Taxes in Spain

In Spain, understanding tax obligations depends on residency status. Residents are taxed on worldwide income, while non-residents pay taxes only on Spanish income, with rates varying across regions.

Who must pay taxes in spain?

If you are living and working in Spain, you will be liable to pay taxes on your income and assets and will need to file a Spanish tax return. Whether you pay Spanish taxes on your worldwide income, or Spanish-based income only, depends on your residency status.

If you are a fiscal resident in Spain you will be subject to Spanish tax on your worldwide income, calculated on a progressive scale, although tax deductions exist. If you are a non-resident in Spain you will only pay tax in Spain on Spanish including income from Spanish property, even if you don’t rent it out. Spanish tax is also applied to real estate, interest and VAT on goods and services acquired in Spain.

Taxes in Spain are split between the state and regional governments. Each of Spain’s 17 autonomous regions decides on its own tax rates and liabilities. Because of this, Spanish tax rates can vary across the country for income tax, property tax, wealth tax, capital gains tax and inheritance tax. In addition, workers in Spain must contribute to Spanish social security system. The Spanish tax year runs from 1 January to 31 December.


Spanish tax for residents

If you live in Spain for six months (183 days) or more of the calendar year (not necessarily consecutive) or if you have your main vital interests in Spain (for example, your family or business is in Spain) then you will be considered a Spanish fiscal resident. As a fiscal resident, you will need to submit a Spanish tax return and pay Spanish income tax on your worldwide income if:

  • your annual income from employment is more than €22,000
  • you are self-employed or run your own business
  • you receive rental income of more than €1,000 a year
  • you have capital gains and savings income of more than €1,600 a year
  • it is your first year declaring tax residency in Spain

Your taxable income is the income left after deductions for contributions to social security and pension funds, your personal allowance and professional costs. Spanish tax rates are progressive.

You will also have to declare all assets abroad worth more than €50,000 annually. Non compliance with this requirement can result in severe fines.

Spanish tax for non-residents

If you live in Spain for less than six months (183 days) and do not have vital interests in the country, you are classified as a non-resident and will be taxed only on the income earned in Spain. Your income is taxed at flat rates with no allowances or deductions. If you are a non-resident and own a property in Spain you will need to submit a tax return and pay Spanish property taxes for non-residents (assumed income from property) as well as local Spanish real estate taxes.


Dual taxation agreements

Spain has signed many treaties with other countries to avoid double taxation (which means paying tax in your home country and in Spain). The Spanish tax authority (Agencia Tributaria) maintains an up-to-date list of treaties.

Income tax

Personal income tax in Spain is called Impuesto de Renta sobre las Personas Fisicas or IRPF. Spanish income taxes are split between state and region and while the state has reduced taxes and simplified income tax bands, this has not happened everywhere in Spain. Each region sets its own tax bands and rates of income tax, so how much income tax you pay depends on where you live.

You will need to register to pay tax in Spain with the Agencia Tributaria, the Spanish tax authority, whether you are a resident or non-resident. You will need your Foreigner’s Identity Card (NIE) number, which you can get through the local Foreigner’s Office (Oficina de Extranjeros) or police station within 30 days of arrival in Spain.

Income tax rates

As we mentioned before, tax rates in Spain are not uniform across the country. Below you will find the basic Spanish tax rates that are applied to income from employment. Your total liable tax is a calculation of the state’s general tax rates plus the relevant regional tax rates. For the tax rates in each region, check the Agencia Tributaria website.

Spain’s current basic income tax rates (for income earned the previous year) are:

  • Below €12.450: 19%
  • €12.450 – 20.200: 24%
  • €20.200 – 35.200: 30%
  • €35.200 – 60.000: 37%
  • €60.000 – €300.000: 45%
  • Above €300.000: 47%

Income tax for residents

In the first year of tax residency, everyone must file a Spanish tax return. After the first year, you do not need to file a Spanish tax return if your income from all sources is less than €8.000 and you have less than €1.600 of bank interest or investment income.

The same also applies if your rental income is less than €1.000 or you earn less than €22.000 as an employee, as your income tax will already have been deducted by your employer. The tax return for the previous calendar year must be filed during the months of May and June of the following year. The deadline for submitting and paying the tax is the 30th of June.

We recommend to contact us in the month of March in order to have sufficient time to collect and review all relevant documentation.

Income tax for non-residents

As from 2016, the general flat income tax rate for income generated in Spain by non-residents is 19% if you are a citizen of an EU/EEA state and 24% for all others. Other income subject to Spanish non-resident taxes are capital gains resulting from transferred assets, investment interest and dividends are taxed as follows:

  • Interests and dividends: 19%
  • Capital gains: 19%
  • Royalties are taxed at 24%
  • Pensions are taxed at progressive rates, from 8% to 40%.

These rates can be lowered through double taxation agreements. Interest tax is exempt for EU citizens. To pay income tax as a non-resident of Spain, you need to submit a specific model to file your tax declaration. If you are a non-resident property owner, you must also file a specific tax declaration.


Special income tax for foreigners on assignment (beckham law)

There is a special tax regime for foreigners coming to work in Spain on an employment contract with a Spanish company (Impatriates). It is also known as the ‘Beckham Law’ as it was the football player David Beckham that took first advantage of this law when he came to play for Real Madrid in 2003.

Under the regime, you are only taxed in Spain on Spanish income at a flat rate of 24% up to €600.000. For more than €600.000, a rate of 45% will be applied. There is no capital gains tax payable on interest outside of Spain.

If you are a Spanish tax resident (spending more than 183 days a year in Spain) and have not been resident in Spain in the last 10 years, you can apply to be taxed under this regime within six months of arriving in Spain. You can get the reduced taxation for a period up to five years.

A new law for newly created economic activities has been approved for 2023 with fiscal advantages for Non-EU Digital Nomads that start a freelance activity in Spain that can enjoy similar benefits as impatriates.

Income tax deductions and allowances

Resident taxpayers in Spain are given certain Spanish tax deductions. A basic personal allowance for everyone under the age of 65 is set at €5,550, or €6,700 from age 65 and €8,100 from age 75.

If you have children under 25 living with you, and an income of less than €8,000, you can claim an additional allowance of:

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

There is an additional allowance of €2.800 for each child under three years. If you have a parent or grandparent living with you, with an income of less than €8.000, you can claim an allowance of €1.150 if they are over 65 and €2.550 if they are over 75.

In general, you can claim tax deductions in Spain for:

  • Payments into the Spanish social security system
  • Spanish private pension plan contributions
  • The costs of buying and renovating your main home
  • Charitable donations.

Income tax for married couples

If you are married, either in a heterosexual or same-sex marriage, you can choose to be taxed separately or together. Before you decide, compare the Spanish tax rate you would pay as individuals with the tax you would pay as a couple, as it is not always a better option.

There is an allowance for married persons (declaracion conjunta) of €3.400 for the second taxpayer, in addition to a general allowance of €5.550 granted to the first taxpayer.


Property tax

Impuesto sobre Bienes Inmuebles (IBI), is a local property tax that every property owner (residents and non-residents) in Spain needs to pay. The amount is the rental value multiplied by a tax rate set by the local authorities.

You will also be charged for a rubbish collection tax (impuesto de basura). Non-resident property owners may also need to pay income tax at flat rates on assumed rental income on Spanish property.

 

Impuesto Transmisiones Patrimoniales (ITP) is an equity transfer tax and must be paid when you sell a property in Spain. When a property is sold, the local authority charges a tax on the increase in value called the plusvalia.

Capital gain tax

Spain’s capital gains tax (the tax on profits from selling property or other investments including crypto currencies) are taxed according to the following scale:

  • 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%
  • Above €200.000 the tax rate is 26%.

This percentage will be applied to the difference between the price you paid to buy the property (or any other investment) and the price you receive when you sell it. If the gains are reinvested in your primary residence, taxation can be avoided.

Wealth tax

Wealth tax is a tax that both residents and non-residents must pay on the value of their assets on the 31 December each year. It was reintroduced during the financial crisis in Spain, but with a much higher tax-free allowance of €700,000 per person that also applies to non-residents. It is a tax that must be paid on top of other ones like the income tax or the capital gain tax.

If your wealth is more than €700.000 you will be liable for wealth tax of 0.2 to 2.5% on net assets, even here there are differences between the regions. As well as the €700.000 tax-free allowance, homeowners are allowed a further €300,000 for the value of their main residence.

Make sure to consult us as taxation may vary according to the region of residence.

Inheritance and gift tax

The rules regarding inheritance and gift tax in Spain allow for non-residents from within the European Union to be treated the same as residents of Spain. The rate for this tax, also known as the succession tax, is from 1% to 7% depending on the region of Spain the property is located.

We recommend that to consult us for professional advice as the Spanish tax system is complex and may vary depending on a number of circumstances..

Value added tax

Value Added Tax (VAT) or Impuesto sobre el Valor Añadido (IVA) is an indirect tax added to the consumption of products and services and paid by the buyer. There are three levels in Spain:

  • General: 21% on goods and services.
  • Reduced: 10% on passenger transport, toll roads, amateur sporting events, exhibitions, health products, non-basic foods, rubbish collection, pest control and wastewater treatment.
  • Super reduced: 4% on essential foods, medicine, books and newspapers.

In July 2017, the Spanish tax authority implemented a new VAT policy requiring all VAT payers (chiefly larger companies) to submit all invoice data online to the Agencia Tributaria within four days of the date of issuance. This requirement is expected to extend to SME’s and freelance professionals over the next few years.

Corporate tax

The general rate of corporate tax in Spain is 25%. Newly started companies pay 15% for the first two profitable years. A reduction of 10 percent tax may be granted to profits locked into a special reserve for five years. Company tax returns must be filed in the month of July for the previous year.

Advance payment by instalments is obligatory in April, October and December, each instalment usually being 18 percent of the estimated tax liability. These advance payments are later deducted in the annual company tax declaration.

A new law for newly created innovative companies has been approved as of 01/01/2023 allows these companies to enjoy the reduced corporate tax rate of 15% for four years instead of the normal two.

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The information contained herein is of a general nature, and subject to changes. Applicability to your specific situation should be determined through consultation with our tax or legal advisors.