Tax: the Taxation of Individuals in Spain

Spain has what looks like a relatively simple tax system, particularly if you are not tax-resident in Spain, but it is still important to understand how it works. It also offers lots of opportunities for fine tuning your tax position in order to reduce the taxes you will have to pay in Spain or elsewhere.

This guide covers…

This guide deals only with the taxes payable by real people – not companies – in Spain. For the taxation of companies in Spain, see here.

It deals with the position of both people who are tax-resident in Spain and those not tax-resident in Spain.

It should help you decide which group you fall into, what you will have to pay and when you will have to pay it.

Is will also help you understand whether you will still have to pay any taxes ‘back home’ and how they will be calculated.

Finally, a warning. Spanish tax law, like the tax law in almost every country, is incredibly complicated. In this guide we can only give you a rough outline of its main provisions but there is an awful lot of “small print” that can apply to you and completely change your position. Always seek advice from a specialist tax adviser, whether that is an accountant or a tax lawyer.

Tax Numbers in Spain

Before we start, we need to look briefly at the subject of NIEs. In Spain, all foreigners having “economic, professional or social interests” in Spain must have an NIE – Foreigner’s Identification Number or Número de Identificación de Extranjero.

It does not matter whether or not they are tax-resident in Spain.

So a person who owns a holiday home in Spain, who has retired to Spain or – of course – who works there will need an NIE.

The NIE is an all-purpose identification number for foreigners, not just something required for tax purposes. For example, you need an NIE number:

  • To buy or sell a house, a car or a boat
  • To be connected to the water, electricity or (where available) piped gas supplies
  • To open a bank account
  • To be employed or self employed
  • To register a business
  • To get a Spanish driving licence
  • To pay your taxes

In fact, you need it for almost every form you fill in!

The NIE number is an alphanumeric code of 8 or 9 characters, starting with an X or a Y and then (usually) followed by another letter.

The process for obtaining one (and, in particular, the documents you will need to present) varies a little from place to place. In general, however, the application is made to the Directorate-General of the Police, either directly in these places or through Spain’s Consulates abroad. If you are applying from abroad, applications must be submitted at the Consulate for the district in which you are living.

You can apply in person or via an authorised representative.  Usually, your lawyer will apply for your NIE when they are carrying out some other activity for you.

The documents you will need to supply are, in most places:

  • The application form EX-15, which can be downloaded here
  • Your passport and a photocopy. If a representative is applying for you it will be an official (notarised) copy of your passport
  • Two passport-sized photographs
  • Proof of payment of the fee: (2018) €9.45.
  • A document saying why you need an NIE – e.g. “I am starting a business” or “I am buying a house”

In some towns you will need to book an appointment in order to apply for an NIE. In others, you can just turn up at the police station.

Introduction to the Spanish tax system

In Spain, there are traditionally seen to be two different kinds of people: personas físicas and sociedades; two different classes of taxpayer: residentes and no residentes and three different types of taxes: tasas, contribuciones and impuestos.  Plus there are other payments often confused, by foreigners, with taxes.

Types of taxable people

Personas físicas

Personas físicas are real human beings. This guide is only about personas físicas.

Sociedades

Sociedades are companies and other corporate bodies. See our Guide to the Taxation of Companies in Spain for more information about the taxes they have to pay.

Classes of taxpayer in Spain

The understanding of the difference between the two types of taxpayer is central to the understanding of how you will be affected by the Spanish tax system.

Residents (residentes)

Residents – more properly referred to as tax-residents – pay tax on a totally different basis to people who are not tax resident.

Being classified as a tax-resident in Spain has little to do with the place where you live. It is more complicated. Nor does it have very much to do with your nationality and even less to do with the UK concept of domicile – the place in which you are fundamentally rooted, the place which, given a choice, you would probably want to die.

Who is tax-resident in Spain?

Spanish law says that:

A physical person is considered tax-resident in Spain when any of the following circumstances apply:

  • When he stays in Spanish territory (meaning any part of Spain or its territorial waters) for more then 183 days in a natural year (1st January to 31st December). To determine this period of residence in Spain sporadic absences will be taken into account unless the taxpayer proves that he is tax resident in some other country. If he is tax resident in a place classified as a fiscal paradise (tax haven), he will have to prove that he was physically present there for (at least) 183 days during the year.
  • When his centre of activities or the base of his activities and economic interests is in Spain, directly or indirectly
  • When his spouse (from whom he is not legally separated) and his minor children who depend upon him habitually reside in Spain. This part of the definition can be negated by proof to the contrary.

Non-residents (no residentes)

A natural person will be considered non-resident in Spain (not tax-resident in Spain) when none of the above requirements is met.

Note on being ‘resident’:

You are resident in Spain on any particular day if you were in Spain (including in its territorial waters) at any point during that day. If you are trying not to be tax-resident in Spain, this is important. It is easy to creep over the maximum permitted days.

Working out whether you were present in Spain is pretty simple. Many people pretend not to be resident in Spain and hope that they will get away with it. This was very common in the past. It does not work. It is really easy for the tax authorities to find out where you were: a quick look at your credit card statement or phone bill is usually enough.

Types of taxes in Spain

Tasas, contribuciones and impuestos are collectively known as tributos.

Tributos are financial payments that citizens and others are obliged to make to the state.

Frankly, these days the distinction between the various types of tributos is somewhat artificial. They are, in essence, all taxes.

Tasas

Tasas are fees. Fees are paid for the carrying out of an administrative action that benefits them individually. For example, garbage collection, the granting of a visa or the issuing of an identity document. They are generally quite small sums.

Contribuciones

Contribuciones (contributions) are paid for public services which produce a special benefit to the individual concerned. For example, the local property tax (IBI) was previously known as contribucion urbana. Once again, the sums tend to be modest.

Impuestos

Impuestos are real taxes!  They generate the large majority of Spain’s revenue.

If you are living and working in Spain (whether or not you are tax-resident), you will be liable to pay some taxes in Spain on your income, capital gains and assets and you will need to file an annual Spanish tax return. The income tax return must be filed by 30th June. It can usually be done online.

As far as individuals are concerned, the taxes are:

Income tax for individuals in Spain

The Impuesto sobre la Renta de las Personas Físicas (IRPF) is the main Spanish tax on income.

Taxable income includes income from work, income from capital (interest on bank accounts, stock dividends, etc.) and gains and losses in the value of your assets. There are a number of types of income that are exempt from the tax, such as pensions for permanent disability, certain literary awards, scholarships for regulated studies and certain unemployment benefits.

The income upon which the tax is paid is the net income, that is, once the necessary expenses for obtaining it have been deducted and after deduction of any personal allowances.

Each person will have one or more personal tax free allowances.

The basic personal allowance for everyone under 65 is (2018) €5,550, or €6,700 from people over 65 and €8,100 for people over 75.

If you have children under 25 living with you, you can claim an additional allowance of:

  • €2,400 for the first child
  • €2,700 for the second
  • €4,000 for the third
  • €4,500 for the fourth
  • plus an additional allowance of €2,800 for each child under three years.

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

If you are married (whether in a heterosexual or same-sex marriage) you can choose to be taxed separately or together as a couple. If you choose to be taxed as a couple, there is a married couples allowance (declaracion conjunta) of €3,400 for the spouse, in addition to the normal allowance of €5,550 granted to the main taxpayer.

If you are classed as tax-resident in Spain, you will be subject to Spanish tax on your worldwide income and capital gains.

Briefly, you will have to file a tax return tax if:

  • Your annual income from employment is more than 22,000 or you are self-employed or run your own business
  • You receive rental income of more than 1,000 a year
  • You have capital gains and savings income of more than 1,600 a year
  • It is your first year declaring tax residency in Spain.

The amount of tax you will have to pay depends a bit upon where in Spain you live as some regions charge more tax than others. There is a great government website showing how much you will have to pay for all taxes – not just income tax but also local property taxes – for each town and province in Spain, It is only in Spanish, but your friend Google Translate will come to the rescue.

Having said that the total tax payable will vary from place to place, Spain’s main national tax rates in 2018 (for income earned in 2017) are:

  • For taxable income up to €12,450: 19%
  • €12,450–20,200: 24%
  • €20,200–35,200: 30%
  • €35,200–60,000: 37%
  • More than €60,000: 45%

Income tax for non-residents in Spain

The Impuesto sobre la Renta de no Residentes is a tax that falls on the income obtained in Spain by people and companies who are not tax-resident in Spain but its scope expressly excludes those who pay tax under the IRPF.

People who are not tax-resident in Spain will only pay tax in Spain on their Spanish income (such as interest on money deposited with a Spanish bank, rental income (or imputed rental income) from a property in Spain, or income derived from any work or business in Spain) and on any capital gains they make in Spain. Their income is taxed at flat rates with no allowances or deductions. For EU/EEA citizens, it is (2018) 19%, for others it is 24%.

The imputed rental is an amount the owner of a house or apartment in Spain is deemed to have received, even if they didn’t let the property. The tax base is the property’s catastral value (valor catastral), which can be found on your IBI (Local Property Tax) receipt. The cadastral value is calculated periodically from the market value of your property, and the tax base rate is 24% of 2% of the cadastral value. So, if the house is worth €350,000 but has a registered cadastral value of €300,000, the taxable amount is 2% of that: €6,000 and you would pay tax on that at 24%: €1,440.

For details of the taxes paid by companies, see our Guide to the Taxation of Companies in Spain.

Gift & inheritance tax in Spain

The Impuesto sobre Sucesiones y Donaciones is a tax on Inheritance and Donations. It is paid by people when they receive money or other goods for free. This includes both cases in which what is received is an inheritance or legacy from a deceased person (acquisitions “mortis causa”) and cases in which what is received is a donation made by a living person (acquisitions “inter vivos”).

Wealth tax in Spain

The Impuesto sobre el Patrimonio is an annual tax, payable on the total net value of your assets as at 31st December of the preceding year. If you are resident in Spain you are liable to pay tax on your worldwide assets. Non-residents only pay wealth tax only on their assets located in Spain. Allowances mean that many people are exempt from this tax, but for wealthier individuals it can have a significant impact.

If your wealth is more than €700,000 you will be liable for wealth tax of 0.2–2.5% on net assets, although variations exist between Spain’s various regions.

VAT (IVA) in Spain

Anyone from Europe will be familiar with VAT as it is collected throughout the European Union.

For the rest of you, the Impuesto sobre el Valor Añadido (IVA) is a tax on the delivery of goods and services provided by businesses and professionals and also on imports within and from outside the European Union.  The taxpayers are the businesses but those who actually finally pay it, the true taxpayers, are the final consumers, who pay the tax within the price they pay for the goods or service.

The tax is charged every time goods change hands in the course of business. for example, the buyer of the raw materials needed to make the goods pays the seller the VAT on the price of those materials. Once the buyer has made something from the materials, it may sell them to a shop. The shop pays VAT on the price it has paid to the maker of the goods. When the shop sells the goods to a customer, the customer pays VAT on the sale price.  At each stage the businesses concerned can deduct the total VAT it has paid from the total VAT it has charged before it sends the balance to the Government.

Registration for this tax is compulsory for companies or individuals selling products of services which fall within the scope of VAT. It is important to point out that, unlike in some countries, businesses supplying goods or services subject to VAT must register as soon as they start trading trading because there is no lower threshold for the payment of VAT.

The current normal rate is 21% (2018) which applies to all goods which do not qualify for a reduced rate or are exempt. There are two lower rates of 10% and 4%. The 10% rate is payable on most drinks, hotel services and cultural events. VAT raises huge amounts of money.

In the Canary Islands VAT is not applied but they have a similar tax called Canarian Indirect General Tax (IGIC). In Ceuta and Melilla, VAT is also not applied but they have another tax called Tax on Production, Services and Imports in Ceuta and Melilla (IPSI).

Spanish Customs duties

The Renta de Aduanas is not considered further here. See our Guide to Importing your Possessions and our Guide to Importing your Car.

Stamp duty in Spain

The Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados (ITP) is a tax that has a very broad application. It applies to the purchase and sale of all types of goods and rights (such as to rental contracts), to certain operations carried out by companies and to acts that must be officially documented (such as the deed transferring ownership of a secondhand house and other notarial documents).

The sale of a new house is not subject to ITP but is subject to VAT.

The rate of ITP varies from  0.5% to 7%, depending upon the type of transaction and in which region of Spain it is taking place. The rates are fixed by each region (autonomous community) in Spain and the tax goes to them.

The person who has to pay the tax is the buyer, not the seller.

Special taxes in Spain

There are various so-called special taxes. These include taxes on alcohol, petrol, tobacco and vehicle licencing.

Other tax-like payments in Spain

Community fees (gastos de comunidad)

Many foreigners are confused by the gastos de comunidad. These feel  a bit like a tax but are paid to your residents association (comunidad de propietarios) to pay for the cost of the maintenance and adminstration of communal property. You are likely to be a member of a comunidad if you live in an apartment or in a group of buildings that share common facilities such as a pool or tennis court. See our Guide to Buying a Property in Spain for more information.

Social security payments

Social Security contributions must be paid in Spain by both people working for others in Spain and by those who are self-employed in Spain.

The payments cover healthcare costs and certain other benefits such as benefits for temporary incapacity, maternity, widows, unemployment and retirement.

They are not, strictly speaking, part of the tax system. See our Guide to Social Security in Spain.

Double Tax Treaties in Spain

Double taxation treaties – more accurately treaties for the avoidance of double taxation – are treaties designed to stop you having to pay tax on the same income or gain in both Spain and another country: typically the one where you live.

Spain has lots of them. The Agencia Tributaria maintains a list of countries with which Spain has a treaty. See it here. It links you through to the text of the treaties.

Each treaty is different but, in the main, they set out which country has the first right to tax each item covered by the treaty and the remaining rights of the other country. For example, that the primary right to be paid is in Spain but that if the amount that would have been due in the other country is higher you must pay the difference to that other country.

Conclusion

Tax is always complicated but the system in Spain is a lot less complicated that the systems in many other places. That is particularly true if you are not tax-resident in Spain.

It is well worth seeking some professional advice to make sure that your affairs in Spain are being set up properly and that your tax liabilities are minimised.

Further Information

Please contact the author if you would like any further information. See the sidebar for their contact details.

You might also want to read

The excellent Expatica guide to taxation in Spain.

The Spanish Tax Agency (Agencia Tributaria) also has a good website with lots of information. It is available in a number of languages, including English.

If you would like more detail, there is a good educational guide to the tax system in Spain, produced by the Spanish Tax Agency here. It is only available in Spanish but translates quite well via Google.

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