Everything you need to know about taxes in Spain explained

If you are living and working in Spain, you will need to pay income taxes into the system. You will also be required to pay income on your assets. But what are the tax rates and VAT, what are the rules and regulations around property tax and do non-residents need to pay anything into the system?

Taxes in Spain can be quite confusing and large fines can be given to those who fail to declare them or do not pay the correct amount. If you live and work in Spain, you must pay income taxes on your earnings and assets and complete a Spanish tax return. It is solely your resident status that determines whether you pay Spanish taxes on your worldwide income or Spanish-based revenue.

If you live in Spain, you must pay Spanish tax on your worldwide earnings. Taxes are levied on a graduated scale, with tax breaks available. If you are a non-resident of Spain, you only pay tax on your Spanish income, which is usually at a flat rate. This includes prospective income from Spanish property even if you do not rent it out. Property ownership, investment interest, and goods and services in Spain are all subject to Spanish taxation.

In Spain, taxes are divided between state and regional administrations. This means that income tax, property tax, wealth tax, capital gains tax, and inheritance tax rates in Spain might vary across the country. Workers in Spain must also contribute to Spanish social security levies, and the Spanish fiscal year spans from January 1 to December 31.

So, let’s get into the nitty-gritty and take a look at what taxes you may need to pay in Spain and the changes in 2023.

Who is required to pay tax in Spain?

Paying taxes in Spain as a resident

If you have been residing in Spain for six months (183 days) or more of the calendar year (not necessarily consecutively), or if your major vital interests are in Spain (for example, your family or business), you are considered a Spanish resident for tax reasons.

In the following situations, you must file a Spanish tax return and pay Spanish income tax on your international income as a Spanish resident:

• Your annual salary from work exceeds €22,000 per year.
• You work for yourself or own a business in Spain.
• You earn more than €1,000 in rental income each year.
• You earn more than €1,600 per year in capital gains and savings.
• It is your first year in Spain claiming tax residency.

you are also required to declare all foreign assets worth more than €50,000 using Modelo 720, or Form 720. Your taxable income is the revenue remaining after deductions for social security contributions in Spain, pension, personal allowance, and professional charges. Taxation in Spain is progressive.

Paying taxes in Spain as a non-resident

You are a non-resident if you live in Spain for less than six months (183 days) in a calendar year, meaning you only need to pay taxes on income earned in Spain. Your income is taxed at a flat rate with no allowances or deductions. If you are a non-resident and own a property in Spain, whether you rent it out or not, you must file a tax return and pay both Spanish property taxes for non-residents (or imputed income tax on your property) and local Spanish property taxes.

Dual taxation agreements

To minimise double taxes, Spain has negotiated numerous treaties with foreign countries. The Spanish tax administration keeps an up-to-date list of treaties.

Paying income tax in Spain

In Spain, personal income tax is known as Impuesto de Renta sobre las Personas Fisicas or IRPF. Spanish income taxes are divided into two categories – state and area – and the 17 autonomous regions determine their own tax rates and responsibilities.

As a result, while the government has decreased taxes and simplified income tax bands, the tax structure in Spain remains complex. Simply put, the amount of taxes you pay in Spain is determined by where you live.

Tax rates in Spain 2023

The tax rates proposed for 2023 are as follows:

• An income of up to €6,000 – 19 per cent
• An income between €6,000 to €50,000 – 21 per cent
• An income between €50,000 to €200,000 – 23 per cent
• An income between €200,000 to €300,000 – 27 per cent
• An income of over €300,000 – 28 per cent

Income tax on savings is levied at the following rates:

• 19 per cent for the first €6,000 of taxable savings income
• 21 per cent for the following €6,000 – €50,000
• 23 per cent for the following €50,000 – €200,000
• 26 per cent for any savings income even more than €200,000

Registering to pay tax in Spain as a resident and non-resident

Whether you are a resident or a non-resident, you must register with the Spanish tax administration to pay taxes in Spain. To begin, you’ll need your Foreigner’s Identity Card (NIE) number, which you can obtain within 30 days of your arrival in Spain from the local Foreigner’s Office (Oficina de Extranjeros) or a police station.

To register your duty to pay Spanish tax as a resident or non-resident for the first time, or to change your details, complete Modelo 30.

How to file your tax returns in Spain

In the first year of tax residency, everyone is required to file a Spanish tax return. After the first year, you don’t need to file a Spanish tax return if your total income is less than €8,000 and your bank interest or investment income is less than €1,600. The same is true if your rental income is less than €1,000 or you make less than €22,000 as an employee, as your employer will have deducted your Spanish income tax.

The fiscal year runs from January 1 to December 31 in Spain and eligible residents must file tax returns between April 6 and June 30 of the following tax year. In Spain, there are no extensions for filing tax returns. See Modelo 100 for a Spanish income tax declaration.

You may learn how to complete and submit your Spanish tax return, as well as information on prior tax returns and payments made. You will need your digital identification certificate to use this service.

The process of managing your tax declarations will be made much easier with the assistance of accounting and tax consulting services.

Taxes in Spain for non-residents

For non-residents, the general flat income tax rate is 24 per cent, or 19 per cent if you are a citizen of a country in the European Union or the European Economic Area.

Other income is subject to non-resident taxes in Spain at the following rates:

• Capital gains from transferred assets are taxed at a 19 per cent rate.
• Investment interest and dividends are taxed at 19 per cent, although are usually lower due to double taxation agreements. EU nationals are exempt from paying interest tax.
• Royalties are taxed at a rate of 24 per cent.
• Pensions are taxed at graduated rates ranging from 8 per cent to 40 per cent.

To apply for income tax as a non-resident of Spain, obtain Modelo 149 first.  The Modelo 150 form is then used to make your income tax declaration. If you own a non-resident property, you must file your tax return using Modelo 210.

Tax deductions and allowances in Spain for residents

Certain tax breaks are available to Spanish residents. The basic personal allowance is €5,550 for those under the age of 65, €6,700 for those over 65, and €8,100 for those over 75.

If you have children under the age of 25, you can claim the following supplementary allowance:

• The first child costs €2,400.
• The second child is €2,700.
• The third child is €4,000.
• The fourth child is €4,500.
• An additional €2,800 payment is available for each child under the age of three.

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

In general, you can deduct taxes in Spain for:

• Contributions to the Spanish social security system.
• Contributions to Spanish pensions.
• The expenditures of purchasing and remodelling your primary residence.
• Donations to charities.

Pension contributions for tax purposes were cut from €8,000 to €2,000 under reforms implemented in 2021. This limit, however, remains at €8,000 as long as the increase is from company contributions. Furthermore, the increase cannot exceed 30 per cent of the individual’s net income from employment and economic activity for the tax year.

Property tax in Spain

If you own a property in Spain and live in it on January 1 of each year, you must pay a local property tax, also known as Impuesto sobre Bienes Inmuebles (IBI). The amount is calculated by multiplying the rental value by a tax rate imposed by the local government. This applies to both non-residents and locals. There is also basura, which is a tax on rubbish collection. Non-resident property owners may also be required to pay flat-rate imputed income tax on potential rental revenue from Spanish property.

When you sell a home in Spain, you must pay a property transfer tax, known as Impuesto Transmisiones Patrimoniales (ITP). When a property is sold, the local government levies a tax on the rise in land value, known as the plus valia.

Capital gains tax in Spain

The capital gains tax in Spain (the tax on income from the sale of real estate or other investments) is as follows:

• First €6,000: 19 per cent.
• €6,000 – €50,000: 21 per cent.
• €50,000 – €200,000: per cent.
• Greater than €200,000: 26 per cent.

If you purchased a home before 1994, you may have to pay more tax than before because the taper tax on capital gains tax has been eliminated. If you are over the age of 65 and selling your primary home, or if you are under 65 and selling your main home to acquire another main property in Spain, you may be eligible for an exemption.

Wealth tax in Spain

In Spain, wealth tax is levied on the value of your assets on December 31st of each year. Assets worth more than €10 million can be taxed up to 3.5 per cent, though rates vary based on area.

Everyone is entitled to a normal €700,000 tax-free allowance, and homeowners are entitled to an additional €300,000 against the value of their primary dwelling.

Gift tax and inheritance in Spain

When it comes to inheritance and gift tax in Spain, non-residents from the EU/EEA have been taxed the same as residents since 2015. The overall rate is roughly 1-7 per cent, depending on the location. Prior to the adjustment, non-residents paid roughly 80 per cent more than locals. The Spanish Supreme Court declared that non-residents who paid the higher rate in the past are entitled to a refund.

Some areas, like Andalucia, modified their inheritance and gift tax regulations in 2017. As a result, several families avoided paying inheritance tax. More information can be found in the legislation of your individual location. Because the Spanish tax system is complex, you should get professional advice on these issues.

VAT (IVA) in Spain

In Spain, there are three levels of value-added tax (VAT), often known as Impuesto sobre el Valor Añadido (IVA):

• 21 per cent on goods and services in general
• 10 per cent off passenger transportation, toll roads, amateur sporting events, exhibits, health items, non-basic meals, waste collection, pest management, and wastewater treatment.
• 4 per cent off basic goods, medicines, publications, and newspapers.

In 2021, the government raised IVA on alcoholic beverages and beverages containing additional natural and derived sweeteners and/or sweetening additives from 10 per cent to 21 per cent. The tax increase exempted infant milk and drinks considered to be food supplements for those with special dietary needs.

All IVA payers (mainly freelancers) must submit all invoice data online within four days of issuance and no later than the 16th of the month after issuance.

Corporate tax in Spain

The general corporate tax rate is 25 per cent in Spain. From 2022, newly founded businesses will pay 10 per cent for the first two years of operation, down from 15 per cent in 2021. Profits held in a special reserve for five years may be eligible for a 10 per cent tax discount.

Tax returns must be filed within six months, and 25 days of the end of the accounting period. Payment is made in three installments in April, October, and December, with each installment typically equaling 18 per cent of the tax due.

The figures in this article are correct as of March 2023.

We advise you always seek expert counsel from a Spanish financial specialist on your unique situation to make sure you are paying the correct taxes.

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