If you are planning to buy a home and start living in Spain, understanding your tax liabilities is crucial. Knowing the taxes in Spain will not only help you abide by local regulations but also understand your tax exemption rights as a foreigner. Whether you are arriving in Spain for work, retirement, or investment, knowing the tax types will help you avoid unexpected penalties.
Whether you are a resident or not, you must pay taxes when you have financial ventures in the country. This guide provides a comprehensive overview of taxation in Spain, covering key areas such as income tax, wealth tax, capital gains tax, and special allowances for residents and non-residents in Spain.
Overview of the Spanish Tax System
Spain puts different tax liabilities on citizens, residents, and non-residents. If you spend more than 183 days within a calendar year in Spain, you are considered to be a foreign tax resident. If you are not living in the country but earn any income or have investments in Spain, you are responsible for the non-resident taxes.
Non-residents are taxed on their Spain-sourced income while residents are taxed on their worldwide income. All tax residents must report their worldwide income and pay taxes accordingly. Penalties for not reporting income and paying taxes can be severe. Therefore, it is crucial to understand your obligations and responsibilities as a foreign tax obliger in Spain.
Main Tax Categories for Foreigners in Spain
Spane has various types of taxes that apply to both residents and non-residents. Understanding the main tax categories is essential to living, working, and investing in the country. The main tax types include:
Personal Income Tax (IRPF) in Spain
Personal income tax in Spain applies to all income from employment, retirement, investment, rent collection, and business profits. For residents, income tax is calculated on worldwide income. The tax rates are progressive and depend on your total income. Here are the tax rates for personal income:
- 19% for income of up to EUR 6,000
- 21% for income between EUR 6,000 – EUR 50,000
- 23% for income between EUR 50,000 – EUR 200,000
- 27% for income between EUR 200,000 – EUR 300,000
- 28% for income above EUR 300,000
Non-Resident Income Tax (IRNR) in Spain
If you have any Spain-sourced income, you will have tax liabilities, regardless of your residency status. Non-residents are obligated to pay a flat tax of 24%. However, on-residents from EU countries can benefit from a reduced tax rate of 19%.
Additionally, specific income types are subject to flat tax rates. The rate is 19% for dividends. Likewise, the tax amount for pensions is equal to 8% to 40% of the income.
Wealth Tax in Spain
Wealth tax in Spain applies to the total value of all assets. While residents are taxed based on their global assets, non-residents are taxed only on assets located in Spain. All wealth over EUR 7,000 is obliged with tax payments, varying from 0.2% to 3.5%.
Capital Gains Tax
The tax on capital gains is charged for profits in real estate, stocks, and other investments. Non-residents are obliged with a flat rate of 19%. The tax rate for residents depends on their profit:
- 19% for profits up to EUR 6,000
- 21% for profits between EUR 6,000 – 50,000
- 23% for profits between EUR 50,000 – 200,000
- 26% for profits above EUR 200,000
Property Taxes in Spain
All homeowners are entitled to pay a tax on property in Spain. There are various types of property tax in Spain. The key property taxes include:
- Property Ownership Tax (IBI): The property ownership tax applies to all kinds of real estate. The tax amount is determined by the property’s size, location, age, and proximity to amenities. The IBI rate often ranges from 0.4% to 1.3% of the property’s real value.
- Transfer of Assets Tax (ITP): This tax is paid by the buyer then transferring a property. The tax rate is based on the property’s real value, typically ranging from 6% to 10%.
Corporate Tax
All foreign businesses that operate in Spain have tax obligations. The standard corporate tax for foreign companies is 25% of profits. New companies can benefit from a reduced tax rate of 15%.
VAT (IVA) in Spain
All tax residents in Spain are entitled to pay Value Added Tax (IVA) for the services and goods they claim. Spain’s IVA tax is typically 21%. Certain items such as food, drinks, accommodation, and public transport have a 4% or 10% VAT tax in Spain.
Spain has a tax-free system for those who spend 183 days or fewer in the country. The system allows non-residents to get a refund of the VAT paid on their purchases.
Tax Benefits for Foreigners in Spain
Tax residents in Spain can take advantage of double-taxation treaties, tax allowances, and tax exemptions. These benefits depend on various factors such as your country of citizenship, age, and family situation. Spanish taxes for non-residents are not eligible for the allowances or exemptions.
For example, the income threshold increases for residents over 65 and 75 years of age. You may also benefit from tax allowances depending on your marriage, children, and disability situations, or if your elderly parents or grandparents live with you.
Spain has double-taxation treaties with 95 countries, allowing foreign residents to avoid paying the same tax twice. Some of these countries include Germany, France, Georgia, Greece, Australia, Cyprus, Brazil, Bulgaria, Canada, China, Turkey, UAE, the UK, and the USA.
Understanding these tax benefits is particularly important if you are planning to make a property investment in Spain. If you have any questions about the tax system in Spain for residents and non-residents, you can reach out to our experts. Whether you want to live or invest in Spain, our legal professionals are here to help you. Call us today and claim a personalized guide to Spain’s tax system!
