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THE TAXATION IN SPAIN FOR NATURAL PERSONS

Residence rules (I)

For the purposes of taxation, how is an individual defined as a resident of Spain?

An individual is considered a Spanish resident for tax purposes under the following considerations and if he/she meets either of the following requirements:

  1. He/she remains in Spain for more than 183 days in a given calendar year. Sporadic absences are considered days of presence in Spain unless the individual can prove his/her tax residence status in another country (if a tax haven, the individual can be requested to have spent at least 183 days during the calendar year in that country).
  2. His/her business or economic interests are directly or indirectly located within Spanish territory.
  3. It is presumed, unless the contrary is proved, that an individual is a tax resident in Spain if his/her spouse and underaged dependent children are Spanish tax residents.

 

Residence rules (II)


Is there a minimum number of days rule when it comes to residency start and end date?

With regard to the 183-days rule, any day of physical presence in Spanish territory within the calendar year will have to be considered, regardless of whether those days are spent within the formal period of assignment/employment contract or prior or after that period.

What if the assignee enters the country before their assignment begins?

Any day spent in Spain before the assignment/employment contract begins during the calendar year considered will have to be taken into account to compute the 183-days rule.

 

Personal Income Tax (I)

  • The ordinary tax residents in Spain are generally subject to Spanish Personal Income Tax on worldwide income, regardless of where it was generated.
  • For Spanish Tax Residents, all income, less statutory reductions, is aggregated and subject to tax at progressive rates from 19% up to 45% (*).
  • A Personal  Income  Tax   return  must  generally  be  filed  by  a  Spanish    Tax Resident whose gross employment income exceeds EUR 22.000 (for joint and separate returns) during the calendar year or EUR 12.000 for taxpayers who receive income from more than one payer.
  • Returns are filed between April 5th  and June 30th  , to report income for the  prior calendar year. The balance due may be paid in full upon filing, or be paid 60% upon filing and the remaining 40% in November.

(*) Tax rates in force for tax year 2017. The final tax would depend on the Autonomous Community of residence of the taxpayer.

Personal Income Tax (II)

Taxable income will be divided into:

  • General Base comprised of income from:
  1. Employment;
  2. Economic activities;
  3. Income from Real estate properties;
  4. Capital gains not considered as Saving income.
  • Saving Base comprised of income from:
  1. Income derived from the participation on equity of any entity.
  2. Income obtained from the transfer of own capital to third parties, except in the case of income received from entities related to the taxpayer (interest checking accounts, interest on bonds, etc).
  3. Income obtained as a result of capitalization transactions, or life insurance or disability

contract and income from capital taxation.

  1. Gains/losses as a result of the transfer of assets.

 

 

Personal Income Tax (III)

 

Saving base is taxed at the following rates (*):

  • 19% for the first EUR 6.000 of taxable income.
  • 21% for the following EUR 6,000 to EUR 50.000 of taxable income.
  • 23% for any amounts over EUR 50.000.

 

 

For general base, progressive tax rates are applied (which are the sum of the applicable rate approved by the state and the applicable rate approved by each Autonomous Community of Spain in their progressive tax rate scales). For this reason, tax liability may differ from one Autonomous Community to another.

(*) Tax rates in force for tax year 2017.

 

Personal Income Tax (IV)

The withholding rates scale applicable to employment income (*)

 

Taxable base (up to EUR) Gross tax payable (EUR) Rest of taxable base (up to EUR) Applicable rate (%)
0 0 12.450,00 19,00
12.450,00 2.365,00 7.750,00 24,00
20.200,00 4.225,50 15.000,00 30,00
35.200,00 8.725,50 24.800,00 37,00
60.000,00 17.901,50 Onwards 45,00

The actual tax rates would depend on the Autonomous Community where the tax payer resides, being the result of adding the general scale (State’s) and the complementary (Autonomous Community one).

(*) Withholding rates scale in force for the tax year 2017.

 

 

Personal Income Tax (V)

Income Tax Allowances

  1. Personal Allowance (*):
  • Individual: EUR 5.550.
  • 65 years old and upwards: EUR 6.700.
  • 75 years old and upwards: EUR 8.100.
  1. Married Couple Allowance (*):
  • Individual allowance of EUR 5.550 for the taxpayer and EUR 3.400 for the spouse in a joint return.
  1. Disability Allowance (*):
  • Grades of disability 33%-65%: EUR 3.000.
  • Grades 65%-100%: EUR 9.000.
  • An additional allowance of EUR 3.000 if third party care is needed.

(*) Allowances in force for the tax year 2017.

 

Personal Income Tax (VI)

  1. Child Allowance under 25 years old with income lower than EUR 8.000 living at home with the taxpayer (*):
  • First child: EUR 2.400.
  • Second child: EUR 2.700.
  • Third child: EUR 4.000.
  • Each additional child: EUR 4.500.
  1. Child Allowance under 3 years old (*):
  • For each child under 3 years old: EUR 2.800.
  1. Dependent Relative Allowance (*):
  • Applicable if a parent or grandparent with income lower than EUR 8.000 lives with the taxpayer:
  • Over 65’s: EUR 1.150.
  • Over 75’s: EUR 2.550.

(*) Allowances in force for the tax year 2017.

Personal Income Tax (VII)

  1. Dividends (*):
  • The exemption on the first EUR 1.500 of dividends no longer exists.
  • The exemption on up to EUR 12.000 of equity income remains under certain circumstances.
  1. Rental Income (*):
  • The 100% deduction for rental income from young tenants has been

withdrawn.

  • All landlords will now be taxed on 40% of net rent income – this includes any lettings income from outside Spain but not short-term holiday lets.

(*) Allowances in force for the tax year 2017.

 

Personal Income Tax (VIII)

 

You can claim deductions for:

Deductions (*)

  1. Payments into the Spanish social security system.
  2. Pension contributions.
  3. The costs of buying and/or extending your main residence.
  4. Charitable donations.
  5. Some deductions applied by Local Governments – these vary from region to region.

 

(*) Deductions in force for the tax year 2017.

 

Exemptions on employment income for Spanish Tax Residents

 

Exemption for work performed abroad under Article 7.p) of the Personal Income Tax Law

Employment income for services rendered in a foreign country are tax-exempt, up to EUR 60.100 gross per year for income during the tax year in question, as long as the following conditions are met:

  1. The work must be performed physically outside of Spain.
  2. The work must be performed for a Spanish Non-Tax Resident company or entity, or for a permanent establishment located in a foreign country.
  3. In the territory where the work is performed, a tax of identical or analogous nature to Spanish Personal Income Tax must be applied, and the territory must not be considered, by the Spanish Income Tax Regulation, as a tax haven.

 

Non-resident Income Tax (I)

 

Non-residents will be considered non-residents income taxpayers insofar as they obtain income in Spanish territory.

  • Income from economic activity through permanent establishment in Spanish territory is understood to be obtained in Spanish territory.
  • The general tax rate will be 25% (*).
  • Tax return: Form 200.

Income from economic activity without permanent establishment is understood to be obtained in Spanish territory in the following cases:

  1. When the economic activity is carried out in Spanish territory.
  2. When income is from providing services in Spanish territory.
  3. When income derives from the personal performance of artists and sports people in Spanish territory, even when they are received by a different person or organization.
  • Tax rate (*):

Residents in the EU, Iceland and Norway: 19%

Other taxpayers: 24%

  • Tax return: Form 210.

(*) Tax rates in force for the tax year 2017.

 

 

Non-resident Income Tax (II)

 

  • Work Income: According to Spanish law, work income is understood to be obtained in Spanish territory in the following cases:
  1. In general, when this income is derived directly or indirectly from a personal activity performed in Spanish territory.
  2. Public remuneration paid by the Spanish Government, except when the work is wholly performed abroad and such income is subject to a Personal Income Tax abroad.
  3. Remuneration of employees of ships and aircrafts in international traffic paid by resident employers or organizations or by permanent establishments located in Spanish territory, except when the work is performed wholly abroad and such income is subject to a Personal Income Tax abroad.
  • Tax rate (*):
  1. Residents in the EU, Iceland and Norway: 19%
  2. Other taxpayers: 24%
  • Tax return: Form 210.

(*) Tax rates in force for the tax year 2017.

 

Non-resident Income Tax (III)

 

Income from Investments (Dividends, Interest, Royalties): the following income is understood to be obtained in Spanish territory:

  1. Dividends and other income arising from equity in entities located in Spain.
  2. Interest and other income arising from capital assigned to third parties paid by resident individuals or entities or by permanent establishments located in Spanish territory or repayment of loans utilized in Spanish territory.
  3. Royalties paid by resident individuals or entities or by permanent establishments located in

Spanish territory or which are utilized in Spanish territory.

  • Tax rate for dividends and interests (*): 19%
  • Tax rate for royalties (*):
  1. Residents in the EU, Iceland and Norway: 19%
  2. Other taxpayers: 24%
  • Tax return: Form 210.

(*) Tax rates in force for the tax year 2017.

 

Non-resident Income Tax (IV)

 

Earnings from Real Estate properties: Income derived directly or indirectly from Real Estate property located in Spain in or rights relating to them, they are considered to be obtained in Spanish territory.

  • Tax rate (*):
  1. Residents in the EU, Iceland and Norway: 19%
  2. Other taxpayers: 24%
  • Tax return: Form 210.

(*) Tax rates in force for the tax year 2017.

This tax subject individual’s net wealth. Please note that there may be   changes on the discussion in this section depending on the Autonomous Community where the taxpayer has his/her tax address.

Individuals will be obliged to Wealth Tax return if he total net value of their assets exceeds EUR 700.000 or the total value of their assets and liabilities exceed EUR 2.000.000. Each Autonomous Community approves the amount of reduction in the taxable base.

If the Autonomous Community does not regulate the exempted amount, the taxable base will be reduced in any case by EUR 700.000.

Residents taxpayers are subject to Wealth Tax on their worldwide assets, while non- tax residents in Spain are subject to Wealth Tax on their net assets located in Spain.

If they are residents of another EU or EEA Member State they are entitled to apply the legislation of the Autonomous Community where the greatest value of the goods and rights they own are located in respect of which the tax is levied given that the same are located, may be exercised or have to be complied within Spain.

Tax residents in Spain taxed under the Special Expatriates Regime established in the Personal Income Tax Law, are subject to Wealth Tax, as non-residents, on their net assets located in Spain.

 

The Special Expatriates Regime (I)

 

A tax regime for inbound expatriates is available in Spain.

Individuals who come to work in Spain may be taxed as non-residents if the following requirements are met:

  1. This person cannot have been considered as a tax resident in Spain during the 10 tax periods previous to the year when he/she is moves to Spain.
  2. The assignment to Spain must be:
  • Due to a local employment contract or an assignment to Spain from a non-resident entity.
  • Due to the acquisition of the condition of membership on the Board of Directors of a Spanish company, under requirements.
  1. Income may not be obtained through a permanent establishment in Spain.

 

 

The Special Expatriates Regime (II)

 

Under this regime, individuals who become Spanish tax residents are taxed as follows:

  • Taxed on worldwide employment income as of the arrival date in Spain. The tax rate up to EUR 600.00 earnings is 24%. As of that amount the tax rate applicable is 45%.
  • Other categories of income (dividends, interests, capital gains) are taxed on Spanish sourced basis. The tax rate on investment income range from 19% up to 23%.
  • From the Wealth Tax point of view the individual is going to be taxed exclusively on his Spanish assets under the Special Expatriates Regime.
  • There will not be 720 Form about assets located abroad to be submitted since taxpayers taxed based on Special Expatriates Regime.

(*) Tax rates in force for the tax year 2017.

 

The Special Expatriates Regime (III)

 

The Special Expatriates Regime is applicable the year in which the change of residence takes place and the following 5 years, provided that the following requirements are met.

When the assignment to Spain is the result of an employment contract, the special employer/employee relationship of professional sport persons regulated by Royal Decree 1006/1985, of 26 June, shall be excluded. In other words, sportsmen cannot apply for this Regime.

The application of this Regime must be done within the six months since the individual starts his activity in Spain (i.e. he/she is registered within the Spanish social security or from the date that appears in the documents to maintain the home country social security scheme).

The annual tax return must be filed on May-June of the following year (Form 151).

In case the individual does not comply with the above mentioned requirements after the Regime is granted, he/she will be excluded from it.

 

Form 720: Informative form about assets and rights located abroad (I)

 

This obligation will apply to the following taxpayers:

  1. Ordinary tax residents in Spain (not including individuals under the Special Expatriates Regime).
  2. Legal entities that are residents in Spain.
  3. Permanent establishments in Spain of non-resident persons or entities.
  4. Entities mentioned in Article 35.4 of the General Tax Law.

The three categories of assets that should be reported are the following:

  1. Accounts in bank entities (block 1),
  2. Securities, assets, or equity rights (block 2)
  3. Real estate and real estate rights (block 3).

 

Form 720: Informative form about assets and rights located abroad (II)

 

The obligation to file this return will arise when the value of the assets abroad (by block of assets as explained above) exceed EUR 50.000.

The submission of the informative form in subsequent years would only be mandatory when the value of any of the block of information increases by more than EUR 20.000 compared with reported in the last form filled.

The information should be reported in the period January 1st to March 31st of the year following that to which it refers.

Failure to file the informative form on time and/or the submission of incomplete, inaccurate or false information constitute a serious infringement of applicable tax legislation, resulting in severe penalties.