Paying income tax in Spain

Whether you’ve moved to Spain permanently or simply visit once in awhile, you may have to pay Spanish income tax.

Spain has relatively low tax rates and various allowances, which has helped it become a popular destination for expats. However, the Spanish authorities are very serious about collecting taxes. So do be prepared, or you risk paying hefty fines.

Read on to see what you need to know about paying income tax in Spain.

What income is taxable in Spain?

There are two types of taxable income in Spain: general income ( renta general ) and savings income ( renta del ahorro ).

General income is all the money you earned during the tax year. It includes your salary, employment benefits and business income.

This income is taxed at different rates, depending on how much you earned during the year. There are also a number of deductions you can make, resulting in less tax.

Savings income is any other income you may have. It includes interest, dividends and income from investments, including life insurance policies, as well as income from transfers of assets (capital gains). This income is taxed at fixed rates; and you cannot make any deductions or allowances.

Who has to pay Spanish income tax?

Obviously, if you’re a Spanish resident, you have to pay income tax.

You may also have to pay tax on some of your income if you’re a non-resident but meet specific criteria.

Resident income tax

If you’re a resident, you have to pay income tax at Spanish rates on all your income, even if it originates outside Spain.

You’re considered a Spanish resident for tax purposes if you meet one of the following criteria:

1. you were physically present in Spain for more than 183 days in a given tax year; or
2. your centre of economic or vital interests is in Spain.

There are no hard and fast rules on how your centre of economic or vital interests is determined. However, some circumstances are considered give-away signs. Fulfill one or more of these criteria, and the government will assume you’re a resident. It will then be up to you to prove you aren’t. These include:

1. your partner, who you aren’t separated or divorced from, lives in Spain
2. your minor children live in Spain
3. you consume Spanish utilities on a regular basis
4. you make regular use of a resident Spanish bank account or credit card
5. you have a car with Spanish plates
6. you have a Spanish mobile phone
7. you’ve used the Spanish public healthcare system
8. you’ve registered an address with the local authorities

Non-resident income tax

If you’re a non-resident, you’ll only have to pay tax on income generated in Spain. This includes any income with a Spanish connection, such as business interests, bank deposits, shares and other investments, and also real or potential income from property.

Should I file a tax return?

You have to file a tax return if you’re a Spanish resident and also if you’re a non-resident. You can do this online here.

You don’t need to file a tax return if you earn less than €22,000 per year, as long as your entire income comes from one single source. However, you’ll need to file if you think you’ve paid too much tax and want a refund (more on this later).

What are the income tax rates?

Spanish income tax, or IRPF, is collected by the Agencia Tributaria. However, only half of it is due to the state government, while the rest is due to the regional government.

Income tax due to the state government is calculated at the same rates all over Spain. The rates for the year ended 31st December 2016 are the following:

Income Range	State Income Tax Rate (%)
€0 - 12,450	9.5
€12,450 - 20,200	12
€20,200 - 35200	15
€35200 - 60,000	18.5
€60,000+	22.5

Source: www.spainaccountants.com as at April 2017

The second half of your income tax is calculated according to rates set by the regional government.

There are 17 regions - called autonomous communities - in Spain, and each have their own individual tax rates.

The rates are usually the same as state government rates. That said, there are some exceptions, so it’s best to confirm the rates with your regional government. Madrid, for example, has lower regional tax bands, whilst Catalonia has the highest rates in Spain.

Tax free allowances

No tax is payable on certain portions of your income. These include a personal allowance, called minimo personal y familiar (minimum personal and family allowance), a maternity allowance, a dependent allowance and allowances for low income employees.

Allowances are adjusted every tax year. Certain regions may also have different allowances for their share, so you should always confirm the amounts with your regional government.

Let’s have a look at each of these allowances, as adjusted for 2016.

Minimo Personal Y Familiar (personal allowance)

The Spanish government considers this portion of your income as that sum you need to meet your basic needs and those of your family, so it’s tax free.

The personal allowance will vary depending on your age:

Age	Personal Allowance
Under 65	€5,550
65+	€6,700
75+	€8,100

Source: www.spainaccountants.com as at April 2017

Maternity and child allowances

You can deduct a maternity allowance of €2,800 from your taxable income for every child under 3.

You can also deduct a child allowance for every child under 25 in the house. The allowance varies depending on the number of children.

No. of children	Allowance
First child	€2,400
Second child	€2,700
Third child	€4,000
Fourth child and upwards	€4,500

Source: www.spainaccountants.com as at April 2017

Disability allowance

You can deduct a disability allowance if you care for a parent or child with a disability. The allowance is €3,000 per person per year, but can go up to €9,000 per person per year if you can prove that the degree of disability is more than 65%.

Elderly dependent allowance

If an elderly relative lives with you and your total income is less than €8,000 per year, you can deduct an elderly dependent allowance.

Age	Allowance
65+	€1,150
75+	€2,550

Source: www.spainaccountants.com as at April 2017

Allowance for low income earners

If you’re an employee on a low salary, you can deduct the following additional allowance from your taxable income.

Income	Allowance
Up to €11,250	€3,700
€11,250 to €14,450	3,700 x 1.15625 x (total income - 11,250)

Source: www.spainaccountants.com as at April 2017

Tax rates on savings income

Unlike general income, savings income is taxed at a fixed rate, without any allowances or deductions. The rates for 2016 are:

Amount	Tax Rate (%)
up to €6,000	19
€6,000 - €50,000	21
€50,000+	23

Source: www.spainaccountants.com as at April 2017

Non-resident tax rates

Non-resident general income is taxed at a flat rate of 24%. If you’re an EU citizen, the rate is 19%.

Savings income is taxed at a flat rate of 19%. However, EU citizens don’t pay tax on interest.

Tax exemptions for residents

As a general rule, you have to pay Spanish income tax on all your worldwide income if you qualify as a resident.

However, you may be exempt under certain circumstances.

Residents working abroad

You may be exempt from Spanish income tax, even if you’re a Spanish resident, if you meet the following criteria:

1. your work is effectively carried out outside Spain
2. your employer is a non-resident
3. you earn less than €60,100 a year
4. you pay tax on this income in another country

Beckham’s Law

Beckham’s Law is a tax exemption named after English footballer David Beckham, one of the first expats to take advantage of it when it became law in 2005.

This rule allows you to be considered a non-resident for tax purposes - and pay tax only on income you earn in Spain - for up to 5 years, if you meet the following criteria:

1. you weren’t a Spanish tax resident in the last ten years
2. you’ve relocated specifically to accept a job offer from a Spanish employer
3. you carry out your duties in Spain 85% of the time
4. you earn up to €600,000 a year

In order to benefit, you’ll need to apply for this exemption within 6 months of moving to Spain. If accepted, you’ll pay a flat rate of 24.75% on your Spanish earnings.

Ironically, the law has recently been modified so that professional sports players can no longer benefit.

Double taxation

You may still be liable to pay tax on some of your income or other assets in another country, even though you’ve already paid tax in Spain.

In order to avoid such situations, Spain has double taxation agreements with more than 80 countries around the world.

Different rules will apply depending on what's been agreed in the particular treaty, so it’s best to discuss your situation with a Spanish tax law professional. However, you will normally either qualify for a reduced rate or be exempt from paying tax altogether on income you’ve declared in another country, provided there’s a double taxation treaty in place.

How do I apply for a tax refund?

You can find out whether you’ve paid too much tax as soon as you finish filling your tax return, as it will automatically show any refund due.

If you’re due a refund, simply include your bank account number in your return and the tax authorities will pay the amount directly. You don’t have to attach any supporting documentation to your request. However, the tax authorities may get in touch and ask for documents at a later stage.

Unfortunately, the Spanish authorities tend to take their time to pay tax refunds. You can expect to wait up to 18 months.

If at anytime while you are going through this tax process, if you find the need to transfer money from a bank account in a different country consider using Transferwise. They ensure you get real mid-market rate applied to your transfer, as they not only use this rate but they also save you on international transfer fees by using local transfers on the sending and receiving end.