Income Tax guide for expats: Part one – Spain
Tax is never a fun subject but unfortunately it is one of the only things that are certain in life. Tax is also one of the most complicated things we have to deal with on a day to day basis and that’s in the UK, let alone a foreign country where their system is completely different. As an expat you will at some point have to navigate the murky waters that make up a nations tax system and that is why we have made this guide on possibly the most loathed tax of them all, income tax.
In part one we take a look at Spain.
Over the past few years Spain has been hit hard by the ongoing Euro crisis and as such the Spanish government has raised taxes in its bid to implement austerity measures and to get the troubled nation’s debt under control. Sadly as an expat you will not be immune to these hikes.
Do I have to pay income tax?
If you’ve been in Spain for more than 183 days during any one calendar year then yes, you have to pay income tax as you will be classed as a tax resident. Be warned, by basing your family and/or business interests in Spain even if you yourself are absent you will still be eligible for taxation.
Failing to declare that you are a resident for tax purposes does not alter the fact that you are in fact a tax resident and liable to be taxed accordingly. Do not confuse obtaining a Spanish residency certificate with tax residency; this shows you are on the register of foreigners kept by the Police and does not equate to tax residency, although the tax authorities may see it as evidence that you are a tax resident if it is ever a matter of dispute.
You must also file an income tax return in Spain if you:
- Earn more than € 22,000.00 a year.
- Changed your job within the same year and your last employer paid you more than €1,500 during the year.
The tax period coincides with the calendar year.
Be aware that this tax is assessed differently for residents and non-residents in Spain.
As a Non-resident
Non-residents are liable to be taxed if they make any income in Spain, things like a money deposit with a Spanish bank, income from a business venture and any cash from a property. Property owners are taxed on their property income. The tax base is the property catastral value (valor catastral), which can be found on any I.B.I receipt. The tax base rate is 24% of 2% of the cadastral value.
Should you fail to pay this tax, you will be charged and penalized by the Spanish Tax Agency if you try to sell your property.
As a resident
If you are a Spanish resident you will be taxed for your worldwide income. You may deduct your income tax paid in your home country. Double tax treaties are in place to avoid double-taxation. When there is no treaty with your country of origin, you may deduct the foreign tax paid; foreign compensation may also be applied. Your Spanish Lawyer may calculate this amount for you.
Non-residents living more than 183 days in Spain are also considered residents for tax purposes, even if they have not obtained their residence permit.
Tax rates (2012)
The following are the tax brackets for 2012. As Spain becomes more desperate for funds we can expect taxes to rise again in the near future, unless the government decides to cut them in an effort to stimulate consumer spending. (Don’t hold your breath waiting for this though.)
Since 2011, people in different regions have to pay different top rates of income tax. Local surcharges have been added by some of the autonomous regions such as Andalucia and Cataluna. For example, the income tax rate in Andalucia is 1% higher than the rates in the table below for incomes above €80.000, 2% above €100,000 and 3% above €120,000.
Rate for capital gains and investment income:
(Dividends up to €1.500 are tax free)
€0 – €6.000 – 21% (tax)
€6.000 – €18.000 – 25%
More than €18.000 – 27%
Rate for other income after allowances and deductions:
€0 – €17.007 - 24.75% (tax)
€17.007 – €33.007 – 30%
€33.007 – €53.407 – 40%
€53.407 – €120.000 – 47%
€120.000 – €175,000 – 49%
€175.000 – €300.000 – 51%
Over €300.000 – 52%
Every taxpayer in Spain is allowed up to €5,150 that is not subject to taxation. After that amount the tax rate is 24.75% for income up to €17.707 and for income above it goes up to 52%. If you fail to pay your owed taxes then it is likely that you will be hit by penalties of between 50% and 150% of the tax owed, plus interest. Late payment can result in penalties between 5% to 20% of the tax involved, plus interest.
In Part two we will take a look at income tax in France.