Whilst this is not everyone's favourite subject, it is important to ensure you are fully on top of your tax issues as successive governments are increasingly auditing people's financial situations
We provide basic information below, but strongly advise investing in trusted professional tax advice to understand your obligations to the Spanish tax authority before you arrive on the island. With planning, there are ways to mitigate the Spanish tax burden. Being informed will save you money in the long term.
Who has to pay taxes?
Both residents and non-residents might be liable to pay tax in Spain. Generally, residents will pay tax on globally earned income, whereas non-residents are only expected to pay tax on income generated in Spain. Both pay on property and assets held in Spain. The amount of tax you pay will also depend on whether you are a resident in the Balearic Islands, a national of the EU or not.
Below is our guide to Spanish taxes. However, this is not a substitute for a fully qualified and trusted accountant to support you in understanding your full tax liabilities.
Resident tax liability
What do I need to know?
If you have been living in Spain for six months (183 days) or more within a tax year Jan-Dec (not necessarily consecutively) or you have your main vital interests in Spain (for example, you have a family or business in Spain), then you could be classed as a Spanish resident for tax purposes. You must pay tax on your worldwide income if you meet any of the following criteria:
Your annual income from employment is more than €22,000
You’re self-employed in Spain or run your own business
You receive a rental income of more than €1,000 a year
You have capital gains and savings income of more than €1,600 a year
In addition, you must declare all qualifying assets outside of Spain with a value of more than 50,000 using a Form 720 (Modelo 720) Heavy penalties are applied if this form is not done properly, so an experienced advisor with expats is essential.
Non-resident tax liability
Even non-residents must pay tax on assets or income earned in Spain
If you live in Spain for less than six months (183 days) in a calendar year, you are a non-resident and only pay taxes on the income from Spain.
The most common tax liabilities for non-residents are around property. A non-resident is liable to pay taxes on any income earned from a rental property via a Form 210 (Modelo 210) This has to be submitted either monthly or quarterly. EU/EEA/Swiss Nationals are able to make deductions on this income for things like mortgage costs, refurbishments and community charges
If you do not rent out a property there is still a property tax to pay on the property itself (paid for the months not rented too) and is based upon a percentage of the property value (found in the properties catastral) and is paid yearly.
Non-residents will have to pay tax on the following income streams generated within Spain
Capital gains resulting from transferred assets are taxed at a rate of 19%.
Investment interest and dividends are taxed at 19%, although are typically lower through dual taxation agreements. Interest tax is exempt for EU citizens.
Royalties are taxed at 19%
Double taxation agreements
Nobody wants to pay tax twice
There is a risk that your income may be taxed twice if two countries have the right to tax your income because, for instance:
You live in one EU country, but work in another (cross-border commuter)
You are posted abroad for a short assignment
You are living and looking for work abroad and have transferred unemployment benefits from your home country
You have retired to one country and receive a pension from another
Spain has a number of double taxation treaties with many countries around the world, so you can avoid the issue of double taxation. A full list can be found here on the Agencia Tributaria website. If your country is not on the list, we recommend contacting an accountant.
Filing tax returns
When you need
As a tax resident of Spain, you will be required to file a tax return in their first year (regardless of income earned). After the first year, you will only have to file a return if your income from all sources is more than €8,000 and you have more than €1,600 of bank interest or investment income. The same applies if your rental income is more than €1,000 or you earn more than €22,000 from one employer (otherwise it would be 12,643€ from a first employer and €1,500 from a second employer) as an employee, as your Spanish income tax will have been deducted by your employer.
The tax year in Spain runs from 1 January to 31 December. Eligible residents must currently file tax returns with the Agencia Tributaria between 6 April and 30 June of the following the year via Modelo 100 tax declaration form. There are no extensions on filing tax returns in Spain.
What to pay and when
Wealth tax in Spain is payable on the value of your assets on 31st December each year.
If your wealth is more than €700,000 you will be liable for a wealth tax of 0.2–2.5% on net assets. Variations exist within regions, but the Balearics are among the highest rates. As well as the €700,000 tax-free allowance, homeowners are allowed a further €300,000 against the value of their main residence. This is for both residents and non-resident Spanish property owners.
Wealth tax returns are submitted via the Modelo 714 form.
Spanish tax brackets
Capital Gains Tax
This is a tax payable for any cash gains; for example, the sale of a house or maturation of investments.
Rental Income Tax
This tax rate applies to income generated by your property in Spain. EU and Spanish residents are also able to make certain deductions (mortgage payments, improvement costs etc). Non-EU residents are not eligible for any deductions.
How can we help?
At Mallorca Expats, we have access to a number of trusted and vetted
multi-lingual speaking tax professionals and accountants to ensure you are as compliant and tax-efficient as possible.
Get in touch for an introduction with no obligation.