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TAXATION IN SPAIN
How long can you stay & what do you pay?
Residency and tax rules. You need to know the impact on you and all about Spanish property tax,.
Andalucía has many tax exemptions, take a look..
taxation in spain
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One of the areas we get asked about the most, after the emotive areas about sea views and distances to the beach, is almost always about the taxes in Spain. We have asked independent tax experts for their input, combined with our own due diligence. Recent changes in the rules relating to vacation rentals, as an example. If you spend more than half the year in Spain (183 days +) you will be considered a Spanish resident, and therefore a Spanish taxpayer. Although there are exceptions depending on your personal circumstances, such as family and work.
international tax rules
Spanish tax and international tax agreements are constantly changing it’s important to keep up-to-date if you plan to invest in property in Spain. Spanish taxes are decided at both the regional and state level with each of the 17 autonomous regions setting their own rates.
the basics
Firstly, it’s imperative to get your NIE number. You can apply for this through the local police station in your chosen region in Spain, or via your Spanish consulate at home. This will act a little like a National Insurance number, or an American Social Security number. Without it, you can’t get a job or buy a home because you won’t be registered to pay tax on them.
types of tax
Indirect taxes are levied on goods and services, which means you don’t necessarily see them. Indirect taxes in Spain include value added tax, excise tax, insurance premiums tax, wealth transfer tax and stamp duty. Direct taxation is applied to your income and assets and includes income tax, capital gains, corporate tax, inheritance and donations tax and wealth tax. If you work in Spain, there is also a social security levy that covers state benefits ranging from free healthcare to maternity cover and sick pay. Anyone who earns money in Spain has to pay an income-based tax. For residents, the amount you pay will be set by the region on a sliding scale based on your worldwide earnings. For non-residents, there is a regionally set flat rate.
owning a property
There are taxes you need to pay if you want to own a home in Spain. These include property tax and stamp duty, both of which are paid at purchase. The former is usually around 10% and the latter around 1% of the sale price. Property tax rates are set by the local government which runs out of the municipal town hall. Costs can vary wildly from region to region, so do carry out your homework before you make an offer or ask Sandtons to run a model for the home you are going to buy.
Even if you are a non-resident and don’t let your property out, you need to pay tax on any potential earnings on a Spanish property regardless of whether you let it or not. This is called IBI and is used by local governments to reinvest in the community. The municipal town hall also sets the rates for motor vehicle tax, which applies to all motorised, roadworthy vehicles, and waste disposal tax paid according to the size and type of dwelling.
residential status
You are classed as a non-resident if you spend less than six months of the year in Spain and you keep the bulk of your assets and interests elsewhere. You are classed as a resident if you spend over six months in Spain and have a family, business or both based there.
Residents must submit a tax return in Spain if:
o Your annual salary is greater than €22,000.
o You are self-employed or run your own business.
o You receive rental income of more than €1,000 a year.
o You have capital gains or savings income of greater than €1,600 a year.
o It is your first year declaring tax residency in Spain.
o It’s also necessary to declare any overseas assets worth over €50,000. Your worldwide income is what’s left after deducting expenses, social security, pension and your personal allowance.
Just when you thought it was getting complicated, along comes Beckham’s law. Named because it was first applied when David Beckham transferred to Real Madrid. It’s a specific tax break for foreign people who move to Spain for a work placement. It allows people to pay a flat rate of 24% income tax for the first €600,000 earned. And it also means that despite your resident status, you only pay taxes from your Spanish income streams.You’ll need to apply within the first six months from the date you began working in Spain.
how to pay
The Spanish tax year starts on 1 January and ends on 31 December. You can register to submit a tax return and pay tax at the Agencia Tributaria, the Spanish version of the Inland Revenue and you’ll need to present an NIE number to receive a Modello 30 form — which you fill in and return to declare your obligations. There is an English language version of the Agencia Tributaria website.
avoid overpaying
For the sake of your inheritors, it’s worth writing a Spanish will if you have Spanish assets, as it can save complications for your loved ones if you make your wishes clear under Spanish law. Make sure these assets are then left off subsequent overseas wills to avoid any contest. Spain offers different levels of inheritance tax to different people, so spouses and children get the highest level of tax-free allowance, then siblings, aunts, uncles, nieces and nephews, with “4th-degree” friends and relatives given no allowance at all.
Finally, there are a number of countries who have signed treaties with Spain to avoid double tax billing, you can check if your country is listed on the Agencia Tributaria website.
Penalties and fines are high in Spain for tax-related crimes, often more than €120,000 or even imprisonment. Changes can be swift and unexpected, so although these basics are true at the time of writing, they are subject to change. Make sure you get expert help from a Spanish tax specialist if you can.
other taxes
income tax
As a Spanish resident, you must register as a taxpayer in Spain and pay yearly income tax on all your assets. To do this, you are required to inform the Spanish Tax Revenue service about all the assets you own throughout the world, although (as always) exceptions apply due to double taxation tax regimen. This income tax is known as IRPF/ Impuesto sobre la renta de las personas fisicas and it is a progressive tax.
Progressive tax definition: A progressive tax is based on the taxpayer’s ability to pay. It imposes a lower tax rate on low-income earners than on those with a higher income. This is usually achieved by creating tax brackets that group taxpayers by income ranges.
Here’s what you would be expected to pay:
For the first €12,450 you will pay 19% tax to the Public Treasury.
From € 12,450 to € 20,200, you will pay 24%.
From € 20,200 to € 35,200, taxed at 30%.
From € 35,200 to € 60,000, it is taxed at 37%.
And above € 60,000, you will pay 45%.
Income tax is paid annually in Spain. You are required to inform the Tax Office between March and June each year regarding your income from the year before.
social secuirty
If you are also a worker in Spain, whether self-employed or employed, you must contribute to the Spanish social security system monthly. The amount you are required to contribute depends on the hours worked and payment quoted.
Self-employed workers in Spain must also make quarterly self-assessment declarations and payments for personal income tax, VAT or rentals and an annual declaration of payments to third parties. These can be done online, so don’t forget to request your digital signature certificate as soon as possible from the Tax Office.
What’s a digital signature certificate and why do I need one? Traditionally. Spanish legal or administrative procedures were a long, arduous process that involved making appointments with various local government offices and long queues. That is now a thing of the past with the introduction of digital signature certificates, an online identification document that will allow you to carry out these procedures online.
business tax
A business is considered a resident in Spain for tax purposes if it has been incorporated in accordance with Spanish law, has its registered office in Spain or has its effective address in Spain.
VAT
The VAT is common to all economic activities (also for the self-employed as mentioned before) but it is not same for everyone. There are, in fact, three different types of VAT in Spain:
· the super-reduced VAT of 4% – applicable to basic necessities, such as books or medicines.
· the reduced VAT of 10% – applicable to food products medicines for veterinary use, water, pharmaceutical products, buying and selling of properties, transport.
· And finally, VAT of 21% – applicable to other products and services that cannot be covered in the two previous cases.
CORPORATE TAX
In general, you must pay 25% of all company income as corporate tax. It is necessary to point out that Corporate Tax varies, as there are reduced rates in some cases, such as for entrepreneurs, work cooperatives, and micro-enterprises.
social security contributions
In Spain, payment of Social Security contributions (NHS) represents more than three-quarters of the total taxes payable by all companies. In the specific case of SMEs (small and medium sized enterprises with fewer than 250 employees), these taxes represent 78% of total taxes paid, while for large companies it can be as much as 92%.
tax on economic activities (iae)
Tax can be applied for exercising a business, professional or artistic activity. It is a municipal tax but shared with the State. The payment is due annually, and the AEAT manages the national and provincial quota.Individuals or companies or entities that do not exceed one million euros of annual turnover are exempt (the first two years are exempt, the figure for the penultimate year prior to the accrual of the tax is evaluated).
luxury assets
If you own luxury goods in Spain you will have to pay wealth tax, this is known as IP/ Impuesto sobre el patrimonio, regardless of whether you are considered a tax resident.
This tax is levied on assets such as investments and savings, property and real estate investments, cars, boats, airplanes, jewellery, art etc. But you will only have to pay tax if the value exceeds €700,000 (€ 500,000 in Catalonia). The wealth tax ranges from 0.2% to 2.5% of total value and is paid annually.
inheritance & donations
Another tax to take into account is the ISD/Impuesto de sucesiones y donaciones this is the Inheritance and Donation tax. This. tax must be paid by anyone that accepts an asset by inheritance or donation. This Spanish inheritance and donation tax is state and locally taxable, so the amount to be paid varies according to your personal circumstances and localities. It must be paid within 6 months of the act that generates the tax obligation (death or donation). Extension of the deadline for compliance can be requested if deemed necessary, if the deadline to make the payment is exceeded with no deadline suspension granted, the Tax Office may issue a fine according to the days of non-compliance, so we recommend to always request the deadline suspension to avoid fines.
capital gains tax
This tax is levied on the profit obtained from the sale of properties or shares, you will have to pay between 19 and 23% of the profit obtained to the Public Treasury if you are a resident in Spain. If you are not a Spanish resident, but you are a resident in another EU country, you will be taxed at 19%, but residents outside the EU are taxed at 24%, so non-resident British citizens selling their property in Spain may want to consider the tax implications of becoming residents before they sell their property.
There is also a local Capital Gain Tax in place known as Plusvalia that taxes the difference between the cadastral value of the property (the value that the Spanish administration gives to each property, based on data found on the land registry), from the moment of acquisition to the moment of the transfer, and varies from one location to another (municipal capital gain). This is paid to the Town Hall where the property is located.
other taxes
Are you thinking of buying a property in Spain? You will have to pay the following taxes:
ITP/Impuesto de transmision patrimonial for used homes (you will have to pay between 8 and 10% of the purchase price) or VAT for new properties (generally 10% purchase price)
You must also pay the documented legal act tax AJD/Acto Juridico Documentado, which varies between 0.5 to 1.5% depending on your location. If you are buying with a mortgage loan, you will also have to pay the AJD for this loan registration. Once you become a homeowner, you will have to pay the yearly council tax (IBI/Impuesto de Bienes Inmuebles) that varies from one town to another and taxes the Cadastral value of the property.
If you own a vehicle in Spain you will also have to pay the yearly tax for it, known as IVTM/ Impuesto sobre vehiculos de traccion mecánica.
Good news for buyers looking to purchase a home in Andalucia. On the 26th of April 2021, Andalucia’s coalition government publicly agreed to lower 6 taxes to help stimulate the economy:
· IRPF (personal income tax)
· IHT (inheritance tax)
· Patrimonio (wealth tax)
· ITP (property transfer tax)
· AJD (stamp duty)
· Taxes on gambling
summary of taxes in andalucia
No inheritance tax (IHT). You are only taxed at 1% on the excess over 1mn euros. In practice, this leaves out 99.99% of taxpayers.
Inheritance tax. 99% tax reduction on acquiring a main home for Groups I and II (irrespective of value).
Inheritance tax. 99% tax reduction on acquiring business/company for Groups I, II, and III.
Group I: Natural and adopted children under 21.
Group II: Natural and adopted children over 21, spouse, registered civil partnerships, parents, adoptive parents, grandparents, and great grandparents.
Group III: Relatives in the second and third degree: in-laws, brothers/sisters (siblings), nephews/nieces, aunts, and uncles
No wealth tax.
Gift tax. 99% tax reduction on parents gifting money to children to buy a primary home.
Gift tax. 99% tax reduction on parents gifting the main home to children.
Gift tax. 99% tax reduction on parents, or family members, gifting capital to set up a business (capped at €1,000,000).
Stamp Duty on off-plan properties has been reduced to a flat rate of 1.2% (20% discount)
Property Transfer Tax on resales has been reduced to a flat rate of 7% (the sliding scale has been removed, which has brought massive tax savings of between 12% to over 30%, contingent on the asking price)
Landlord tax relief. If you are a tax resident in the EU or EEA, you stand to benefit from huge tax relief that on average, reduces your landlord tax bill by 70% or more.
Landlord tax relief. If you area tax resident in the EU or EEA, your tax rate is 19%, compared to the general rate of 24%.
Personal income tax or IRPF (applies only to tax residents in Spain). It has been deflated in line with inflation on the regional band, which translates into a significant tax reduction.
What this means for buyers in Andalucía
In short, following the latest tax changes, Andalucía has become Spain’s region with the lowest taxation. Nowhere else in Spain – other than Madrid – will you find such low taxes. In effect, all these changes have ushered in a new tax era, triggering a Buy-to-Let boom on the costas. If you add that banks still apply ultra-low interest rates and spreads on mortgage loans, it means there has never been a better time to invest in property, speak to Sandtons.
Bottom line, if you don’t fancy paying high taxes or none at all, Andalusia is your place of choice. The last batch of tax changes make Andalucía the hottest place to invest in all of Spain.
For further information or questions, you may have, please don’t hesitate to contact Sandtons for a list of independent tax specialists, who will be able to answer any specific questions you may have.
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