Tax in Spain

Spain has made changes to its income tax system in order to take the country into the new millennium.

A lot of rates have dropped, especially for low-income brackets. The Spanish tax ministry, which is known as the Agencia Estatal de Administracion Tributaria, but still called ‘Hacienda’ by many, has been making the tax-payer’s burden a lot easier, as it is now a lot more user-friendly, but this does not mean that Big Brother is not watching you.
When it comes to declaring your taxes in Spain we strongly recommend that you seek independent expert advice.

Tax obligations in Spain

When you stay in Spain for 183 days or more in one calendar year, you become legally liable for Spanish income tax, whether you are a formal resident or not. When you take out a residency, you become liable for your total worldwide earnings, although regulations provide relief on double taxations. (Pensioners who have paid tax on their income in their home country do not have to pay again in Spain).

Even if you are not a resident of Spain and spend less than 183 days in the country, you are still liable for income tax on any Spanish income you might have made by say the letting of an apartment or villa. You can read all about these principles in the Spanish Ministry of the Treasury booklet, called Taxation Regulations for Foreigners.

If your worldwide income is more than €7,225 per year you will have to make a tax declaration. It is best to consult a tax adviser, either an Asesor Fiscal or a Gestor. What they will charge you will depend on the complexity of your tax return. If you are a resident and you have two homes in Spain you will have to pay the property owners imputed income tax, where 2% of the value of your 2nd home is added to your income. You will then have to pay income tax on the total. If you are not a resident you will have to pay this tax on your 1st home.

Patrimonio Tax (Wealth tax)

On top of this you will also need to consider the patrimonio tax, otherwise known as the wealth tax.

Residents and non-resident property owners are liable for this tax. Up to €161,380, this is only 0,2 % of the value of the property.

Capital Gains Tax (CGT)

When you sell your property and you are a non-resident, it used to be that you paid 35% on the capital gains from the sale of the property. However, the EU declared this to be unfair and now foreigners pay the same as Spaniards.

If you reinvest the capital gained in another property as your principal residence, you will get relief from this tax up to the amount reinvested. The remainder of the profit will be taxed as an ‘incremento de patrimonio’, a capital gain, as part of your income. The maximum percentage, however, can not exceed 20%.

In order to make sure that non-resident property sellers actually pay the capital gains tax, instead of running off with it, Spain has put into force a requirement that 5% of the declared purchase price must be deposited with the Hacienda when the property is sold by a non-resident.

Inheritance tax and Gift tax

If you own property or other investments in Spain and one day would like to pass these on to your family, it’s worth reading our page on Inheritance tax or Gifts tax liabilities that may be waiting down the road.

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