Navigating the labyrinth of Spanish tax declarations can feel like trying to order tapas without a menu.

But worry not, dear expat!

We’re here to simplify the process, ensuring you don’t end up with a fiscal faux pas on your plate.

Income Tax In Spain

The Income Tax System In Spain

In Spain, personal income tax is known as Impuesto de Renta sobre las Personas Fsicas, or IRPF. The Agencia Tributaria, the country’s tax department, regulates income tax (link in Spanish).

Spanish income taxes account for around one-third of the government’s revenue, and citizens and non-residents must pay taxes on their wages.

The state and the country’s autonomous regions share income tax. Federal income tax rates cover a range from 19% to 47%, with the applicable rate divided into six bands based on income.

Due to the fact that some of Spain’s autonomous states make a choice to set their own tax bands and rates, your total income tax payment will vary depending on where you live in the nation.

Before you can file an income tax return, you must first obtain a mandatory tax identification number (NIE number), which is used to track your financial and legal activities in Spain.

After three months of residence in Spain, European citizens must apply for an NIE number. When a non-EU citizen’s residency application is approved, they typically receive their NIE number.

Who Pays Income Tax In Spain?

Even if you do not spend the entire year in Spain, you may be considered a resident for tax purposes. As a resident of Spain, anyone who meets one of the below-mentioned requirements must pay income taxes:

In Spain, you spend more than 183 days per year. Unless you can prove your tax residency status in another country or territory, sporadic absences are considered days of presence in Spain.
You have direct or indirect business or economic interests in Spanish territory.
You have a Spanish tax resident spouse or dependent children.

The Spanish government has begun cracking down on tax evaders recently. This means that individuals bear the burden of proving non-residence.

As a result, if you have a local Spanish address, a car with Spanish license plates, a Spanish mobile phone, a regular Spanish bank account, or have used the Spanish healthcare system, you may be considered a tax resident.

Income Tax In Spain For Non-Residents

In Spain, non-resident taxpayers are only taxed on income earned within the country. So, income is taxed at a flat rate of 24%. The capital gains and other investment income are taxed at a lower rate of 19%.

With the exception of some expenses allowed for tax residents of other EU countries, non-residents are not allowed any deductions or credits when filing their tax returns.

Earnings Subject To Income Tax In Spain

Tax residents in Spain must pay income tax on money earned from a variety of sources. There are two kinds of taxable income in Spain which are general taxable income (renta general) and savings income (renta del ahorro).

As a result, when completing your Spanish tax return, you must account for both.

Taxes On Income And Salary In Spain

Employers in Spain are required to withhold taxable income paid to their employees. Employers make these payments monthly or quarterly, depending on their annual revenue.

Finally, they are deducted from the individual’s final tax bill, and any excess paid is refunded.

Salaries and other non-savings income are included in general taxable income for Spanish tax residents. This can include lottery winnings, in-kind benefits, school tuition reimbursements, and assignment allowances.

If you are a tax resident, you must also declare any assets you own outside of Spain.

Residents who are married, whether heterosexual or same-sex, have the option of being taxed separately or jointly.

Beckham’s Law

Beckham’s Law was enacted in 2004 in order to attract more expatriate workers and international companies to Spain.

While the law was not named after him, ex-Real Madrid player David Beckham famously used it.

Employees on assignment in Spain can give a flat tax rate of 24% on earnings up to €600,000. Those who earn more than this amount must pay 47% of their extra earnings.

In addition, any income from dividends, interest, or capital gains over €200,000 is subject to a 3% tax rate.

Expats who have not been a Spanish tax resident in the last ten years, have moved to Spain for a job with a Spanish employer, and will work in Spain for a minimum of 85% of the time are eligible for Beckham’s Law.

Applications must be submitted within six months of moving to Spain, and benefits are renewable every six years.

Taxes On Employment Benefits

In Spain, certain portions of employment income are exempt from taxation. These are some examples:

Reimbursement of relocation expenses for an employee.
Expenses associated with moving personal belongings.
Except for major Spanish-listed corporations, company shares can be worth up to €12,000 per year.
Some in-kind benefits, such as nursery vouchers, meal vouchers up to a daily limit of €11, public transportation vouchers within specified limits, and medical insurance premiums up to an annual amount of €500 per family member covered, are available under certain conditions.

Furthermore, in certain circumstances, indemnities paid for dismissal or termination of employment contracts are tax-free up to a maximum of €180,000.

So, the free use of a company car is only tax-free if it is limited to professional activities.

Taxes On Savings And Investments

In Spain, taxable savings income includes the following:

Dividends and other income derived from stock ownership.
Interest and other payments made to third parties from capital transferred.
Income derived from life and disability insurance.
Capital gains from asset transfers.

Savings income is taxed at the following rates:

The first €6,000 in taxable savings income is taxed at 19%.
21% for amounts ranging from €6,000 to €50,000.
23% for amounts ranging from €50,000 to €200,000.
26% for any savings income exceeding €200,000.

Taxes On Rental Income

Rental income from Spanish property is subject to income tax. Non-residents and tax residents in the EU/EFTA pay 19% tax on rental income but can deduct certain expenses.

If your tenant lives in the property and it is not a commercial space, you can get a 60% tax break before calculating your net taxable income.

Other deductibles include a 3% annual depreciation of the property’s cost and expenses, such as house insurance, local property tax (IBI), property repairs, and management fees if not paid by the tenant.

Landlords who are EU residents but do not have a primary tax residency in Spain must obtain and file a certificate of tax residency in the corresponding member state with their tax returns.

Non-residents who own property but reside in another country must pay a 24% income tax on rental income.

Furthermore, they are not permitted to deduct any property maintenance or management expenses. Even if you do not rent out your property, you may be subject to an annual non-resident imputed income tax (NRIIT) of 1.1% to 2%.

How To File A Tax Return In Spain

Spanish Income Tax Deadlines

The Spanish fiscal year runs from January 1 to December 31. Income tax returns must be completed between May 2 and June 30 of the following year.

You have to file a tax return in the first year of tax residency in Spain.

After the second year, you will only need to file a return if your employment income exceeds €22,000, as your employer will have calculated and deducted your income tax.

This applies only if your job is your sole source of income.

Income Tax Forms In Spain

To file an income tax declaration in Spain, residents must use Form 100 (Modelo 100). Non-residents must use Modelo 149 to apply for a declaration and Modelo 150 to make the declaration. Modelo 210 is used by non-resident property owners.

Income tax returns can be filed on the internet at the website of the tax authority. To file, you’ll need a digital identity certificate.

In some cases, you can also submit the returns in person at the local tax office or a Spanish bank where you have an account.

Income Tax Rates In Spain

In Spain, general income is taxed on a graduated scale. This is the total of the state-approved rate and the rates approved by each autonomous community.

While the maximum income tax rate is 47% in theory, regional variations mean the top rate could reach 54%.

Several websites provide estimates of how much income tax you will be required to pay as an expat in Spain. The following are some examples:

Personal Tax Allowances And Deductions In Spain

In Spain, resident taxpayers are entitled to certain income tax deductions. To begin, a basic personal allowance of €5,550 is set for everyone under the age of 65, €6,700 for those over 65, and €8,100 for those over 75.

If you file the taxes as a married couple, the second taxpayer receives a married couples’ allowance (declaracion conjunta) of €3,400 in addition to the first taxpayer’s general allowance of €5,550.

Furthermore, if you have children under the age of 25, you can claim the following allowance:

€2,400 amount for the first child
€2,700 amount for the second
€4,000 amount for the third
€4,500 amount for the fourth
An additional allowance of €2,800 for every child under three years

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

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

Payments into the Spanish social security system
Spanish pension contributions
Buying and renovating your Spanish home
Joint filings
Charitable donations

The maximum tax-deductible contribution to a Spanish pension plan has been reduced from €8,000 to €2,000 as of January 2021.

The limit is set at €8,000, given that the increase is from company contributions and does not exceed 30% of the individual’s net income from employment and economic activities for the tax year.

Self-Employed Income Tax Allowances In Spain

Tax residents who are self-employed professionals or freelancers, known as autónomos, pay the same income taxes as everyone else in Spain.

Unlike employees, most self-employed individuals must file quarterly and make advance payments to the IRS.

Freelancers can claim tax breaks on a variety of grounds as long as they have proper invoices and receipts.

Social security contributions, accounting and tax service fees, professional subscriptions, office expenses, internet, phone, and any vehicles used for work are all examples of these costs.

Income Tax In Spain For Foreigners

Spain has double taxation treaties with over 80 countries, so expats may be exempt from certain tax obligations in their home countries.

Generally, you will not be taxed twice on the same income, but bilateral agreements vary by country. As a result, if you have questions about income tax in Spain, it is best to consult a Spanish tax law professional.

If your country of origin does not have a treaty, you may deduct the foreign tax paid when filing your Spanish tax returns. Foreign compensation may also be applied. This amount can also be calculated by your Spanish lawyer.

Expats living in Spain who own assets worth more than €50,000 outside the country are legally required to declare those assets by March 31 of the tax year to reduce tax avoidance.

Failure to comply may result in severe penalties or criminal charges. These assets include cash in bank accounts, real estate, stocks, and life insurance policies.

Tax Refunds In Spain

Because Spain’s online tax system lets you see immediately if you’ve overpaid on taxes, any refund due should be displayed automatically.

To receive a refund, you must include your bank account information in your tax return. The amount will then be automatically credited.

Tax Fines In Spain

If you fail to file a tax return in Spain, you will face a fine as well as interest on any tax owed. If you file late, you may be assessed a penalty ranging from 5% of the tax due (for up to three months late) to 20% of the tax due (more than a year late).

If late submissions are not made voluntarily, additional penalties of 50% to 150% of the tax due may be imposed (for example, if the tax office has demanded the submission).

If you did not intentionally try to avoid paying taxes, you would usually be charged the bare minimum.

The harshest penalties are usually reserved for those who have committed deliberate or repeated violations.

Conclusion

No more goring through piles of tax forms or battling linguistic beasts – with our handy guide, you’ve become the matador of Spanish tax declarations.

As you journey through your expat life in Spain, let SpainSolved be your trusty cape, always ready to help you tackle any tax challenge that charges your way.

Tax triumph!

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