annual income is less than 22.000 euros and you did not receive an income abroad.
• You have worked for different Spanish employers or you received an income or benefits abroad, but your gross annual income is less than €15.876.
• In the situations above, you must submit a tax return if your income out of savings, investments or insurances is higher than 1.000 euros
• In special situations or in doubt, we advise you to consult your personal situation with our tax advisors

When to prepare and present your income tax declaration?

The annual campaign starts in April and ends in June. The Tax Agency will send you a draft (borrador) of your tax declaration that you can easily approve and forget about it. We do not recommend to do this since the data is often wrong or not complete and might not take into account your current personal circumstances. Your obligations are usally correctly reflected in the draft, but deductions and alternative types of presentations that might be of your benefit are not proactively included.

The deadline for presenting your income tax declaration is the 30th of June of the following fiscal year, but as there is a lot of documentation to be gathered, checked and analyzed, timely submission of information to your accountant is important. In general, you should deliver all required information by the beginning of May in order to be assured of a comprehensive declaration and to avoid suboptimal or erroneous declarations and charges for extra work.

What Documentation to Prepare?

An Spanish income tax declaration is an extensive document and updated details are requiered on a number of items. It is therefore important to start gathering the information as early as 3 months before the presentation deadline. Please find below an overview of the information typically required:

A. Declaration Copies and Drafts

• Copy draft declaration (“borrador”) or other tax information, if applicable, obtained from the Spanish tax authorities.
• Copy last year’s tax return if this wasn’t done by us.

B. Work, Pensions and Benefits

• Annual statement of your employer or benefits agency which states your salary, pension or other benefits, withholdings and deductions.
• In case you paid social contributions abroad, we’ll need an overview.

C. Properties

• Ownership: payment receipt of the property tax (IBI) and cadastral information of your home and other real estate in Spain and the purchase price of property abroad.
• Rental: rental income (also for real estate abroad) and the costs incurred. Please specify the use (residental, other).
• Mortgage: an annual statement from your bank with repayment and interest information.
• Sale/purchase/donation: information regarding prices and incurred costs.
• Rent deduction: rental contract in Spain (in some cases a rent deduction is possible, we will examine this possibility), cadastral information of the property and NIF/DNI of the landlord.

D. Savings, Investments, Insurances

• Financial overview of your bank accounts in Spain and abroad (interest revenue, also from children living at home without obligation to declare).
• Overview contributions to pension, invalidity or life insurance. Contributions to foreign insurance are only deductible if it complies with the European Directive 2003/41/CE (please provide us with certificates of the bank or insurance company).
• Information about received dividends, interest, income from bonds, etc.
• Information about possession, purchase or sale of stocks, options, etc. (even if they are not listed).

E. Others

• Certificates gained cash prices (lotteries and alike).
• Overview payments made by (Spanish) insurance companies.
• Overview of deposits on special home acquisition or company savings accounts.
• Certificates of donations.
• Overview of possible public benefits for maternity.

F. Personal Information and Documentation

• Identity documents and NIE numbers: copy of your (valid) ID, and those of your spouse and children. And for everyone older than 14 years a residence card with NIE number.
• Children living at home: please specify the number of children under 25 years old, living at home unmarried, with an income less than 8.000 euros.
• Income partner: if your partner has an income, we would like to receive this information. We will study which declaration (individually or joint) is the most favourable. Observation: a joint declaration in Spain is only possible if you are married. In case of cohabitation a joint return is not (yet) possible.
• Bank account. If we do not have your current details or a wrong or old bank account number, this will lead to tedious delays. Therefore, we need to have current and correct bank details for the payment or refund of taxes.

Contact us if you requiere more information or if you would like us to assist with preparing and presenting your tax declarations.