Spain has a progressive taxation system that includes several types of taxes, including income tax, value-added tax (VAT), and capital gains tax. This article will provide an overview of how taxation works in Spain, including double taxation agreements, the main taxes expats need to be aware of, tax breaks, how and when to file a tax return as an expat, and tax exit procedures.
The Taxation System in Spain
The taxation system in Spain is based on a progressive income tax system, which means that the more you earn, the higher the tax rate you will pay. The current tax rates for individuals are as follows:
- Up to €12,450: 19%
- €12,450 to €20,200: 24%
- €20,200 to €35,200: 30%
- €35,200 to €60,000: 37%
- Over €60,000: 45%
In addition to income tax, there are several other taxes in Spain, including VAT, capital gains tax, and inheritance tax.
Double Taxation Agreements
Spain has entered into double taxation agreements (DTAs) with several countries, including major trading partners such as the United States, Canada, and the United Kingdom. DTAs are agreements between two countries that aim to eliminate double taxation of income earned in both countries. These agreements help to promote cross-border trade and investment and ensure that individuals and businesses are not taxed twice on the same income.
Under DTAs, residents of one country may be eligible for tax benefits, such as reduced withholding tax rates, when receiving income from the other country. Expatriates who are residents of a country that has a DTA with Spain may be able to take advantage of these benefits.
Main Taxes for Expats in Spain
As an expat living or working in Spain, there are several taxes that you need to be aware of. These include income tax, VAT, capital gains tax, and wealth tax.
Expats are subject to income tax on their worldwide income if they are resident in Spain. The tax rates are based on a progressive tax system, with higher rates applying to higher levels of income.
Expats may be eligible for certain tax reliefs and allowances, such as deductions for contributions to Spanish pension funds or health insurance premiums.
Value-Added Tax (VAT)
VAT is a tax on goods and services that is levied at a standard rate of 21%. Certain goods and services, such as healthcare and education, are exempt from VAT.
Capital Gains Tax
Capital gains tax is a tax on the profit that is made from the sale of an asset, such as property or shares. The current capital gains tax rate in Spain is 19%, although this may be higher for non-residents.
Wealth tax is a tax on the net worth of individuals and is calculated based on the value of their assets, including property, savings, and investments. The current wealth tax rate in Spain ranges from 0.2% to 2.5%, depending on the value of the assets.
Special Tax Breaks for Expats
Spain offers several tax breaks and incentives for expats. These include:
Non-Habitual Resident Tax Regime
The non-habitual resident tax regime offers tax benefits to expats who move to Spain and meet certain conditions, such as not having been a tax resident in Spain in the previous 10 years. Under this regime, expats may be eligible for a reduced income tax rate of 24% for the first two years of residence.
Double Taxation Relief
Expats who are residents of a country that has a DTA with Spain may be able to take advantage of double taxation relief. This can include reduced withholding tax rates on dividends, interest, and royalties.
Tax-Free Savings Accounts
Spain offers tax-free savings accounts known as “cuentas vivienda” that allow individuals to save for the purchase of their first home. Contributions to these accounts are tax-deductible, and the interest earned is tax-free.
Filing a Tax Return in Spain
Expats who are resident in Spain are required to file a tax return every year, even if they do not have any taxable income. The deadline for filing a tax return in Spain is typically in June of each year.
Expats should ensure that they are meeting all tax obligations and taking advantage of any available tax benefits. It is recommended to consult with a tax professional to ensure that all tax requirements are met.
Tax Exit Procedures for Spain
If you are leaving Spain to move abroad permanently, you will need to follow certain tax exit procedures. This includes informing the Spanish tax authorities of your intention to leave and obtaining a tax clearance certificate.
To obtain a tax clearance certificate, you will need to ensure that all your tax affairs in Spain are up to date and that you have paid any outstanding taxes. Once you have obtained a tax clearance certificate, you will need to present it to your bank, employer, and other relevant institutions.
Spain has a progressive taxation system that includes income tax, VAT, capital gains tax, and wealth tax. Expats who are resident in Spain are subject to income tax on their worldwide income, while non-residents are only taxed on income earned in Spain. Spain has entered into double taxation agreements with several countries to eliminate double taxation of income earned in both countries.
Expats in Spain may be eligible for certain tax reliefs and allowances, as well as tax breaks for foreign employment income and tax-free savings accounts. Filing tax returns on time and following tax exit procedures are important steps to ensure compliance with the law and avoid any potential legal issues. Expats should consult with a tax professional to ensure that they are meeting all tax requirements and taking advantage of any available tax benefits.