Personal taxes in Spain

It is very important that residency is correctly determined. Residents in Spain pay taxes on their income worldwide, but nonresidents are taxed only on their income within Spain.

Articles:
Personal Taxes (residents and non-residents)
Taxes for Property Owners (residents and non-residents)
Taxes for Corporate Property Owners
Inheritance Tax (non-residents)
Main Features of the Tax System in Spain
Taxation Trends in Spain

FAQs:
I live in Spain and work for a foreign company. How can I lower my taxes?
If I'm buying a property, can I save on taxes by creating a company?
How do I determine if I'm a non-resident for tax purposes?
To avoid double taxation, how can I prove that I'm tax-resident in a country?
What is the Beckham Law?
If I'm non-resident and have earnings in Spain, should I file taxes in Spain?
What happens if I'm a resident of both Spain and another country, according to the tax rules of both countries?
As a Spanish resident, do I have to declare income earned outside Spain?
Why is Spain is a good country for tax planning?
Which countries are blacklisted as tax havens?
What is a holding company?

Links:
Agencia Tributaria [Spanish] Spain's tax agency
Agencia Tributaria's guide to nonresident income taxes [English, French, German]
UK: HMRC (UK's tax agency). Includes guides to leaving the UK, and determining residency

Personal Income Tax (IRPF): national
Form 100 and related (104, 105 for returns).
Filing period: January 1 - June 30 of the following year.

For residents only: This is the standard "IRPF" income tax that most Spaniards pay.

If you are a UK citizen, you must complete form FD9 to apply for UK income tax exemption. By completing this form you are consenting to the Spanish Revenue, certifying to HMRC that you are resident in Spain for the purposes of Spanish tax.

Non-residents Income Tax (IRNR): national

For non-residents only: Most non-residents are required to file income tax because they own a property (see article on Taxes for Property Owners), though you may also have to file because a Spanish company has paid you dividends, or because you worked for a few months during the year in Spain, etc.

Wealth Tax (impuesto sobre el patrimonio): regional
Filing period: January 1 - June 30 of the following year.

Spanish Wealth Tax is a tax on assets and is applicable to both residents and non-residents. The tax is payable annually on assets held on December 31st.

For residents: the wealth tax is based upon worldwide assets, however, there are exemptions and deductions: each individual pays nothing on the first 108,182€ of assets and each individual is entitled to a further exemption on the first 150,253€ of their principle residence.

For non-residents: the wealth tax is based only on property and other assets that are located in Spain -- no allowances are given.

Inheritance and Gift Tax: regional

This tax applies to the beneficiaries of the inheritance or gift. The tax is on assets received with a value over 8000€. Even if the beneficiaries are not residents of Spain, they must pay this tax when the assets or rights are located in Spain. The tax rate starts at 7.65% and rises to 34% for assets with a value above 815,000€. If the beneficiary is a child (under age 18) of the deceased, then the tax rate on the assets is reduced to 5%.

VAT Tax (IVA): national
The Canary Islands, Ceuta and Melilla have a different rate.

The standard rate is 16%. Essentials (food, water, medicine) have a reduced rate of 7%. If you're a tourist, you can get a refund of this tax at a booth in the airport before you leave Spain by showing your receipts for over 90€ (including IVA). The 90€ doesn't have to refer to a single item but it does have to be on a single receipt.

Transfer Tax and Stamp Duty (impuesto de transmisiones patrimoniales y actos jurídicos documentados): regional
Filing period: Within 30 days of the transaction.

This tax is for certain real estate and commercial transactions. It is paid by the purchaser or the beneficiary of the transaction. The rate starts at 0.5% (for commercial activities) and rises to 6% (for real estate transactions).

Property Tax (IBI): local
Filing period: Varies depending on the municipality, but normally between September and November of each year.

Each year, the municipality issues a property tax payment slip for all properties. The tax is usually between .5% and 1.1% of the cadastral value (valor catastral) of your property, which is roughly 20 times lower than the market value.

Municipal Tax (basura): local
Filing period: Varies depending on the municipality.

This varies depending on where you live. Usually assessed per house or building. Sometimes the tax is combined with water consumption.

Motor Vehicle Tax (impuesto sobre vehículos de motor): local
Filing period: Varies depending on the municipality, but normally between September and November of each year.

This tax is based on the age and the power of the vehicle. The larger the city is, the higher the tax. For an average car, it is about 60€ a year.

Top

Taxes for Property Owners in Spain

Article adapted from the Agencia Tributaria's site for non-residents.

The tax requirements are as follows:

• If you are a resident, you are subject to personal income tax (including capital gains tax) and property tax (IBI).
• If you are non-resident, you are subject to personal income tax (including capital gains tax), property tax, plus an additional non-resident property tax. Personal income tax for non-residents only represents income from the property; income from salary is declared where you are a resident. If the property is for your own use, you must pay a certain percentage of your property; if the property is rented, you declare the amount you have received in rent.

Non-residents: Personal income tax

If the property is owned by a married couple or by various individuals, each person is treated as a separate taxpayer and must file returns separately.

Depending on what the property is used for, the income subject to taxation is as follows:

• Property for own use
  Form 210
  Filing period: January 1 - June 20 of the following year.
  (Form 214 is the single form for declaring both property tax and income tax, with the filing period any time during the following year.)

  The income to be declared is a percentage of the cadastral value of the property, as indicated on your property tax receipt. It is 2%, or 1.1% if the property's cadastral value was revised after January 1, 1994. The tax rate is then 25% of this "income". If you didn't own the property for the entire year or if it was rented for part of the year, then you would prorate the amount accordingly. Note that the rules regarding this tax were modified significantly on March 1, 2004.

  A non-resident whose only taxable property in Spain is a dwelling fundamentally for own use may elect to use a single form for declaring both property tax and personal income tax on the estimated income from the use of that dwelling.

• Property used for rental
  Form 210 for ordinary return, using general section 210-A and indicating income type 01.
  Filing period for Form 210: one month after the date on which the rent is due.
  Form 215 for collective return. Also indicate income type 01.
  Filing period for Form 215 (filed for each quarter): In the first 20 days of the month following the end of the quarter.

  The income to be declared in this case is the total amount collected from the tenant, without deducting any expenses. The tax rate is 25% of this income.

  This income is chargeable when it is claimable from the tenant or when it is collected (if earlier). Each rent due is taxed separately and, consequently, a return must be filed for each rent due. Or, collective returns may be filed which may include various chargeable income of one or more taxpayers falling within a calendar quarter.

  A tax form must be sent after the termination of every rental agreement, in addition to the yearly declaration of income.

Residents and non-residents: Capital gains on the sale of property
Form 212. When the property being transferred is owned jointly by a married couple in which both spouses are non-residents, a single return may be filed.
Filing period: three months from the end of the period in which the purchaser of the property must pay the withholding tax (which is one month from the date of the sale).

Capital gains on the sale of property are taxable income that must appear on your income tax form for both residents and non-residents. This income is chargeable when the capital gain takes place. The gain is generally the difference between the sale and purchase values. The purchase value is the purchase amount plus the expenses and taxes paid that were involved in the purchase. The sale value is the sale amount minus the expenses and taxes that were paid.

If the property has been rented, the purchase amount must be reduced by the amount of depreciation corresponding to the rental period. The depreciation is also updated on the basis of the year in question.

However, if the property being sold was acquired before December 31, 1994, this capital gain gets reduced by 11.11% per year for each year (above two) during which the asset was held. This holding period is calculated by taking the number of years between the date of acquisition and December 31, 1996 and rounding up.

Withholding tax: If the seller is non-resident, then the buyer must withhold 5% of the agreed price (regardless of whether the buyer is resident or not), using Form 211 to pay this 5% to the tax office. The buyer then provides the non-resident seller with a copy of the form, so that the seller may deduct this withholding from the tax payable in the return declaring the capital gain. If the amount withheld exceeds tax payable, the excess is refundable. If the tax withheld is not paid, the liability for the tax is attached to the property.

Non-residents: Additional property tax
Form 714, the same as for resident taxpayers
Filing period: May 1 - June 20 of the following year.

Non-residents must file this tax form if they own property in Spain on December 31 of each year, regardless of the value of the property. The tax is calculated based on the highest of the following three values:

• The cadastral value, as reflected in the property tax receipt for the year to which the return refers.
• The value assessed by the Spanish Tax Office for purposes of other taxes.
• The purchase price.

The taxable amount is based on the value plus any charges or liens on the property minus the mortgage the property has, if any.

Each individual must file a separate return; if a property is owned by a married couple or by various persons, each one of them must file a single return for the portion of the house owned (usually 50%).

Top

Taxes for Corporate Property Owners in Spain

Form 220. Also Form 300 for VAT and Form 110 for withholding tax
Filing period: January 1 - June 30 of the following year.

The corporate tax rate is 30%. All expenses for the property are deductible, including utilities, renovation work, management fees, and property taxes.

There are accounting obligations involved in maintaining an SL.

Shareholders and directors of the SL may be residents or non-residents.

If any future litigation is directed at the individual, liability cannot involve the property because it is the SL that owns the property, not the individual.

As a corporation, the capital gains do not have to leave the company to be taxed at 30%. They can be left as "reserves" for the company. There are five years in which to pay taxes on that capital gain, or to spend that money on another business (or house).

Top

If I'm buying a property, can I save on taxes by creating a company?

It is generally not worthwhile to form a company (sociedad limitada or "SL") if it is your only house and the main purpose of buying the property is for your own use. If, however, you buy the house principally as an investment, then forming an SL may become cost-effective, paying off the cost of forming the SL and accounting for the SL.

You should consider the question of whether to become a legal resident or not, and whether to create an SL or not, as part of your international tax plan, a plan that should be thought out if you live or work in more than one country.

Example:

Suppose Bob and Judy buy a house for 200,000€. They spend 12.000€ to furnish and renovate it. They earn 16,000€ per year renting it out during the summer. Management fees and utility costs on the property are 3000€ per year. After 3 years, they sell it for 300,000€ and buy another property. Bob and Judy file taxes as non-residents in Spain.

Case one: They do not form an SL.

On their yearly income tax form, they pay 25% of 16,000€, or 4000€. They can't claim back the 12,000€ they spent. The property tax will be around 400€ per year. On selling the property, they pay 25% of the 100,000€ profit in capital gains.

Case two: They form an SL.

They must still file a yearly personal income tax, but they will have no income. The property tax remains at 400€ per year. Spreading the cost of company formation over 3 years, let's say the yearly costs of the SL are 4300€. Their yearly corporate tax will be 25% of the net profit after deducting all the expenses. Their rough annual deductible expenses will be:

 4000€ renovation/furnishings (12,000€ / 3 years)
 3000€ management fees and utilities
 4300€ SL costs: accounting/formation
   400€ property tax
   500€ general maintenance expenses on the house
----------
12,200€

So, the corporate tax is 25% of 3800€, or 1140€. On selling the property, Bob and Judy the 100,000€ goes back to the company. They then buy their next house with these reserves in the company and as such no tax is payable. Property tax and VAT can be deducted or claimed back from the company. Comparing the two possibilities, we have:

Top

How do I determine if I'm a non-resident for tax purposes?

Assuming you don't have Spanish citizenship, you're a resident if either:

• You're physically present in Spain for more than 183 days (including sporadic absences).
• The main base of your professional activities or economic interests are in Spain.
• Your spouse and children reside in Spain.

Top

To avoid double taxation, how can I prove that I'm tax-resident in a country?

Tax resident status can be accredited by presenting a residence certificate issued by the tax authorities from that country. The validity of such certificates is one year.

Top

If I'm non-resident and have earnings in Spain, should I file taxes in Spain?

In this situation, it's usually better to file taxes in Spain. Assuming there is a double taxation treaty between Spain and your country of residence, you can then choose in which country you want to declare these earnings. In most cases, your earnings won't be taxable in Spain because you are non-resident.

Top

What happens if I'm a resident of both Spain and another country, according to the tax rules of both countries?

In these cases the international agreements, if any, will apply. These agreements describe the tax rules that apply to avoid an individual to be considered resident in both countries.

Top

As a Spanish resident, do I have to declare income earned outside Spain?

Yes, though it may be difficult for the Spanish tax authorities to find out about such income. Note that most countries have agreements with Spain to avoid double taxation.

Top

Why is Spain is a good country for tax planning?

Spain has always had regulations for the creation of holding companies useful in international tax planning. In 2002, however, the government created regulations that have now made Spain one of the most competitive countries in the world for tax planning. Spain is even more advantageous now that the traditional tax havens of the world are being carefully watched in the aftermath of September 11th. The two best options are the Entidad de tenencia de valores extranjeros and Sociedades no residentes, sin establecimiento permanente.

Top

Which countries are blacklisted as tax havens?

The following countries are blacklisted by the EU as tax havens:

1. Andorra
2. Dutch Antilles
3. Aruba
4. Bahrain
5. Brunei
6. Cyprus
7. United Arab Emirates (Removed: the Agreement between Spain and the United Arab Emirates to avoid double taxation came into force on 2 April, 2007)
8. Gibraltar
9. Hong-Kong
10. American Anguilla
11. Antigua and Barbados
12. The Bahamas
13. Barbados
14. Bermudas
15. Cayman Islands
16. Cook Islands
17. Dominican Republic
18. Grenada
19. Fiji
20. Islands of Guernsey and Jersey (Channel Islands)
21. Jamaica
22. Malta (Removed: the Agreement between Spain and Malta to avoid double taxation came into force on 12 September, 2006)
23. Falkland Islands
24. Isle of Man
25. Mariana Islands
26. Mauritius
27. Montserrat
28. Nauru
29. Solomon Islands
30. Saint Vincent and the Grenadines
31. Saint Lucia
32. Trinidad and Tobago
33. Turks and Caicos Islands
34. Vanuatu
35. British Virgin Islands
36. United States Virgin Islands
37. Jordan
38. Lebanon
39. Liberia
40. Liechtenstein
41. Luxembourg, for purposes of income received by Companies referred to in paragraph 1 of the Protocol appended to the Agreement, to avoid double taxation, dated 3 June 1986
42. Macao
43. Monaco
44. Oman
45. Panama
46. San Marino
47. Seychelles
48. Singapore

(July, 2008)

Top

Main Features of the Tax System in Spain

Article reprinted from Eurostat and the European Commission Taxation and Customs Union (2007)

Personal income tax

The personal income tax system was already simplified in 1999 and 2003. A new reform will take effect from 2007. The tax scale applicable to the general component of taxable income is reduced from five brackets between 15% and 45% to four, between 24% and 43%. Savings, including capital gains, are taxed now at a single flat tax rate of 18%, regardless of how long the assets have been owned. As for dividends, under certain condition the first 1500€ are exempt; any excess is taxed at an 18% rate. Personal and family allowances have been increased and since 2007 are included in the first income bracket, which is taxed at a zero rate. Until 2007, they were deducted from the tax base, which decreased the progressivity of the tax.

Corporate taxation

The tax rate is reduced from 35% to 32.5% for 2007 and to 30% for 2008 (from 40% to 37.5% and 35% for 2007 and 2008, respectively, for entities engaging in oil and gas exploration, research, and exploitation). For small companies, a 25% tax rate (applicable to the first 120,202.41€) will apply. Tax credits, including those for exports are gradually phased out by 2011, 2012 or 2014. The rules regarding tax credit for reinvestment have also been revised, in particular with reference to the kind of assets involved. Capital gains on the sale of certain assets are now effectively taxed at 18%.

VAT and excise duties

The standard VAT rate is 16%. Two reduced rates of 7% and 4% apply to specific categories of goods, namely sport activities, food, health products, housing, entertainment services, hotels and restaurants, or agricultural services; and to some essential goods and books. In 2006, the Ecofin Council ratified the agreement to extend the reduced VAT for hairdressing and building workers until the end of 2010. In the Canary Islands, a special regime is applied with a standard rate of 5%. A special duty on imports and certain goods in the Canary Islands is also applied. The recent reform introduced a special VAT consolidation regime applicable to corporate groups.

Wealth and transaction taxes

Net wealth tax and inheritance and gift taxes are levied on behalf of the 17 autonomous regions which set their own tax rates within certain limits. In case they do not, national limits will apply. A tax on wealth transfers applies for rights and assets located in Spain. For the transfer of real estate, it is levied at different rates depending on the autonomous region where the land is located. If no specific rate is set forth, a 7% rate is levied on the value of the real estate.

In January 2006, the European Commission has referred Spain to the Court of Justice over its taxation of nonresidents' capital gains realised on the sale of Spanish property, subject to a 35% tax rate against 15% paid by residents. The decision of European Court on whether this contravenes EU agreements on the free flow of capital and non-discrimination is still pending.

Local taxes

Regional governments receive a significant share of total tax revenue (33% of personal income tax; 35% of VAT; 40% of excise duties on hydrocarbons, tobacco, beer and alcohol; 100% of excise duties on electricity and car registration). Indirect tax revenues are transferred according to a territorial consumption index. Statutory personal income tax rates can be modified by the regional governments, provided the tax structure remains progressive and the number of tax brackets does not change. Taxes on wealth, inheritance and gift tax, registration duties and fees on lotteries and gambling are totally assigned to regional governments with almost complete jurisdictional powers. If the estimated expenditure exceeds potential revenues, the regional government receives a compensatory transfer from the central government. Two out of the 17 regions -- Navarra and the Basque Country -- have a special tax regime and apply, in particular, their own personal income tax and corporate income tax.

Social Contribution

Each professional category has minimum and maximum contribution bases. For 2007 the maximum monthly base is 2897.70€; the minimum monthly bases vary depending on the type of work. The total rate (including general risk, unemployment insurance, and professional education training) is 6.4% for the employees and 30.6% for employers. The self-employed pay an effective rate of 29.8%, with a monthly taxable base ranging from 785.70€ to 2897.70€.

Top

Taxation Trends in Spain

Article adapted from Eurostat and the European Commission Taxation and Customs Union

Structure and development of tax revenues

The total tax-to-GDP ratio was 35.6% in 2005, 1.8 percentage points lower than the EU arithmetic average; this ratio is among the lowest in the EA13 together with Greece, Portugal and Ireland. Spain collects revenues almost equally from indirect taxes, direct taxes and social contributions (respectively 12.5%, 11.4% and 12.2% GDP). Indirect taxes are roughly 2 percentage points lower than the EU average, direct taxes are slightly below the average, and social contributions are somewhat higher. The low level of taxation in Spain is particularly perceptible in direct taxes, which remained fairly constant over the period under consideration. However, a shift from personal income revenue tax (a 1% of GDP loss) to corporate income tax revenues (a 2% of GDP gain) is also noticeable. Indirect taxes as percentage of GDP (12.5%) are the fourth lowest in the EU. This can be partly attributed to a standard VAT rate (16%) that is among the lowest in the EU and to two reduced rates (4% and 7%). However, this peculiarity also stems from excise duties and other taxes on production that are low in comparison. Social security contributions have remained stable on average over the period (12.0%) at a level slightly higher than the EU average (11.4%).

Spain has a quasi-federal system with three levels of government. The central government and the Social Security funds collect the majority of the revenues (respectively 36.4% and 33.3% of total taxes). However the financing system of the Regions (Comunidades Autonomas) was reformed in 1997 leading to a marked increase in regional taxes as a percentage of GDP. The effect, visible already from 1997 appears more clearly starting from 2002 as the regional government share more than doubled to reach the current level of 7.9% of the GDP.

Although Spain remains a low-tax country, the overall tax burden perceptibly increased between 1995 and 2005 (+2.9%). Substantial fiscal consolidation has been achieved since the mid-1990s, with a budget deficit declining particularly rapidly from 1995 to 2000 (over 5½ points of GDP); the deficit has remained at close to 1% since then. Tax revenues were also boosted by increased VAT receipts and buoyant economic growth.

Taxation of consumption, labour and capital; environmental taxation

The ratio of consumption taxes in proportion to GDP (9.8%) is 2.8 percentage points lower than the EU average. Despite the increasing trend throughout the 1995-2005 period, the implicit tax rate on consumption remains the lowest in the Union as of 2005.

The ratio of taxes on labour income as a percentage of GDP stands at 16.1% in 2005, 1.4% below the EU average. This has been a characteristic feature of the Spanish system throughout the years 1995-2005, when Spain had an average implicit tax rate (ITR) on labour of 28.9% compared to an EU average of 35.9%. The lowest level of the ITR was recorded in 1999 (27.7%) as a consequence of the personal income tax reform. Subsequent increases in the ITR on labour, as seen from 2000 to 2003, can be attributed to a noticeable increase in salaries subject to tax as a result of strong job creation in the last few years. After being stable in the last three years, the ITR on labour is now at 30.1% (+0.8 GDP points).

The ratio of capital taxes on GDP has increased substantially during recent years (+2.8% in the period considered). Revenue from capital taxation is 2.8% above the EU average, and the implicit tax rate on capital shows a similar trend. This can be attributed to the increase in tax revenues raised on capital income of corporations (+2% of GDP in the period), partly owing to strong growth, and is also reflected in the implicit tax rate on corporate income. On the other hand, the implicit tax rate on capital income of households and self-employed has declined slightly since 2000.

Environmental taxation is very low (2.0 % of GDP): only Lithuania ranks lower level in the EU. As in the majority of MS, it is mostly concentrated on energy (4.3 %); in taxation of transport, Spain however ranks comparatively higher.

Current topics and prospects; policy orientation

Over recent years, the tax system has undergone significant reforms: in 1995, the corporate income tax and, in 1999, the personal income tax followed by a second step in 2003. A new reform will take place starting from 2007 with reference to both above cited taxes. The reforms were aimed at simplification and increasing the neutrality of the tax system, strengthening incentives for work, saving, risk-taking and investment.

Top