Tax In Spain

As little as twenty years ago, tax evasion was a way of life in Spain but in recent years the Spanish tax system has been overhauled.

Although overall taxation is lower in Spain than the E.U. average, the gap is closing and it is important that you understand your tax position before making any decisions, be it moving permanently to Spain, working there or just owning a holiday home there. As in most countries the tax system is complex and it is advisable that you consult a tax advisor who is familiar with taxation laws both in the U.K. and Spain and can advise you on your individual situation and use the tax laws to your advantage (Declaracion de la Renta).
The Spanish tax year runs from 1st January to 31st December and the tax declaration must be filed at the tax office nearest your home between the following 1st May and 20th June.

The first point to consider is whether you are a resident of Spain for tax purposes or non resident. If you spend more than 183 days in Spain in a calendar year or Spain is considered to be the centre of your business or professional activity, you will be treated as a resident of Spain for tax purposes. This is not determined by having a residency permit. If your spouse is considered to be resident in Spain you will be presumed to be resident also, even if you do not spend more than 183 days a year in Spain, unless you can prove otherwise.

Spain has entered into Double Taxation agreements with many countries including all European countries which means that you will not be taxed twice on your income.
There is a five year statute of limitations on the collection of back taxes in Spain which means that if no action has been taken during that time to collect unpaid taxes it cannot be collected.

Main Taxes in Spain

In Spain taxes are levied by:

1. Central Government
2. Autonomous Communities (Regional)
3. Local authorities

National Taxes

National taxes in Spain are classified as follows:

1. Direct taxes on income:

• Corporate income tax
• Personal income tax
• Non resident income tax

2. On assets (individuals only):

• Net worth tax
• Inheritance and gift tax

Indirect taxes

Indirect taxes are mainly as follows:

• Value Added Tax (IVA)
• Transfer tax and stamp duty
• Excise taxes
• Customs duties on imports
• Tax on insurance premiums

Corporate income Tax

This is tax paid on the profits of companies which have been incorporated under Spanish laws, or its registered office is in Spain or its main place of management is there.
Resident companies are taxed on their worldwide income. The current corporate tax rate is 35% with certain companies benefiting from a reduced rate for lower profits.

Income tax (Renta)

• Residents – income tax is payable on world wide income.
• Non residents –income tax is payable on income arising in Spain.

The main sources of income subject to income tax are:

• Salary
• Income from property
• Income from business activities
• Income from moveable capital i.e. interest and dividends.
• Capital Gains Tax – this is payable on the profits of the sale of property and other assets located in Spain.

Net Worth Tax

• Residents – payable on the value of worldwide assets
• Non-residents – payable on the value of Spanish assets alone

This tax is payable on capital assets and is called ‘patrimonio’. A resident has an exemption of 108,182 euros or 152,253 euros if the asset is the principal residence. A husband and wife therefore have a total exemption of 300,253 euros if a property is owned jointly.

Inheritance and Gift Tax

Inheritance and gift tax, commonly known in the U.K. as IHT, applies to Spanish resident heirs, beneficiaries and donees and is charged on all assets received (located in Spain and abroad), Non resident beneficiaries are taxed on assets received in Spain. This is a complex subject and professional advice should be obtained to ensure that you fully understand the situation regarding your assets in Spain, as well as those in the UK as there is no double taxation treaty covering inheritance tax between the U.K. and Spain. It is important to note that U.K. IHT rules impose a tax burden on those deemed to be domiciled in the U.K. as opposed to being a resident there, and it is important to establish your status prior to leaving the U.K.

Value Added Tax or IVA

This is payable on a wide range of goods and services. The rates are as follows:
16% – applicable to most goods and services
7% – applicable to items including human and animal food stuffs (excluding alcohol), water, pharmaceutical products, hotels and restaurants, theater and cinemas.
4% – applicable to items including bread, flour, milk, books and newspapers.
0% – applicable to items including insurance, financial service, health and education.

Spanish tax rates are reasonably low at present and there are many tax concessions and allowances. For up to date rates and allowances please consult the Tax Agency (Agencia Tributaria) who can be contacted as follows:

• Website: www.aeat.es/
• Queries – telephone: 900 333555
• Appointments – telephone: 901 223344
• Online service – telephone: 901 336633