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A Brief Guide to Income Tax in Spain

The tax year in Spain runs from 1st January to 31st December. This can be a slight advantage if you plan ahead before leaving for Spain.

The Law dictates that you will become a tax resident in Spain if you spend more than 183 days of the tax year in Spain. The days do not have to be consecutive and you become liable whether or not you formally register as a resident of Spain.

So, for instance, you could leave the UK at the end of its tax year, say 30th March, move to Spain, then spend time out of Spain in another country so that your total days in Spain for that year are less than 183 days. In this way you can delay becoming a tax resident until the following year providing you then spend 183 days or more in Spain.

The 183 day rule is not the only provision in determining tax resident status. If you don’t spend 183 days in Spain in a calendar year you can also become a tax resident if your “centre of vital interests” is in Spain i.e. the base of you economic or professional activities is in Spain; or unless proven otherwise, you are presumed Spanish resident if your spouse lives in Spain and you are not legally separated.

Tax Liabilities

Spanish tax residents are liable for tax on their worldwide assets which includes any assets they may still have in the UK.

Income Tax – Income is split into general income (renta general) and savings income (renta del ahorro). General income is taxed at progressive scale rates. There are four tax bands which range from 24% to 47%. Anything not categorised as ‘savings income’ is included here such as salary, pension and rental income. Savings income is taxed at a rate of 21% . This includes income from interest and dividends, income from a purchased annuity and capital gains.

Remember that this is tax on your worldwide income and most assets taxable in the UK or in Europe can be credited against the Spanish liability under the terms of the double tax treaty.

Spanish income tax rates for 2012 income range from 24% to 47% (returns for 2012 income - 1st January to 31st December - have to be submitted in May/June 2013):

STATE

Applicable Tax Base up to € Whole Quota
Rest up to
Tax Rate
%
0.00 0.00 17,707.20 12
17,707.20 2,124.86 15,300.00 14
33,007.20 4,266.86 20,400.00 18.5
53,407.20 8,040.86 66,593.00 21.50
120.000.20 22,358.36 55,000.00 22.50
175,000,20 34,733.36 beyond 23.50

COMUNIDAD VALENCIANA

Applicable Tax Base up to € Whole Quota
Rest up to
Tax Rate
%
0.00 0.00 17,707.20 12
17,707.20 2,124.86 15,300.00 14
33,007.20 4,266.86 20,400.00 18.5
53,407.20 8,040.86 66,593.00 21.50
120.000.20 22,358.36 55,000.00 22.50
175,000,20 34,733.36 beyond 23.50

In 2012 - 2013 there will be a tax increase base on the following scale

Applicable Tax Base up to € Increase Quota € Rest up to
Tax Rate
%
0.00 0.00 17,707.20 0.75
17,707.20 132.80 15,300.00 2
33,007.20 438.80 20,400.00 3
53,407.20 1,050.80 66,593.00 4
120.000.20 3,714.52 55,000.00 5
175,000,20 6,464.52 125,000.00 6
300,000,20 13,964.52 beyond 7

 

 

As a taxpayer in Spain you can complete an individual return or a joint return with your spouse. But you would only do a joint return if one of you had income of less than the personal allowance (5.151,00 euros each; plus if you are over 65 or 75 year or disabled, you could increase your allowances).

The minimum allowances can also be increased if you have single children under 25 under your care, or disabled children of any age that do you not have an income superior to 8,000€ annually excluding the exempt income, it shall be increased as follows:

  • 1.836 € for the first child.
  • 2.040 € for the second child.
  • 3.672 € for the third child.
  • 4.182 € for the fourth and followind childrens.

There are also other deductions to be taken in to account such as the following:

  • Deduction for investment in a main residence.
  • Deduction for financial activity.
  • Deduction for donations.
  • Deduction for income obtained in Ceuta & Melilla.
  • Deduction for investment and expenses made on cultural interest assets.
  • Deduction for business saving account.
  • Deduction for main residence property rental.

For the Valencian community there are also further deductions as follows:

  • Deduction for childbirth or adoption of a child.
  • Deduction for international adoption.
  • Deduction for fostering.
  • Deduction for non-lucrative fostering of elderly people over 65 or disabled of any age.
  • Deduction for donations to foundations.
  • Deduction for main residence rental by people under 35.

As a general rule, everyone has a duty to present the Income Tax return for income from the 31st of January to the 31st of December.

The exceptions to the rule (those who are not obliged to declare Income Tax) are:

  • Those who obtain a global yearly income of no more than 1.000 €, regardless of the nature of the income.
  • Those who have losses in their Capital Gains of 500 € or more.
  • Those who exclusively receive one or more of the following Incomes:
    1. Salaries or pensions, with the following limits:
      1. As a general rule those who receive up to 22.000 € from only one payer.
      2. Those who receive up to 22.000 € from more than one payer providing that they also comply with the circumstances below:
        • The amount of the income received jointly by the second and further payers does not exceed 1.500 €.
        • That the sole income received is the described in Article 17.2.a of Law 35/2006 and according to the special regulations there has been a retention at source. (those incomes from Social Security pensions, Government, disability, retirement, pension schemes, amongst others).
      3. Those who receive up to 11.200 € when any of the following circumstances arise:
        • When it proceeds from more than one payer and the addition of the second and further pensions/salaries are together over 1.500 €.
        • The income has the nature of divorce maintenance.
        • The payer is not obliged to retain according to the regulations. (for example: pensions from abroad).
        • When the income is subject to a fixed rate of retention (for example: company directors).
    2. Net Returns of movable assets and Capital Gains, both subject to retention, with a limit for both of 1.600 €.
    3. Deemed Income provided from tenancy of second home, returns from movable assets without retentions (treasury debts) and subsidiaries to buy an officially protected house, with the limit of 1.000 €.

Apart from the above exclusions, there is an obligation to declare an Income Tax return those tax payers with a right to deductions from:

  • Investment in special account for the purchase of a home.
  • International Double Taxation.
  • Contributions to disabled persons individual assets.
  • Pension plans.
  • Insured pension plans and others.
  • Dependency insurance.

Note that these limits are per tax return. If you decide on a joint return, the same limits apply (there’s no increase in the limit).

If as a Spanish tax resident you want to claim any tax relief, you will have to file a tax return. For example, you are entitled to a Spanish tax break if you have a mortgage or a special Spanish tax-qualified savings account to buy a house. You are also entitled to UK/Spanish double taxation relief if you have income taxed at source in the UK or for payments into a pension fund or similar scheme. For a Spanish non-tax resident the UK/Spanish double tax treaty means that any tax paid in Spain can be offset against any tax due in the UK.

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