When you move to Spain and become a Spanish tax resident (or have income in Spain), you’re subject to Spanish taxes.
If you’re a tax resident of Spain then you’ll be liable for income tax and capital gains tax on your worldwide income and gains, and wealth tax on your worldwide assets.
Below we’ll describe the basic concepts you should be aware of in order to ensure compliance with Spanish tax obligations and avoid any issues and fines that could cost you time and money.
Tax fines and liability are high and severe in Spain, so it’s essential to know and comply with your tax obligations.
Am I a Spanish tax resident?
You’ll become a Spanish tax resident under Spanish internal legislation if you meet any of the following conditions:
- More than 183 days are spent in Spain in a one calendar year. These days don’t have to be consecutive. You become resident irrelevant if you take out a formal residence permit and whether you’re registered for tax purpose in Spain. Temporary absences from Spain can’t be subtracted unless it can be proven that the individual is a habitual resident in another country for more than 183 days in a calendar year. Days of arrival and days of departure do count as days of presence in Spain.
- Spain represents you “center of economic interests” (i.e. if you have your main source of income and assets in Spain, i.e. your business in Spain or your professional or economic activities are in Spain).
- Your “center of vital interest” is in Spain (i.e. if your spouse, not legally separated) and your dependent minor children live in Spain. In this case, you are presumed to be a Spanish resident, even though you may spend less than 183 days per year in Spain.
Check out our easy flow chart to determine if you’re a Spanish tax resident:
*For this purpose, temporary absences from Spain are ignored unless you can prove your tax residence in a different country (excluding tax havens)
When does the tax year start and end?
The tax year is the same as the calendar year in Spain, i.e. from January 1 to December 31.
What are my tax obligations if I am a Spanish tax resident?
If you’re a tax resident in Spain, you’re liable for taxes on your world income and you must inform the Spanish Tax Authorities of the assets that you have abroad.
2.1. Personal Income Tax (IRPF, Impuesto sobre la Renta de Personas Físicas)
In Spain, income is split into general income (renta general) and savings income (renta del ahorro). Savings income includes capital gains. After being calculated per the rules for each income within each category, the total of general and savings income is termed the gross taxable base (base imponible). After any deductions and allowances it is then known as the net taxable base (base liquidable).
Spanish residents are taxed on their worldwide “general” income at progressive scale rates. The income tax scale rates are made up of the “National tax rates” and the “Community tax rates” (which are set independently by each Autonomous Community).
Generally, the top combined rate of tax is 45% but can be higher in some Communities (i.e. Andalucía) if they have increased the regional tax rates applying in that region, and many regions have done so.
Anything not categorized as “savings income” is included as “general income, including all earned income (i.e. salary, self-employment and pension income), rental income, any imputed income and gains not made on the sale/transfer of assets such as from gambling for example.
Tax Rate on General Income 2022 (General table – Each Comunidad Autonoma has its own table)
Tax Rate on Savings Income (2022)
The worldwide savings income of residents in Spain are taxed progressively at the following rates:
Savings income consists of:
- Dividends
- Interests
- Income derived from life assurance contracts
- Purchased annuity income
- Capital gains on the sale/transfer of assets
Exemption for income earned abroad: there is an exemption of up to 60,100€ per year for salary income earned by workers who work abroad, but remain tax residents in Spain (provided certain requirements are met).
Special tax regime for expats coming to work to Spain: this special and extremely beneficial tax regime is commonly known as the “Beckham law.” Through this optional tax regime a non Spanish tax resident who moves to Spain as a consequence of an employment contract, can apply a 24% tax rate, be taxed only on Spanish source income (i.e. be treated as a non Spanish tax resident) and be exempt of Model 720 (provided certain requirements are met).
Check this question and Answer: Am I eligible for the “Ley Beckham” to be taxed as a non-resident while working in Spain?
2.2. Model 720 (Modelo 720)
The Model 720 is a merely informative filing but its content is of special interest for the Spanish Tax Authorities to exhaustively control taxpayers’ assets and their variations. In fact, its oversight is considered a priority in the Spanish Tax Authorities’ control plan.
You are subject to Model 720 if you’re a Spanish tax resident in Spain and the owner, titleholder, representative, authorized person, beneficiary, or have disposal powers of assets located outside of Spain worth more than €50,000 (see assets below), and must report the value of these assets.
There are three main groups of assets that must be declared if the total joint value of the group exceeds 50,000 euros:
- Funds in accounts in financial institutions abroad: such funds can be held through the figure of the owner, co-owner, representative, authorized or beneficiary. The valuation of the funds should be the highest of (i) the balance at December 31, or (ii) the average balances at the closing of each quarter.
- Securities, rights, insurance and income deposited, managed or earned abroad. Life insurance policies and temporary or lifetime income generated from lending money, rights or other assets to foreign entities are included, while pension plans and stock options are excluded.
- Real estate and rights over real estate located abroad.
It is worth noting that once the limit of 50,000 euros is surpassed for a group, all assets in such group need to be declared regardless if each asset doesn’t individually pass the limit. Additionally, the obligation to report exists where the specific asset(s) are over 50,000 euros regardless of how many holders/owners there are of a particular asset(s). Each holder/owner should declare the total balance/value (not the pro-rated), indicating the percentage held/owned.
The reporting period is between January 1 and March 31 of each calendar year, with respect to assets held as of 31 December of the previous year.
Check Spainguru’s recommended tax experts if you need expert help to file taxes in Spain or the US.
Modelo 720’s revised penal code
In response to a decision by the European Court of Justice, the Modelo 720 penalty regime has been modified to levels that are much more tolerable. Residents of Spain are still required to annually disclose their offshore assets on Modelo 720.
The general penalty scheme created by the Spanish General Tax Law now applies to Modelo 720. The following is a major reduction in the fines and penalties for failing to file Modelo 720 or filing it incorrectly or incompletely:
- For each piece/set of information that should have been included in the individual’s declaration, a fixed monetary fee of €20 (formerly €5,000) is imposed.
- The maximum fine is now €20,000, and the minimum fine is now €300 (formerly €10,000). (previously there was no maximum).
- If the Modelo 720 is submitted after the deadline but before the Spanish tax authorities get notice of non-compliance, these fines and the minimum and maximum limits will be reduced to 50%.
- However, keep in mind that if the unreported assets or rights are situated outside of the European Union, the fines would be increased.
To illustrate how much less severe the new penalties are, consider that under the previous system, a person would have to pay €25,000 in fines for failing to disclose a foreign bank account. The fine is only €300 going ahead (or €600 if outside the EU).
Importantly, Modelo 720 is now included in the four-year statute of limitations. This indicates that the Spanish Hacienda (Tax Authority) cannot impose a fine for more than the previous four tax years.
What are my tax obligations if I am a non-Spanish tax resident?
Non-Spanish tax residents pay taxes only on Spanish source income and capital gains at the flat rate of 19% (subject to double tax treaty provisions) if they are residents in a EU/EEA country. If they’re a resident in another country, the tax rate applied is 24% or 19% depending on the type of income. EU/EEA residents may also be able to deduct certain expenses not available to non-EU residents (i.e. when calculating net rental income on properties held in Spain.)
Depending on the assets or income derived from Spain, non-Spanish tax residents must appoint a Spanish tax resident individual or legal entity as their tax representative.
The reporting period depends on the type of Spanish source income:
- For owning real estate in Spain (imputación de renta): the year after titleship.
- Capital Gains income from the transfer of real estate in Spain: three months after the date of the sale.
- Other types of income: the first 20 natural days of the months of April, July, October and January.
Double Tax Treaties. What are they and what are they for?
Double tax treaties are agreements signed by two countries which determine how taxation on the same income between two countries is distributed when there is a conflict (i.e. when a person qualifies as a tax resident under two countries under the laws of each country or when a tax resident in one country receives income from an asset located in another country).
Spain has in force more than 94 Double Tax Treaties with other countries (including United States, United Kingdom, Australia, etc.) It is of great importance to know the mechanisms of these and apply them as they enable us to avoid paying taxes twice.
Can I be a tax resident of two countries?
No, you can’t. If you qualify as a tax resident in two countries, you should apply the applicable Double Tax Treaty (if existing).
The double tax treaties between Spain and other countries has a “tie-breaker” clause that comes into operation if you’re a resident both in Spain under the Spanish rules and in the other country under the other country’s rules. The purpose is to determine in which country you will be regarded as a resident for taxes covered by the agreement.
In order to identify which country has preference over your tax residency, you need to follow the following list:
- If you’re a resident in both countries per each country’s domestic rules, you’re deemed to be a resident in the country in which you have a permanent home available to you. A permanent home is any form of accommodation which is continuously available to you for personal use. It doesn’t have to be owned by you.
- If you have permanent homes available to you in both countries, you’re deemed to be a resident in the country that is your center of vital interests (economic interests and family members).
- If the test is indeterminate, you’re deemed to be a resident in the country in which you have a habitual abode (i.e. where you carry your habitual life).
- If you have a habitual abode in both countries, you’re deemed to be a resident in the country of which you are a national.
- If you’re a national of both countries, or neither, the competent authorities shall determine which country has preference.
If I am a tax resident in Spain but have income or assets in another country, do I need to report or pay anything in the other country?
You need to apply the Tax Treaty to see which country has the right to tax and to which amount, which will depend on your residency and the type of income. For example, income from real estate is nearly always taxable where the real estate is located.
If the Tax Treaty enables a foreign country to tax certain income, income which you will also have to declare and tax in Spain (as Spain taxes on global income), you’ll be able to deduct taxes paid in the foreign country in your Spanish taxes.
What are my tax obligations if I set up a company?
If you set up a company in Spain, the company will be subject to corporate income tax (IS, Impuesto sobre Sociedades). Any company tax resident in Spain is subject to Spanish corporate income tax on its worldwide income. A company is deemed a tax resident in Spain if it has been formed in accordance with the laws of Spain, or if it has its registered office, or its effective place of management, in Spain.
A company is taxed on its profits at a general tax rate of 25%. There are numerous tax benefits available (i.e. for newly created businesses and small and medium sized companies).
I am a US citizen. Do I need to pay taxes in the US?
Yes, as a US citizen you’re required to file federal taxes yearly irrelevant of where you are a resident. Additionally, you may also be obliged to report foreign assets if you surpass certain limits (i.e. 10,000USD in foreign bank accounts).
By Lucía Goy Mastromiechele
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