SPAIN INCOME TAX GUIDE

When choosing a country, whether it be

• of Expatriation,
• of Investment,
• of domiciling a business and a company,
• of opening a market,
• to carry out one’s professional activity,
• to transfer one’s pension or
• to be a digital nomad in smart working,

we have developed a model covering

6 macro-areas from the Geo-Political to the Macro-Economic situation, to then identify the well-known fiscal or regulatory issues

both in relation to individuals and to corporate or asset protection structures.

We offer a highly qualified professional advice, to compare the legal, tax, wealth, regulatory, financial, macro-economic, geo-political implications of these choices amongst different jurisdictions, considering the country of choice to be a fiscal resident, to locate assets, to domicile a company 

Spain is a country to which we are professionally and by long experience and exposure to different territories, from the capital Madrid to the Canary Islands.

In this page, after a previous guide on the criteria and procedures for residence in Spain (read here), we present a schematic guide to taxation in Spain for different regimes and income categories.

SPAIN INCOME TAX GUIDE

TABLE of CONTENTS

1. SPAIN INCOME TAX GUIDE
2. SPAIN TAX RESIDENCE
3. TAXATION IN SPAIN
4. NON-RESIDENT TAXATION
5. DOUBLE TAXATION AGREEMENTS
6. TAXATION OF RESIDENT INDIVIDUALS
7. EXPATS SPECIAL TAX REGIME (Beckham Law)
8. WEALTH TAX
9. CORPORATE TAXATION
10. VAT TAXATION
11. CRYPTO TAXATION
12. WEALTH TAXATION
13. INHERITANCE TAX
14. INTERNATIONAL TAXATION

SPAIN TAX RESIDENCE

Spain, like many tax regimes in force in Europe and worldwide, e.g. Italy, Switzerland, Portugal, USA, etc., applies the worldwide taxation regime to Spanish or foreign residents who spend more than 183 days a year in Spain, considering the person to be resident there for tax purposes.

This regime is substantially different from that of countries with territorial taxation and a non-dom tax regime such as Malta.

For Spain, a person is considered resident for tax purposes

– if you stay in the territory for more than 183 days

– if the activities or centre of economic interests is based in Spain

– if your spouse or minor children habitually reside in Spain, unless you can prove otherwise.

This implies the obligation to pay tax in Spain on all income generated in the world and to apply a declaratory regime to assets wherever they are located in the world.

Whether or not you are resident in Spain, if you wish to carry out any kind of economic or financial activity or even just for a driving licence, you must apply for a tax identification number.

If you are a NON-Spanish citizen but resident in Spain, your NIE made up of 8 numbers and 1 letter (see the functions of the identity document for foreigners NIE) is also your tax code or NIF or tax code for individuals.

Instead, Spanish citizens have their DNI (documento nacional de identidad made up of 8 letters and 1 number), which is also their tax code as individual natural persons (NIF).

But if we operate through a corporate legal structure, we need to apply for an additional identification number (CIF) which is also the VAT number.

Spain, is a country with a very extensive state and bureaucratic apparatus and 3 territorial levels, state, regional and local, therefore with a high tax and tax base requirement.

A rather efficient tax monitoring and collection structure that not only barks but also bites.

In addition to the daily practice we have been experiencing for years, there are 2 examples during the 2020 pandemic that show absolute evidence of this.

The first refers to cryptocurrencies and income from foreign real estate, whose holders received tax notifications in the tens of thousands for the former and millions for the latter.

The second example, relates to the validity of staying physically in Spain during the lockdowns and transport blockades that have sometimes forced people into a country against their will (read more here).

Only through specialised professional advice will you be able to compare the tax implications between different jurisdictions, taking into account the intermediaries involved in the transactions, the location of the asset, and the residence and citizenship of the holder.

TAXATION IN SPAIN

In Spain, there is a territorial autonomy in taxation which can promote competitiveness between the different regions but creates a very diverse and differentiated income and wealth tax system.

Spain has a tax system with three levels of government where part of the personal tax is given to the autonomous communities.

Some analyses of tax competitiveness between different communities show that the most fiscally attractive communities are, for example, Madrid and the Canary Islands.

Obviously, each individual will have to verify the most favourable tax regime on the basis of his or her income and assets if he or she decides to establish residence in one Spanish community rather than another.

In Spain there are five categories of income:

– labour

– capital

– business income

– capital gains and losses

– residual category for income imputations established by law.

NON-RESIDENT TAXATION

In Spain, non-resident individuals are only taxed on their source of income generated in Spain – Impuesta sobre la renta de los no residentes – at a general rate of 24%, while it is 19% on capital gains generated by transfers of assets.

For residents in other EU member states or European Economic Area (EEA) countries with which there is an effective exchange of tax information, the rate is 19%.

DOUBLE TAXATION AGREEMENTS

Here you can find the updated list of double taxation agreements signed by Spain, which are necessary to avoid double taxation for taxpayers in many cases.

It is certainly important to know and consult this up-to-date list of the double taxation agreements signed by Spain in order to know the tax regime to be considered for each category of income and assets to avoid in many cases the double taxation regime for taxpayers, or to define in which jurisdiction the taxation should be applied in cases of persons with more than one residence.

TAXATION OF RESIDENT INDIVIDUALS

As tax rates in Spain are not uniform throughout the country, the total tax applicable will be a calculation of the general state tax rates plus the relevant regional rates.

The taxation regime in Spain for individuals, updated to 2022:

INCOME

19% up to €12,450

24% €12,450-€20,200

30% €20,200-€35,200

37% €35,200-€60,000

45% €60,000-€300,000

47% over €300,000

SAVINGS

19% up to €6,000

21% €6,000-€50,000

23% €50,000-€200,000

26% over €200,000

In order to know the type of taxation in relation to the specific transactions carried out and their substance, an analysis is needed on the individual case that we can offer in our advisory services, in particular it is necessary to pay close attention to the difference between investment activity and economic activity, with substantial differences in rates and tax regime

Tax returns must be submitted annually by the end of June and you must have a NIE to do so.

As a self-employed person, different rates may apply.

EXPATS SPECIAL TAX REGIME (Beckham Law)

This is a special tax regime that also allows residents in Spain to be taxed as non-residents, i.e. only on income and earnings received in Spain and on assets in Spain.

If you are a Spanish tax resident (spending more than 183 days a year in Spain) and have not been resident in Spain for the last 10 years, you can apply to be taxed under this preferential regime within six months of your arrival in Spain.

This privileged tax regime is available for a maximum of five years following the application.

Expats employees and assimilated workers (‘impatriados’), excluding self-employed workers, professional sportsmen and pensioners, pay a 24% rate on income up to €600,000 in Spain.

New rules introduced in 2021 increased the tax rate on income above €600,000 to 47%.

In addition, Expats now pay a 3% tax on income over €200,000 that is generated from dividends, interest or capital gains.

WEALTH TAX

Residents are required to declare and pay tax on assets wherever they are held, while non-residents only have to pay tax on assets held in Spain.

All assets (property, current accounts, investments, insurance, etc.) wherever held must be declared if the value exceeds a certain threshold, currently set at 50,000 euros.

You are required to declare even if there is no tax to pay.

Non-declaration or delayed declaration is subject to very high fines (EUR 5,000-10,000) and there are very high fines for unpaid taxes.

Net wealth tax rates are different in the different Communities and taxes are paid on assets considered to be luxury, such as property with a value above a certain threshold or on boats, jewellery, investments and works of art.

The wealth tax is a progressive tax ranging from 0.2% to around 4% in relation to the region where you are resident, here below some examples

• Catalonia: between 0.21% and 2.75% tax.
• Asturias: between 0.22% and 3% tax.
• Region of Murcia: between 0.25% and 3.5% tax.
• Andalusia: between 0.20% and 2.5% tax.
• Cantabria: between 0.24% and 3.03% tax
• Community of Valencia: between 0.25% and 3.5% tax.
• Balearics: between 0.28% and 3.45% tax.
• Extremadura: between 0.3% and 3.75% tax.

The Community of Madrid offers a 100% exemption from this tax, but the declaration is mandatory over 2M.

CORPORATE TAXATION

The taxation regime in Spain for resident legal entities is 25%.

Other rates may apply, depending on the type of company being taxed and its type of activity, as well as taxes linked to registration with the Chamber of Commerce.

Entities in which one of the following requirements is met are considered to be resident in Spain:

– incorporated under Spanish law

– registered office in Spanish territory

– management headquarters in Spanish territory.

Resident companies are taxed on their worldwide income.

Newly founded companies or start-ups are taxed at a rate of 15% for the first tax period in which they make a profit and for the following one.

This condition does not apply to pure holding companies, those that are part of a group or if the activity was previously carried out under an individual regime.

There are special corporate tax regimes such as those in the Canary Islands

VAT TAXATION

As of 1 September 2012, the ordinary VAT rate is set at 21% with two rates, reduced to 10% and super reduced to 4%. The 10% rate applies to certain goods and services, such as the purchase of a newly built property, hotels and restaurants, health products, entertainment and sports activities. The 4% rate applies to goods considered as basic necessities, such as, for example, certain foodstuffs and also to reading products (newspapers, magazines, books).

In the Canary Islands, there is a special regime called IGIC, which stands for Impuesto General Indirecto Canario, which applies a standard rate of 7%.

CRYPTO TAXATION

Spain, unlike other European countries, considers crypto coins not as a currency but as property.

As there is no specific legislation on the matter, it follows that the taxation and declaration regime is the same as for any other physical or digital asset, wherever it is located.

Depending on the specific operation carried out, 4 different types of taxation are applicable in Spain:

– Income tax on savings (capital gains) – investment activity.

– Income tax – economic activity.

– Wealth tax.

– Inheritance and gift tax.

In order to know the type of taxation in relation to the specific transactions carried out and their substance, an analysis is needed on the individual case that we can offer in our advisory services, in particular it is necessary to pay close attention to the difference between investment activity and economic activity, with substantial differences in rates and tax regime

The Spanish Tax Agency has confirmed the taxability of crypto on the exchange and sale of fiat and crypto currency.

From the point of view of wealth tax on all assets, cryptos are part of the net assets owned along with all other assets. Tax is due if the total assets held exceed the minimum amount deemed tax-free by any community (currently set by the central government at EUR 700,000).

In 2021, the Spanish government published a law to achieve greater control of cryptocurrencies (read here).

It will come into force in 2022 and obliges cryptocurrency intermediaries to inform the tax authorities about the holders of any cryptocurrency and related transaction carried out both in and outside Spain.

WEALTH TAXATION

REAL ESTATE

If you own a property in Spain and live in it on 1 January of a given year, you must pay a local property tax (“Impuesto sobre Bienes Inmuebles” – IBI). The amount is a theoretical value to which a rate set by the local authorities applies (average rate varying between 0.40/1.10). This applies to both non-residents and residents.

You will also have to pay income tax, namely IRNR (Impuesto sobre la Renta de No Residentes) or as a resident IRPF (Impuesto sobre la Renta de Personas Físicas).

If you own a property with a net value of more than 700,000 Euros (values that are constantly changing as regulations apply or do not apply) you may be liable to pay a wealth tax.

In addition, a waste tax (‘basura’) has to be paid. Non-resident property owners may also have to pay notional income tax at flat rates on the potential rental income from a Spanish property.

If you sell a property in Spain, you have to pay a property transfer tax (“Impuesto Transmisiones Patrimoniales” – ITP). When a property is sold, the local authority applies a tax on the increase in the value of the land (“plus valia”).

Wealth tax in Spain is payable on the value of your assets on 31 December each year. Assets valued at more than EUR 10 million may be taxed at up to 3.5%, with rates varying depending on the region in which you reside.

There is a standard deductible of €700,000, which varies according to the region of residence, and homeowners are entitled to an additional €300,000 for the value of their main residence.

The wealth tax is a progressive tax ranging from 0.2% to around 4% in relation to the region where you are resident, here below some examples

• Catalonia: between 0.21% and 2.75% tax.
• Asturias: between 0.22% and 3% tax.
• Region of Murcia: between 0.25% and 3.5% tax.
• Andalusia: between 0.20% and 2.5% tax.
• Cantabria: between 0.24% and 3.03% tax
• Community of Valencia: between 0.25% and 3.5% tax.
• Balearics: between 0.28% and 3.45% tax.
• Extremadura: between 0.3% and 3.75% tax.

The Community of Madrid offers a 100% exemption from this tax, but the declaration is mandatory over 2M.

INHERITANCE TAX

Inheritance tax (“impuesto de sucesiones y donaciones” – ISD) in Spain applies to everyone, residents and non-residents alike.

This progressive tax becomes payable if you receive an inheritance from a friend or relative, in any form, assets, real estate, money or property of any kind.

The Spanish inheritance tax rates set by the national government are progressive and fall into the following bands, depending on the amount of the inheritance:

Up to €7,993: 7.65%.

€7,993-€31,956: 7.65 – 10.2%

€31,956-€79,881: 10.2 – 15.3%

€79,881-€239,389: 15.3 – 21.25%

€239,389-€398,778: 25.5%

€398,778-€797,555: 29.75%

Over €797,555: 34%.

This progressive tax becomes payable if you receive an inheritance from a friend or relative, in whatever form, assets, real estate, money or property of any kind and is payable within 6 months of the person’s death.

Although national inheritance rules apply throughout the country, Spanish inheritance tax rules, which apply based on the deceased’s residence at the time of death, differ from region to region and in some cases substantially.

Spanish inheritance tax rates depend on the degree of kinship, the value of the assets of the estate and the assets of the heir, with taxes generally ranging from 7% to 34% with very low deductibles, but which can be quite different with total abolitions, exemptions or reductions depending on the Autonomous Community of residence.

You will have understood from reading this guide that Spain is not an easy country to get to know from a taxation point of view as there is no single regime, but different ones for each of the 17 Autonomous Communities!

INTERNATIONAL TAXATION

A customized, multi-country Tax consultancy service for the internationalization and protection of individuals, investors and companies, in relation to their income and assets situation.

European and International clients ask for a multi-countries service, where the taxation advisory about different countries, including the country of origin and the country of destination, fits their individual profile, income, wealth.

Clients are looking for compliance, efficiency, independence, global know-how, speed, therefore we offer:

Are you cash rich and time poor?

A personalised professional Taxation and Legal Advisory service, for the choices of Expatriation, transfer of Residence abroad and protection of Individuals and Businesses with the comparison between your jurisdiction, Malta and 30 other countries

with analysis of specific individual needs and identification of opportunities and solutions offered by a re-domiciliation of Individuals, Families, Investors, Companies, or assets to Malta and other 30 different countries, an International Advisory service with solutions and opportunities in and from Malta with respect to your jurisdiction of origin and other countries in Europe or outside Europe:

We offer a highly qualified professional advice, to compare the tax implications amongst different jurisdictions of these sources of Income and investments, considering the Intermediaries involved in the transactions, the location of the Asset, the residence and citizenship of the Owner

For all your legal, tax, corporate governance and residence advice needs for individuals and businesses, contact us here