Your taxes in Spain: Spain has made a major design change in its income tax system to take the country into the new millennium. A lot of the rates have dropped, especially for low incomes.
The Spanish tax ministry, which is known as the Agencia Estatal de Administración 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.
Let’s take a look at your possible 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 on your total world wide 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, such as letting out your flat.
You can read all about these principles in a Spanish Ministry of the Treasury booklet, called Taxation Regulations for Foreigners. (Publication F-9) If your world-wide 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 a asesor fiscal or a gestor. They will charge you a fee from € 60,- up, depending 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. On top of this there is the patrimonio tax, which is the wealth tax.
Residents and non-resident property owners are liable for this. Up to € 161.380,-, this is only 0,2 % of the value of the property. When you sell your property and you are a non-resident, you will have to pay 35% on the capital gains from the sale of the property.
As a resident you are liable for this tax as well, but there are a couple of breaks. If you reinvest the money 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 the non-resident property seller actually pays his capital gains tax, instead of taking the money and run, Spain has put into force a requirement that 5% of the declared purchase price must be deposited with Hacienda when property is sold by a non-resident. As a last note: Use expert advise at all times, as to avoid disappointment and fines by the government.
Even Spaniards use tax consultants to minimize their liabilities, and so should foreigners who live in Spain, whether they are working or retired.
Persons who are retired and living in Spain can draw their pensions directly in Spain. With very few exceptions, these people will then be subject to paying Spanish income tax instead of income tax at home.
For those who live in Scandinavian countries, it comes as a relief to pay Spanish income tax instead of their own. Most Europeans find, however, that Spanish rates are just about the same.
Property owners, even if they are not resident in Spain, find that they are subject to some annual Spanish taxes on their property.
These include the non-resident property owner’s imputed income tax, for example, under which two cent of the value of your property is treated as imaginary income to you.
The non-resident is taxed at 25 per cent of this two per cent. He must also pay Spanish capital assets tax, or “wealth” tax, on the value of the property.