Income Tax Brackets In Spain: Explained

Embarking on your financial journey in Spain? Wait! It requires thorough understanding of the ins and outs of income tax brackets.

In this comprehensive 2023 guide, we shed light on Spain’s taxation system, helping you make informed decisions about your finances.

From progressive rates to deductions, we’ll unravel the complexities, ensuring you navigate the tax landscape with confidence.

Let’s dive in!

Who Has To Pay Tax In Spain?

Spanish Tax For Residents

You have been deemed a Spanish resident for tax reasons if you have resided in Spain for six months (183 days) or more of the calendar year (not necessarily consecutively) or if your major vital interests are in Spain (for example, your family or company).

As a Spanish resident, you have to submit a Spanish tax return and pay the Spanish income tax on your international income under the following situations:

Your annual salary from work exceeds €22,000 per year.
You own a business or work for yourself in Spain.
You earn more than €1,000 in rental income per year.
You earn more than €1,600 per year in capital gains and savings.
It is your first year in Spain declaring tax residency.

Furthermore, you must declare all foreign assets worth more than €50,000. (using Modelo 720 or Form 720).

Your taxable income is the income remaining after deductions for social security contributions in Spain, pension, personal allowance, and professional costs. Taxation in Spain is progressive.

Tax In Spain For Non-Residents

You are a non-resident if you live in Spain for less than six months (183 days) in a calendar year and only pay taxes on income earned in Spain. Your income is taxed at a flat rate with no allowances or deductions.

You must file a tax return if you are a non-resident and own property in Spain, whether you rent it out or not. You must pay both non-resident Spanish property taxes (or an imputed income tax on your property) and local Spanish property taxes.

Dual Taxation Agreements

To avoid double taxation, Spain has signed numerous treaties with other countries. The Spanish tax administration keeps an up-to-date list of treat ies.

Income Tax In Spain

In Spain, personal income tax is known as Impuesto de Renta sobre las Personas Físicas, or IRPF. Spanish income taxes are divided into two categories: state and region. Spain’s 17 autonomous regions determine their own tax rates and liabilities.

As a result, while the government has reduced taxes and simplified income tax bands, the tax system in Spain remains complex.

Simply put, the amount of taxes you pay in Spain is determined by where you live.

Tax scale for withholdings applicable in 2021:

Taxable base (up to EUR)	Tax liability (EUR)	Excess of taxable base(up to EUR)	Tax rate (%)
0	0	12,450	19
12,450	2,365.50	7,750	24
20,200	4,225.50	15,000	30
35,200	8,725.50	24,800	37
60,000	17,901.50	240,000	45
300,000	125,901.50	Remainder	47

Savings Tax To Be Increased

Another important proposal for increasing tax revenue next year is to raise the rate on high levels of savings income. This includes interest, dividends, capital gains on asset sales or transfers, income from life insurance contracts, and purchased annuity income.

If approved, the following progressive rates will be applied to savings income:

INCOME	2022 TAX RATE	2023 TAX RATE
Up to €6,000	19%	19%
€6,000 to €50,000	21%	21%
€50,000 to €200,000	23%	23%
€200,000 to €300,000	26%	27%
Over €300,000	26%	28%

This provision is included in the General State Budget Act for 2023, which is currently being debated in parliament. It could be changed before it is approved.

Residents And Non-Residents Must Register To Pay Spanish Taxes

It does not matter if you are a non-resident or a resident; you must register with the Spanish tax authority to pay taxes in Spain.

First, you will need your Foreigner’s Identity Card (NIE) number, which you can obtain from your local Foreigner’s Office (Oficina de Extranjeros) or police station within 30 days of your arrival in Spain.

Fill out the Modelo 30 form to register your obligation to pay Spanish tax as a resident or non-resident for the first time or to update your information.

Filing Your Spanish Tax Return

In the first year of tax residency, everyone is required to file a Spanish tax return. After the first year, you are not required to file a Spanish tax return if your total income is less than €8,000 and your bank interest or investment income is less than €1,600.

The same is true if your rental income is less than €1,000 or you earn less than €22,000 as an employee, as your employer will have deducted your Spanish income tax.

See Modelo 100 for a Spanish income tax declaration. In Spain, the fiscal year runs from January 1 to December 31.

Eligible residents must file tax returns between April 6 and June 30 of the tax year following. In Spain, there are no extensions for filing tax returns.

You can learn how to complete and submit your Spanish tax return, as well as information on previous tax returns and payments made. You will need your digital identification certificate to use this service.

The process of managing your tax optimization, declarations, and planning in Spain may be made much easier with the assistance of tax and accounting advice services such as ATA Spain or Balcells Group, which can help you every step of the way.

Filing US Taxes From Spain

Despite the fact that every Green Card holder and US citizen is required to file a tax return with the IRS, many expatriates still need to do so.

Many people are unaware of their obligations, believing that as an expat, they do not have to pay or file tax returns in the United States; however, you do!

Spanish Taxes For Non-Residents

Non-residents have to pay the general flat income tax rate, which is 24%. It is 19% if you are a citizen of a country in the European Union or the European Economic Area.

Other income is subject to non-resident taxes in Spain at the following rates:

Capital gains from transferred assets are taxed at a 19% rate.
Investment dividends and interest are taxed at 19% but are usually lower due to double taxation agreements. EU citizens are exempt from paying interest tax.
Royalties are taxed at a rate of 24%.
Pensions are taxed at graduated rates ranging from 8% to 40%.

To apply for income tax as a non-resident of Spain, obtain Modelo 149 first. The Modelo 150 form is then used to make your income tax declaration. If you own a non-resident property, you must file your tax return on Modelo 210.

Foreigners Working On Assignments In Spain Are Subject To A Special Tax

Foreigners who come to work in Spain on a contract with a Spanish company are subject to a special tax regime.

This is sometimes referred to as Beckham’s Law because it was allegedly enacted in order for footballer David Beckham to avoid paying tax on worldwide image rights when he joined Real Madrid in 2003.

For the fiscal year 2021, the Spanish government modified this tax regime. Employees on assignment in Spain are taxed at a rate of 24% on earnings up to €600,000.

The government increased the tax rate on income exceeding €600,000 to 47% under new rules enacted in 2021.

Furthermore, posted employees are now subject to a 3% tax on income exceeding €200,000 derived from dividends, interest, or capital gains.

If you are a Spanish tax resident (spend more than 183 days in Spain per year) and have not been resident in Spain in the previous ten years, you can apply to be taxed under this regime within six months of arriving in Spain.

As a result, you can reduce your taxation for up to five years.

Spanish Tax Deductions And Allowances

Certain tax breaks are available to Spanish residents. The basic personal allowance is €5,550 for those under the age of 65, €6,700 for those over 65, and €8,100 for those over 75.

If you have children younger than 25, you can claim the following additional allowance:

€2,400 – first child
€2,700 – second child
€4,000 – third child
€4,500 – fourth child
An extra €2,800 payment is available for each kid under the age of three.

If you live with a parent or grandparent and your total income is less than €8,000, you can claim a €1,150 allowance if they are older than 65 and €2,550 if they are over 75.

In general, you can deduct taxes in Spain for:

Contributions to the Spanish social security system
Contributions to Spanish pensions
The costs of purchasing and renovating your primary residence
Donations to charities

Pension contributions for tax purposes were reduced from €8,000 to €2,000 under reforms implemented in 2021.

This limit, however, remains at €8,000 as long as the increase is from company contributions. Furthermore, the increase cannot exceed 30% of the individual’s net income from employment and economic activities for the tax year.

Tax In Spain For Married Couples

If you are married (whether heterosexual or same-sex), you have the option of being taxed separately or jointly. Before making a final decision, compare the Spanish tax rate you would pay as individuals to the tax rate you would pay as a couple, as it is only sometimes the better option.

The second taxpayer receives a married couple’s allowance (declaración conjunta) of €3,400 in addition to the first taxpayer’s general allowance of €5,550.

Property Tax In Spain

If you own property in Spain and live in it on January 1 of each year, you must pay a local property tax, also known as Impuesto sobre Bienes Inmuebles (IBI). The amount is calculated by multiplying the rental value by a tax rate set by the local authorities.

This is true for both non-residents and residents. There is also basura, which is a garbage collection tax. Non-resident property owners may also be required to pay flat-rate imputed income tax on potential rental income from Spanish property.

When you sell a home in Spain, you must pay a property transfer tax, known as Impuesto Transmisiones Patrimoniales (ITP).

When a property is sold, the local government levies a tax on the increase in land value, known as the plus valia.

Capital Gains Tax In Spain

The capital gains tax in Spain (the tax on profits from the sale of real estate or other investments) is as follows:

First €6,000: 19%
€6,000–€50,000: 21%
€50,000–€200,000: 23%
More than €200,000: 26%

If you purchased a property before 1994, you might have to pay more tax than before because the taper tax on capital gains tax has been eliminated.

If you are older than 65 and selling your main home, or if you are under 65 and selling your main home to buy another main home in Spain, you may be eligible for an exemption.

Spanish Wealth Tax

In Spain, wealth tax is levied on the value of your assets on December 31 of each year. Assets worth more than €10 million can be taxed up to 3.5%, though rates vary depending on the region.

Everyone is entitled to a standard €700,000 tax-free allowance, and homeowners are entitled to an additional €300,000 against the value of their primary residence.

Inheritance And Gift Tax In Spain

Non-residents from the EU/EEA have been treated the same as residents in Spain when it comes to inheritance and gift tax since 2015. (also called succession tax). The rate for all is around 1-7%, depending on the region.

Prior to the change, non-residents paid approximately 80% more than residents. The Spanish Supreme Court ruled that non-residents who previously paid the higher rate are entitled to a refund.

Some regions, such as Andaluca, updated their inheritance and gift tax policies in 2017. As a result, many families did not have to pay inheritance tax.

For more information, consult the laws of your specific region. Because the Spanish tax system is complex, you should seek expert advice on these taxes.

VAT (IVA) In Spain

In Spain, there are three levels of value-added tax (VAT), also known as Impuesto sobre el Valor Aadido (IVA):

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

In 2021, the government raised IVA on alcoholic beverages and beverages containing added natural and derived sweeteners and sweetening additives from 10% to 21%.

The tax increase exempted baby milk and drinks considered to be food supplements for people with special dietary needs.

All IVA payers (primarily freelancers) must submit all invoice data online within four days of issuance and by the 16th of the month following issuance.

Corporate Tax In Spain

The general corporate tax rate is 25%. In 2022, newly formed businesses paid 10% for the first two years of operation, down from 15% in 2021. Profits held in a special reserve for five years may be eligible for a 10% tax reduction.

Tax returns must be filed within six months and 25 days of the end of the accounting period. Payment is made in three installments in April, October, and December, with each installment typically equaling 18% of the tax liability.

The information provided here is only a general overview; you should always seek professional advice from a Spanish financial professional regarding your specific situation.

Tax In Spanish

(Nouns) Tax in Spanish: el impuesto, el tributo, la contribución
(Adjectives) Tax in Spanish: de impuestos, fiscal, tributario, impositivo, imponible, contributivo
(Verbs) Tax in Spanish: tasar (assessment), gravar impuestos.

Useful Resources

Agencia Tributaria: the Spanish tax authority provides information on all aspects of tax in Spain for individuals and companies

Conclusion

Congratulations, savvy taxpayer! You’ve reached the end of our 2023 guide to income tax brackets in Spain.

Armed with knowledge, you’re now equipped to optimize your finances and stay compliant with Spanish tax regulations.

Maximize deductions, embrace opportunities, and enjoy the fruits of your hard work in this beautiful country!

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