Taxes for foreigners in Spain
Spain is an excellent destination for foreigners from all over the world, but there is one element that, as in any other country, is not very pleasant: taxes, a situation that has been worsening due to the COVID pandemic, which caused the tax burden in Spain to increase by 1.9 percentage points in 2020 to represent 36.6% of gross domestic product (GDP)#1. And naturally, both nationals and foreigners must pay these taxes, however, it is true that there are some differences in the payment of these taxes between nationals and foreigners.
In order to know which taxes to pay, it is necessary to have some context on whether you are considered a tax resident or not, and how the tax system works in Spain. It should be noted that the tax resident status is completely independent of the immigration status of the individual.
You are a tax resident and meet one of these three requirements:
- You live in Spain more than 183 days per year (note that the days do not have to be consecutive to count as effective).
- They have economic interests in the country, which means that you carry out your professional activity in Spain, either working for a company or self-employed.
- Your spouse and/or children live in Spain.
Main taxes for foreigners in Spain
Tax the income you generate in the country, these could be the following:
- Capital gains arising, for example, from dividends or interest
- Pension contributions and benefits
- Gains generated upon the sale of real estate
- The income you earn from renting a home
- Salary obtained by working for a company or as a freelancer through your invoices
All of this income will be subject to income tax and should be included in your income tax return. However, if you are considered a tax resident in Spain, you will have to pay income tax on all income and gains you have generated worldwide, not only in Spain.
This tax is progressive and works as follows:
- Below the first €12,450 you earn, you will pay 19% income tax.
- 12,450 to 20,200, you will owe the Spanish Tax Agency 24%.
- 20.200 € a 35.200 €, 30%.
- 35.200 € a 60.000 €, 37%.
- And above €60,000, 45%.
But if you are an expatriate starting to live in Spain, you will be able to save money with the Beckham Law, since its application will enable you to pay only a flat fee of 25% of your income, never more than that. This means that you will be considered a non-resident for tax purposes.
What are the conditions that must be met in order to apply for the application of this law?
Most importantly, you must not have resided in Spain during the 10 years prior to the application process for this tax exemption. In addition, you must have an employment contract, and the work must be performed in Spanish territory (although there are certain flexibilities in this regard).
If you are a resident, as mentioned above you are obliged to pay tax on income acquired in all parts of the world, however, if you are paying tax on income acquired in another country, you are not obliged to pay again for this income in Spain, because you would be paying twice for the same income, this is possible due to the double taxation agreements so that you only have to pay tax once for the same income. For example, if you have income in Colombia and you pay taxes in Colombia for that income, you do not have to pay them again in Spain, but it is important to check that Spain has these agreements with the country where you pay taxes, you can check with which countries it has treaties of this type here.
In case you are a non-resident for tax purposes, you will also have to pay taxes on the income generated, but this time exclusively for the income generated in Spain. And at the tax rate for non-residents. It is a flat rate of 24% on income if you are a non-EU citizen, and 19% if you are from the European Union. Which usually applies to the profits generated from renting a property or from the yields offered by any other asset you have in Spain.
Capital gains tax
This tax, which ranges from 19% to 23%, is applied to the specific gain obtained when selling an asset previously purchased at a lower price. So, for example, if you bought a property or a set of shares of a company at time X and you want to sell them at time Y at a higher price, capital gains tax will be applied to the difference.
Remember that the Autonomous Communities and municipalities levy various local taxes, such as vehicle tax or real estate tax, among others that you should take into account.
A tax rate of 0.2 to 2.5% (depending on the region) that applies to all assets held in Spain whose value exceeds 700,000 euros, this tax will only be applied to the value exceeding this amount.
Remember that, for this type of issues, it is recommended to get the right advice from a lawyer.
or accountant with knowledge of Spanish tax law to avoid future inconveniences.