We solve the main questions related to taxes in Spain
As specialized lawyers we have solve many questions related with taxes in Spain for our expats clients.
We want to share our experience with you to achieve better understanding of the Spanish tax system, your rights and obligations.
Who has to make a Spanish tax declaration?
With very few exceptions, anyone resident in Spain (more than 183 days) for tax purposes and with any income or capital gains anywhere in the world has to file a tax return. Non-resident property owners are also obliged to file tax returns.
The cut-off point is 14.000€ under these circumstances:
- The income has not been taxed at source (pensions from abroad).
- The income comes from more than one source (e.g. two jobs or two pensions or one of each).
This limit goes up to 22.000€ in any year in which you only receive income from one source and it derives from employment or pensions, including those from overseas as long as they are being taxed monthly in Spain. However, if you do obtain this type of income from more than one source but the amount received by the secondary sources does not go over 1.500€, then you are able to keep applying the 22.000€ limit. This last limit is even applicable to pensions from abroad taxed at source.
This year, the periods of lockdown and restrictions in place to fight the Covid-19 Pandemic have meant that many people have received ERTEs (“a case for temporary employment & regulation file”) from the government. It is important to bear in mind that in their tax declaration this will be considered as a second source of income meaning that their limit will vary from 22.000€ to 14.000€ and they may now be liable to make a tax declaration.
In any case, a return becomes obligatory in certain circumstances however low your earnings:
- If you have a claim for double taxation.
- If you are due a refund.
- If you have made pension contributions.
- If you are claiming deductions for the cost of buying your main residence.
- If you have capital gains or income above certain limits.
Remember that it may be in your interest to make a tax return when your earnings are low, for example, if you have worked for only part of the year and may, therefore, be due to a rebate because your personal allowances exceed your income.
What income is taxed?
If you are a resident in Spain, you will be taxed for your worldwide income and will be obliged to file income tax returns.
- Earnings from work (wages, salaries, pensions, unemployment income, etc.)
- Earnings from liquid capital (share dividends, account interests, etc.) and from real estate capital (from the leasing of real estate, etc.)
- Earnings from economic activities (employers, professionals, etc.)
- Net gains and capital gains loss (by transfer of goods, some prizes, etc.)
- Legally established allocations on income from the ownership of some properties, other than the home that is leased, etc.
- Government grants (if any).
Also, there are advantages of being a fiscal resident in Spain especially when applying the Inheritance Taxes.
What is the minimum income to be liable for the Spanish Income tax?
- Minimum exemption per taxpayer: 5.550€ annually.
- Over 65 years old: 6.700€ annually.
- Over 75 years old: 8.100€ annually.
In addition, employment income and pensions have a minimum exemption of 2.000€.
There is a further reduction of 5.565€ when the income is below 13.115€ and it progressively disappears until the income is above 16.825€ euros.
Classification of income:
In Spain, all income falls into one of the following categories:
- Income from work (paid employment, pensions).
- Investment income (interests, dividends).
- Income from Real Estate (rentals, second homes).
- Income from economic activities.
- Capital gains (lottery, gambling winnings, government grants, sales of assets such as homes, stocks, shares, etc.).
These revenues are then divided into two sections with two different tax rates:
- SAVINGS INCOME. This category includes most of the investment income and capital gains from the transfer of assets. From 19%:
As of this year, tax declarations for 2021 (presented between April 6th and June 30th of 2022), will include a tax rate that can reach up to 26%.
- GENERAL INCOME. This category contains the rest that does not classify as savings income. The applicable tax rate is calculated taking into account the national rate and the autonomic rate which together starts from 19,50%, as the tax scale shows below:
Again, as for tax declarations for this year, the national tax scale has included an extra tranche with a rate of 24,50% while the Comunidad Valenciana has also added two rates of 27,50% and 29,50%.
Are there any tax deductions for living in Spain?
Yes, some of the main deductions are:
- A personal tax-free allowance.
- Married couples allowance for joint declarations.
- Employment allowance.
- Child tax allowance.
- Deductions for private pension plans.
- Taxation regime applicable to paid annuity pensions or child maintenance.
Most important deductions
- Deduction of 15% on the amounts for the purchase of the main residence, acquired before 01/01/2013.
- Deduction of 10.05% on the amount paid in rental housing with the limit of 904€ (Contracts before 1 January 2015).
- In addition, the Comunidad Valenciana has a further deduction of 20% on the amount paid in rental housing with the limit of 700€ if the tenant is 35 years of age or younger.
- Double Taxation
- Pension plan contributions. You are able to deduct the lower amount between 2.000€ (previously 8.000) and 30% of your work or economic activity income (salaries, pensions…). This limit will be increased by 8,000 euros, provided that such increase is derived from corporate contributions.
Non-residents income tax liability
Non-residents are liable for this tax on any income arising in Spain, such as income from property in Spain, or income derived from any business in Spain. Property owners are taxed on their property income or value of the property. The tax base is the property cadastral value (valor catastral), which can be found on any IBI (in Alicante province SUMA BILL). If you fail to pay this tax, you will be charged and penalized by the Spanish Tax Agency.
When do I become a tax resident?
The short answer is that living longer than 183 days in Spain (including occasional trips out of the country) during any one calendar year makes you a tax resident.
In addition, if your spouse and underage children live in Spain you may also be considered a tax resident in Spain even if you work or live in another country.
Do not get confused obtaining a Spanish residency certificate (RESIDENCIA issued by the Spanish Foreign Office) with a Spanish fiscal certificate (issued by the Spanish Tax Office); the first one shows you are on the register of foreigners kept by the Police and does not equate to tax residency, although the tax authorities may see it as evidence that you are tax resident if it is ever a matter of dispute. The second one is issued once you comply with the Tax Office requirements.
When is it due?
The declaration must be filed from the 6th of April up to the 30th of June of the following year. So, in 2022 everyone will be filing their 2021 tax returns and your 2022 tax return will be filed next year in the months of April/May/June.
The tax could be paid in two-stage payments by the end of June (60%) and the beginning of November (40%) of the same year if you do it by direct debit. Normally the taxpayer’s bank details are included in the declaration and the tax is automatically taken from their account.
What if I don’t pay?
Failure to pay tax can result in penalties of between 50% and 150% of the tax owed, plus interest. Late payment can result in penalties between 5% to 20% of the tax involved, plus interest.
What information should I provide to include in the deductions?
You will need to provide the following information:
- Last Suma bills for a personal residence or leased properties.
- Proof of mortgage or loans (if any).
- Date of purchase of the main home.
- Pension plan contributions and specification of the type.
- Charitable contributions.
Other information needed to work out your income tax return
- Copy of residence and passport.
- Name and date of birth of your husband, wife or dependents.
- Last year’s income tax return.
- Certificate of Disability ratified by Social Security in Spain (if disabled).
- Copy of Deeds/cadastral value (Escritura or IBI bill).
- Bank account number with your IBAN number.
Please note that this information is for general use only. For accurate advice and guidance, we highly recommend you book an appointment with an independent lawyer. Additionally, please see the following link: Taxes in Spain.
For more information or assistance, do not hesitate to contact Pellicer & Heredia on + 34 965 480 737 or email us at email@example.com.