Spain Tax Planning Guide

Introduction

Spain, renowned for its vibrant culture, Mediterranean climate, and picturesque landscapes, also offers enticing tax policies, especially for expatriates and new residents, make it a highly attractive destination.

If you’re planning a move to Spain or if you’re already living in Spain, it’s important that you review your tax position. As an expat, you may be able to take advantage of tax regimes, investment strategies and business planning that can work favourably for you and your new life in Spain.

Generally, it is best practice to organise your affairs in good time to get ahead and make the most of favourable tax treatment while making sure you’re meeting your tax declaration obligations.

How you’re taxed in Spain

The Spanish tax system follows a residence based approach meaning that if you are resident, you will be liable to Spanish taxation on worldwide incomes & gains, regardless of where it is generated whereas if you are non-resident, you will be liable to Spanish taxation on Spanish sourced incomes and Spanish property gains only.

Your resident status in Spain

You’ll be considered tax resident in Spain, if you satisfy either of the following criteria:

1. Physical presence if you spend more than 183 days in Spain during a calendar year. Note that temporary absences are included in the count, except where you can prove tax residence overseas.

2. Centre of interests if your business activities are conducted in Spain or family reside in Spain during a calendar year.

3. Spanish nationals if you relocated to a tax haven during the calendar year of relocation and the following four tax years.

Spanish law does not recognise the concept of split year and as such, you will either be resident or non-resident for the entire tax years.

Personal income tax rates in Spain

Residents are subject to progressive tax rates as follows:

*Note that residents are entitled to a 5,550 EUR personal allowance which is deducted before income is subject to the above tax rates.

Special tax regime in Spain

Providing that you are considered an ‘expatriate’, you may be eligible to use Spain’s special tax regime ‘Beckhams Law’ which enables you to be taxed as a non-resident, even though you are living & working in Spain.

To be eligible for this scheme you must demonstrate 10 years of non-residence and you must apply to use the scheme within 6 months of moving to Spain.

Benefits of the regime are as follows:

1. Flat tax rate of 24% levied on employment or self-employment income up to 600,000 EUR.

2. Foreign income exempt from Spanish taxation.

3. Special tax status applies for 6 years.

Spain can be a very tax efficient place to live and as such, Global Tax Consulting recommends seeking personalised tax planning advice to take advantage of the special tax regime.

Other personal taxes in Spain

Residents may be subject to the following personal taxes:

It is recommended that you review your affairs and structure accordingly so that you do not end up 1) creating an unexpected tax charge and 2) paying more tax than necessary.

Double Taxation Agreements in Spain

If you receive incomes overseas while you are living in Spain, you may find that the source country, as a starting point, continues to tax the income which may cause double taxation unless you are using the special tax regime.

Double taxation agreements can be used to 1) mitigate double taxation and 2) receive tax free income.

As such, the more double taxation agreements a country has, the better, as agreements will ensure you’re not taxed twice and even better, ensure your income is tax free.

At present, Spain has 88 double taxation agreements signed which you can view here.

This is high in comparison to the rest of the world, as follows:

Tax obligations in Spain

What is the tax year period?

The tax year starts on 1 January and ends on 31 December.

What is the deadline to file tax returns and settle tax liabilities?

The deadline to file your tax return (Modelo 100) and settle your tax liability is 30 June following the end of the tax year.

Do you need to make advance payments of tax?

No you will not be required to make advance payments of tax.