You have decided to immigrate or relocate your business and/or family to Spain. Such decisions entail many organizational issues: buying or renting a home, relocating or starting a business, finding new opportunities and acquaintances, learning the local culture and local laws. Not surprisingly, there is not much time left to carefully study the tax system of the country of your new residence. We have prepared for you the most important information that you need to know when immigrating to Spain, namely:
- When will I be considered a tax resident?
- What counts as income?
- What are the main taxes for individuals?
- When do I have to start paying taxes in Spain?
- How much do I have to pay?
- How can I avoid double taxation?
First, let's understand the basic concepts.
Residents of Spain
When you move to Spain permanently, you automatically become an immigration resident and receive a temporary or permanent residence permit.
However, this does not mean that you automatically become a tax resident. Spanish law determines that an individual is a tax resident if he or she meets one of the criteria laid down in the Personal Income Tax Law, namely:
- The length of your stay in Spain is more than 183 days in a calendar year. It does not matter whether you stayed in the country for all 183 days without leaving the country or whether you left it for some time. The main thing in this point is the number of days.
- Your main source of income (51% or more) and/or the center of your economic interests is in Spain.
- Your family lives in Spain permanently: your spouse and minor children whom you support.
The document proving that the individual is a tax resident of Spain is the "fiscal certificate" issued by the Tax Service (Agencia Tributaria). The certificate is valid for one year. Having a certificate of tax residency is, for example, proof of residency when receiving an inheritance in Spain. It can significantly affect the calculation of your inheritance tax rate. Also, it is needed when selling real estate in order to avoid withholding 3% of its value. If you do not provide the notary with a certificate of tax residency, you will not be able to take advantage of the tax benefits. The certificate is not issued automatically, you must apply for it yourself on the IRS website.
All income of tax residents in Spain is taxable no matter in which country of the world it is earned. How can you avoid double taxation if, for example, part of your business is located in another country? Spain has signed a double taxation treaty with 80 countries of the world. According to which, the main taxes are paid in the country of residence.
At the same time, Spanish tax residents are required to inform the fiscal authorities of assets worth more than 50,000 euros (alone or in aggregate by group) located outside Spain, such as:
- Funds in bank accounts for which the individual is the owner, assignee, or beneficiary.
- Shares, securities.
- Real estate or rights to real estate.
- Life insurance policies.
Although Spain is a unitary state, its territorial units (comunidad autónoma) are quite autonomous.
Each autonomous community, and there are 17 of them, has the right to set its own tax obligations and rules. Thus, for example, the minimum amount not to be taxed or the property, wealth or gift tax exemptions may be different in each district.
The main taxes for individuals resident in Spain are as follows:
Income tax is calculated on a progressive scale from 19% to 47%
Capital Gains Tax
Social contributions of employees and individual entrepreneurs. The total contribution rate is from ~6.35% for employees and ~33.00% for employers. Variable rates apply for accidents at work.
Luxury tax in Spain, As we have written before, this tax may vary from county to county. This tax applies when the amount of assets of an individual exceeds 700,000 euros. Depending on the amount of assets, the luxury tax is calculated on a progressive scale from 0.2% to 3.5%.
Gift and inheritance tax. The general tax rate is from 7.65% to 34%, but the taxable base can be significantly reduced depending on the region and such factors as degree of kinship, age of the heir, disability and others.
Property tax — is paid annually by the owner, regardless of whether you receive rental income or not. In the case of the sale of property, the tax is paid by whoever owns the property as of January 1 of the current year. The amount of tax depends on the cadastral value and location and ranges from 0.4% to 1.3%.
Retirement Tax. According to Spanish law, a pension is income and is taxed at a progressive rate of 8% to 40%. If you are a tax resident in Spain but receive a pension in another country, you must notify the Spanish tax authorities and pay tax on that part of your income as well.
Understanding that it is almost impossible to take into account all the nuances of the fiscal system in a new country without a perfect command of Spanish, we at Laduchi Consult always help our clients to understand the taxation issues in Spain. You can learn more about this in our client cases. If you have any questions about tax planning, business tax reduction, settlement of issues with tax authorities, we will always be happy to help you.
Please note that all materials contained on this site have been prepared for informational purposes only. This data does not constitute or replace professional financial, legal or tax advice. The information is general in nature and does not take into account your personal circumstances. Always seek professional advice from officially licensed professionals: financial advisors, accountants and lawyers.