Spanish tax system overview
As an expat and investor in Spain, you may be subject to Spanish taxes on your worldwide income and assets, depending on your residency status. Here’s a brief overview of the tax system for expats in Spain.
Residency Status: Your tax liability in Spain depends on your residency status. If you spend more than 183 days in Spain in a calendar year, you are considered a tax resident and are subject to tax on your worldwide income and assets. If you spend less than 183 days in Spain, you are considered a non-resident and are only taxed on income earned in Spain.
Types of Taxes: The main types of taxes in Spain are income tax, wealth tax, capital gains tax, and VAT. As a tax resident, you will be required to file an annual tax return reporting your income and assets in Spain and abroad. You may also be subject to other taxes, such as property tax or inheritance tax.
Tax Rates: The tax rates in Spain vary depending on the type of income or asset being taxed. For example, income tax rates range from 19% to 45% for tax residents, while non-residents are subject to a flat rate of 24%. Wealth tax rates range from 0.2% to 3.5%, depending on the value of your assets.
Tax Treaties: Spain has tax treaties with many countries to avoid double taxation. If you are a resident of a country with a tax treaty with Spain, you can claim tax relief or tax credit in your home country for taxes paid in Spain.
Tax Planning: It is important to plan your taxes carefully as an expat in Spain to avoid unexpected tax bills. You may be eligible for tax deductions or exemptions, depending on your personal circumstances. It is always better to consult with a tax professional to ensure compliance with Spanish tax laws.
In summary, as an expat in Spain, your tax liability will depend on your residency status and the types of income and assets you have. It is important to understand the Spanish tax system and plan your taxes carefully to avoid any surprises.
Real estate taxes
In Spain, there are several types of real estate taxes that property owners may be subject to, depending on the location and use of the property. Here are the main ones:
Property Transfer Tax: This tax is payable by the buyer when purchasing a property in Spain. The rate varies depending on the region where the property is located and ranges from 6% to 11%.
Value Added Tax (VAT): VAT is applicable when buying a new property from a developer or a company. The standard rate of VAT in Spain is 21%, but a reduced rate of 10% may apply in certain cases.
Property Tax (Impuesto sobre Bienes Inmuebles or IBI): IBI is a municipal tax levied annually on the ownership of real estate. The tax rate is based on the property’s value and can range from 0.4% to 1.1%. The IBI tax is payable by the property owner.
Capital Gains Tax: When selling a property in Spain, the seller may be subject to capital gains tax on the profit made from the sale. The rate of capital gains tax is 19% for non-residents and ranges from 19% to 23% for residents, depending on the amount of gain.
Wealth Tax: The Wealth Tax is a tax on the net worth of individuals, which includes real estate assets (see details further below).
Rental Income Tax: If you rent out your property in Spain, you will be subject to tax on the rental income received. The tax rate varies depending on the amount of rental income and ranges from 19% to 47%.
It is important to note that the tax rates and regulations can vary depending on the region where the property is located.
For example, I have a 2-bedroom apartment in Barcelona that costs €500 000 and which I rent out for €1 500 a month. How much taxes will I pay?
As a landlord in Spain, you will need to pay income tax on the rental income earned from your property. Assuming you are a tax resident in Spain, the tax rate on rental income is progressive and ranges from 19% to 47%. The taxable base for rental income is calculated as the total rental income earned in a year minus any allowable deductions. Allowable deductions may include expenses related to the maintenance and upkeep of the property, property taxes, insurance premiums, and mortgage interest payments.
Based on your example, assuming you have no allowable deductions, your annual rental income would be €18,000 (€1,500 per month x 12 months). The amount of income tax you would need to pay would depend on your total income and the applicable tax rate.
Let’s assume your other yearly income is €100,000. Assuming you have no allowable deduction, your total taxable income would be €118,000 (€100,000 + €18,000).
For the tax year 2023, the tax rates for income in Spain are as follows:
- Up to €12,450: 19%
- €12,451 – €20,200: 24%
- €20,201 – €35,200: 30%
- €35,201 – €60,000: 37%
- €60,001 – €300,000: 45%
- Over €300,000: 47%
Based on this tax bracket, your income tax liability would be:
- 19% on the first €12,450 = €2,365.50
- 24% on the amount between €12,451 and €20,200 = €1,389.60
- 30% on the amount between €20,201 and €35,200 = €4,794.90
- 37% on the amount between €35,201 and €60,000 = €8,993.35
- 45% on the amount between €60,001 and €100,000 = €18,000
Total income tax liability = €35,543.35
Other taxes that expats and investors might be subject to
There are several other taxes that investors may be subject to in Spain, depending on the type of investment and the income generated. Here are some of the main taxes that investors may face in Spain:
Corporate Income Tax (Impuesto sobre Sociedades): This is a tax on the profits earned by companies in Spain. The standard corporate tax rate is 25%, but there are certain deductions and exemptions available that can reduce the tax liability.
Dividend Tax: When a Spanish company pays dividends to its shareholders, a withholding tax is applied to the distribution. The tax rate is 19% for non-resident shareholders and can be reduced under certain tax treaties.
Capital Gains Tax: As mentioned earlier, capital gains tax is applicable when selling a property in Spain. The tax also applies to other investments such as stocks, bonds, and mutual funds. The tax rate for non-residents is 19%, while the rate for residents can range from 19% to 23%, depending on the amount of gain.
Non-Resident Income Tax (IRNR): This is a tax on the income earned by non-residents in Spain, such as rental income, capital gains, and dividends. The tax rate varies depending on the type of income and can range from 19% to 24%.
Inheritance and Gift Tax: When inheriting or receiving a gift of property or assets in Spain, the beneficiary may be subject to inheritance and gift tax. The tax rate varies depending on the region where the property is located and the relationship between the donor and the recipient.
Tax laws and regulations can change, and the tax liability can vary depending on the individual circumstances of the investor. Check with the local tax authorities to understand the specific taxes that may apply to your investment in Spain.
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The Spanish Wealth Tax
The Spanish Wealth Tax (Impuesto sobre el Patrimonio) is a tax on the net worth of individuals and is paid annually. It applies to residents and non-residents with assets located in Spain, whose net worth exceeds a certain threshold.
The Wealth Tax is levied on the total value of an individual’s assets, including real estate, bank deposits, stocks, bonds, and other financial investments, minus any outstanding debts or mortgages. The tax rate varies depending on the value of the individual’s assets and the region where the taxpayer is domiciled.
The Wealth Tax is a progressive tax, which means that the more wealth an individual has, the higher the tax rate they will pay. The tax rate ranges from 0.2% to 3.5%, and there are certain exemptions and deductions available that can reduce the tax liability.
Remember that not all regions in Spain have the same Wealth Tax rules, and some regions have set their own tax rates and thresholds. Therefore, consulting with a tax professional or checking with the local tax authorities is recommended to understand the Wealth Tax regulations in your region.
New Temporary Solidarity Wealth Tax
New Temporary Solidarity Wealth Tax introduced in 2022, is a direct tax, personal in nature, and complementary to the Wealth Tax, levied on individuals’ net worth for an amount greater than €3,000,000. This tax is not a tax on income but on assets and holdings.
You will need to pay this Temporary solidarity wealth tax if you maintain a net worth of more than €3,000,000 on December 31 of each year until the renouncement of this tax.
Unless there is proof of a patrimonial transfer or loss, the state will consider the assets that belonged to you at the time of the previous accrual, to form part of your net worth.
Residents have to pay this tax on their worldwide income and assets. In contrast, wealthy non-residents pay taxes on their Spanish assets.
The government based the tax rate on the level of wealth.
If your net worth is
- from €3,000,000 to €5,000,000, the tax rate will be 1,7%
- from €5,000,000 to €10,000,000, the tax rate will be 2,1%
- from €10,000,000, the tax rate will be 3,5%
How does the Spanish Golden Visa program work?
The residence permit for investors in Spain is known as the "Golden Visa" or "Visa de Oro." It is a type of residency permit that allows non-EU investors and their families to reside in Spain for a period of one year and can be renewed every two years, provided that the investment is maintained.
To be eligible for the Golden Visa, investors must meet certain criteria, such as:
- Making an investment in Spain of at least €500,000 in real estate, or €1 million in Spanish public debt, or €1 million in shares or deposits in Spanish companies.
- The investment must be made in the investor’s name or in the name of a legal entity in which the investor holds the majority of shares.
- The investor must have no criminal record and must not be prohibited from entering Spain or any other country.
- The investor must have public or private health insurance in Spain.
Once the investor has obtained the Golden Visa, they can reside and work in Spain and travel freely within the Schengen area. After five years of residency, investors may be eligible to apply for permanent residency, and after 10 years – for Spanish citizenship, provided that they meet certain requirements.
It is important to note that the Golden Visa does not provide automatic tax residency in Spain, and investors may still be subject to taxes in their country of origin.
The Spanish Golden Visa program can be a good alternative for those who wanted to get a residence permit in the EU through investment and were considering the Portuguese Golden Visa, which will soon cease to exist.