A LESSER EVIL
TAXES, WHAT TAXES?
The bad news is that, like in any other country, you have to pay taxes in Spain. This said, everything else is mostly good news if you are a US citizen: Tax rates in Spain are very similar to those of the US, despite the prevalent view of a welfare State that needs strong fiscal pressure to provide services. Taxes are also easier to calculate in Spain, and most people file their returns online without any help. And, for you peace of mind, there is a double taxation convention between Spain and the US to avoid that any income is taxed twice.
Still, constant updates and the complications of transnational regulations make necessary to count on professional assessment at both sides of the Atlantic.
It is very important that residency is correctly determined. Residents in Spain pay taxes on their income worldwide, but non-residents are taxed only on their income within Spain.
Non-resident status can be accredited by presenting a certificate of residency in another country issued by the tax authorities of that country. The period of validity of these certificates is one year.
An individual is resident in Spanish territory when any one of the following circumstances apply:
- They have stayed longer than 183 days in Spanish territory over the calendar year.
- They situate the main base or center of their activities or economic activities, directly or indirectly, in Spain.
- They have dependent not legally separated spouse and/or underage children who are usually resident in Spain.
NON-RESIDENTS’ INCOME TAX LIABILITY
Non-residents are liable for this tax on any income arising in Spain, such as a money deposit with a Spanish bank, a property or income derived from any business in Spain. It is called the IRNR (Non-Resident Income Tax), and translates into a flat withholding tax of 24,75%
The most typical tax an expatriate will have to pay is the Property Tax. The base is the property catastral value (valor catastral), and accounts for 24% of 1.1% of this value, which is shown on the Property Tax Bill (IBI).
Find all the information about taxes for non-residents in the official web of Agencia Tributaria, the Spanish IRS.
TAXES FOR RESIDENTS
INCOME TAX (IRPF)
The Personal Income Tax (Impuesto sobre la renta de las personas físicas/IRPF) is a direct tax levied on the earnings of individuals, obtained either from dependent work or by means of self-employment, and it ranges between 17% and 52%, depending on income levels.
In many cases you only need to file a tax return in Spain when you make more than €22,000 per year, receive a rental income of more than €1,000 and/or receive a capital gains and savings income of more than €1,600/€1.000.
Personal allowances for Spanish income tax purposes are €5,151, which increases to €6,069 for persons over age 65 and €6,273 for persons over age 75.
Income in Spain is roughly defined as:
– Wages and salaries, either as a salaried employee or as a businessperson
– Pension benefits
– Dividends, yields, interest, royalties and capital gains
– Rental Income
– Capital Gains
– In-kind benefits
As a reminder, the income generated and taxed in the US would not be imposed again in Spain
DECLARATION OF ASSETS ABROAD
Tax model 720 is a new informative tax form adopted in Spain on January 2013. The aim is collecting from fiscal residents in Spain the data on the assets and rights located in the foreign countries with a value of more than €50,000. Adopted as a mean of prevention and combat against tax fraud and money laundering, the new regulation provides tax authorities with relevant knowledge on all types of assets and rights necessary for establishing a certain level of control.
In must include:
– accounts abroad in financial institutions,
– stocks, bonds, values, financial rights, and savings in insurance companies, deposited, managed or obtained abroad
– all types of Real Estate and rights over Real Estate abroad
More about it from the Agencia Tributaria here.
VALUE ADDED TAX
IVA (Impuesto sobre el Valor Añadido) is the Spanish VAT. The standard rate is 21 % and applies to most goods and services. There is a reduced rate of 10% applicable to items such as food, water, pharmaceutical products etc. There is a super-reduced rate of 4 % applicable to basic goods as bread, milk, flour etc. Certain things are VAT free, such as insurance and financial services, health and education.
Corporate tax is standard at 28% but will be reduced to 25% in 2016. Lower rates are applicable in certain situations (such as smaller size). For small and medium-sized companies, tax on the first €120K of taxable income is 25%. Anything above that is taxed at 28%).
CAPITAL GAIN TAXES
Capital gains are calculated as the difference between the transfer price of an asset and its acquisition price. Acquisition prices of real estate are indexed by applying coefficients determined by the government. Capital gains derived by tax residents are taxed at a rate of 21% on the first €5,999.99, at a rate of 25% on the amount from €6,000 to €23,999.99 and at a rate of 27% on the amount from €24,000 onwards. For Spanish tax residents only, capital losses incurred on sales of assets may be offset against capital gains. Any excess losses may be carried forward for 4 years.
• Spanish Tax Code. From the Spanish IRS (Agencia Tributaria)
• Filing taxes as an expatriate. From Expat.com