Savanna Hoffman
The Spanish tax system is complex, with various types of taxes and rates that depend on an individual's residence status and income. Spanish tax residents are taxed on their worldwide income, while non-residents are taxed only on income from Spanish sources. Expats and foreign nationals are subject to different tax requirements, and may benefit from certain tax exemptions. Spanish residents with overseas duties may apply a foreign earned income exemption of up to €60,100. Students who are considered tax residents in Spain, either by spending more than 183 days in a calendar year in the country or having their primary interests there, are generally required to pay taxes on their worldwide income. This includes income from employment, self-employment, business, and rental properties. However, tax rates and exemptions may vary depending on the specific circumstances of the individual.
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What You'll Learn
Spanish tax residents vs non-residents
The Spanish tax system is divided into two main categories: Spanish personal income tax (PIT) and Spanish non-residents' income tax (NRIT). Those who have been tax residents in Spain for a year are required to complete a Spanish tax declaration, or Modelo 100, between April 3 and July 1 of the following year.
Spanish Tax Residents
Spanish tax residents are liable to pay income tax on their worldwide income, including dividends, interest, and capital gains. Residents are taxed at progressive rates from 19% to 28%, depending on the level of income. Residents with overseas duties may apply a foreign earned income exemption of up to €60,100. Additionally, residents are required to pay capital gains tax on the disposal of any worldwide assets.
Spanish Tax Non-Residents
Non-residents of Spain, on the other hand, are only taxed on their Spanish-source income and capital gains realised in Spain. They are subject to NRIT, which is charged at a fixed rate with no personal allowances or deductions. Non-residents with taxable income must file an income tax return for each type of income, and the deadlines vary depending on the income type.
Determining Tax Residency
Determining tax residency in Spain is crucial, as it significantly impacts the taxes owed. Individuals are considered Spanish tax residents if they meet any of the following criteria:
- Spending more than 183 days in Spain within a single calendar year
- Having primary professional activities or employment in Spain
- Having a spouse or dependent children living in Spain
Tax Exemptions and Treaties
It is important to note that several tax exemptions may apply to expatriates, and Spain has double tax treaties with countries like the UK to prevent double taxation. Additionally, there are tax-efficient vehicles that individuals may benefit from to reduce unnecessary tax payments.
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Taxable income
Taxation in Spain can be quite complicated, with the potential for severe penalties for those who fail to declare and pay the correct taxes. The Spanish tax year runs from 1 January to 31 December, and tax residents are required to complete a tax declaration between 3 April and 1 July the following year.
There are two types of taxable income in Spain: general taxable income and savings taxable income. General taxable income includes salaries, rental income, capital gains, business income, and interest. Savings taxable income includes dividends and other income generated from holding interests in companies. Taxable income for non-residents without a PE is generally the gross income stipulated in Spanish PIT law, and no reductions are applicable.
For residents, taxable income is subject to PIT and is taxed at progressive rates that vary based on personal circumstances such as the number of dependents, marital status, and age. Lower rates apply to income up to €12,450, while income above €300,000 is taxed at the top rate of 47%. These rates do not include regional tax surcharges, which can vary across Spain's autonomous communities. Each autonomous community can modify certain tax brackets or deductions, so the actual rates may differ depending on the region.
Non-residents are subject to NRIT only on their Spanish-source income, which is charged at a fixed rate with no personal allowances or deductions. PIT is not levied on employment income obtained by tax residents for work carried out outside Spain, up to €60,100, if certain requirements are met.
Spain offers a special tax regime for expats, called the Beckham Law, which allows qualifying foreign workers to be taxed at a flat rate of 24% on Spanish income for up to six years instead of progressive rates. Contributing to a pension plan also reduces your taxable base, and donations to registered charitable organizations are tax-deductible.
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Tax exemptions
The Spanish tax system is divided into two categories: Spanish personal income tax (PIT) for tax residents, and Spanish non-residents' income tax (NRIT) for non-residents who earn an income in Spain. As a general rule, tax residents in Spain are liable to pay income tax on their worldwide income, whereas non-residents are only taxed on their Spanish-source income.
Exemptions for Tax Residents
For tax residents, there are some exemptions to the PIT. Employment income obtained by tax residents for work carried out outside of Spain is exempt from PIT, up to a limit of 60,100 euros. This is only applicable if the work is carried out for a company that is not a tax resident in Spain, and if the country where the work is carried out has an identical or similar income tax to Spain. Interest is also exempt from PIT for EU residents.
Exemptions for Non-Tax Residents
Non-residents are exempt from paying PIT. However, they are still liable to pay NRIT on their Spanish-source income. Non-residents without a PE (permanent establishment) are taxed on their gross income, with no reductions. However, in the case of services, technical assistance, installation and assembly work, and other economic activities carried out in Spain without a PE, taxable income is calculated as the difference between gross income and the expenses generated by staff and materials.
Exemptions for Students
There are some tax exemptions in Spain relating to educational activities. School canteen services are exempt from tax when provided directly by teaching or educational centers to their students. Distance learning courses are also subject to tax, but this exemption does not include the delivery of goods such as books or videos.
Double Taxation Treaties
Spain has signed double taxation treaties (DTTs) with other countries, including the UK, to prevent individuals from paying tax twice on the same income. DTTs normally establish lower tax rates.
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Tax treaties
The Spanish system for direct taxation of individuals consists of two personal income taxes: Spanish Personal Income Tax (PIT) and Spanish Non-Residents' Income Tax (NRIT). Residents in Spain are generally subject to PIT on their worldwide income, regardless of where it is generated. Non-residents are subject to NRIT only on their Spanish-source income.
Spain has signed double tax treaties with several countries, including the UK and the US. These treaties are designed to prevent double taxation and fiscal evasion. For instance, under the Spain-UK double tax treaty, individuals should pay tax in either the UK or Spain, unless the treaty gives the right to tax in both countries. In that case, the country of residency will avoid double taxation.
The Spain-US tax treaty, which came into force in 2019, includes a clause stipulating the conditions residents in each country must meet to be entitled to the benefits of the convention (limitation on benefits). This treaty also eliminates the previous source-state withholding on cross-border payments of interest and royalty payments made by Spanish or US companies to residents in the other state. Dividend distributions are also exempt from withholding taxes under certain conditions.
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Tax payments
Taxation in Spain is handled by the Agencia Tributaria, or Spanish tax agency. The Spanish tax system operates through self-assessment. The Spanish tax year runs from 1 January to 31 December each year. Spanish tax residents are required to complete a Spanish tax declaration, or Modelo 100, between 3 April and 1 July in the following year. Taxes for a given calendar year must generally be filed and paid by 30 June of the following year. You can pay in two instalments: one by 30 June and the second by 5 November.
There are two types of taxable income for Spanish PIT purposes: general taxable income and savings taxable income. General taxable income includes anything that doesn’t fall into the savings category, such as employment-related income, pensions, and rental income. Savings income includes capital gains from transfers of assets, dividends, interest, and life and disability insurance payouts.
Spanish tax residents are subject to tax on dividends, interest and capital gains (regardless of the holding period) at progressive rates from 19% to 28% depending on the level of income. Residents in Spain are generally subject to PIT on their worldwide income, regardless of where it is generated, which is taxed, following statutory reductions, at progressive rates. Non-residents are subject to NRIT only on their Spanish-source income and on capital gains realised in Spain only. Non-residents’ income tax rates are generally lower: General: 24% (or 19% for nationals of EU member states).
Since Spain taxes residents on their worldwide income, it has dual tax arrangements with several countries, which means individuals don't have to pay tax in their home country and in Spain for the same income source. In 2006, Spain also signed a double tax treaty with the UK, which means that individuals should only pay tax in the UK or in Spain, unless the tax treaty gives the right to tax in both countries, in which case the country of residency will avoid double taxation.
Spanish residents with overseas duties may apply a foreign earned income exemption of up to €60,100 if certain conditions are met. Irregular employment income (earned over a period that is longer than two years) may be eligible for a limited 30% reduction if certain conditions are met. Self-employment and business income are taxed at the applicable rates. Relief for losses may be available, subject to the limits and conditions established by law.
Since March 2013, if you live in Spain and own assets in excess of €50,000 outside of Spain, you are required by law to declare those assets by 31 March each year. Failure to correctly declare any offshore assets could incur severe penalties or even a criminal charge if the tax avoidance is in excess of €120,000.
As for students, they are not mentioned specifically in the sources. However, if they are considered tax residents in Spain, they would be subject to the same tax requirements as other tax residents. This means that they would need to pay taxes on their worldwide income, including any income from employment, self-employment, or business activities. If they are not considered tax residents, they would only be required to pay taxes on any Spanish-source income, such as rental income from a Spanish property.
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