“Don’t become tax resident in Spain!” might say peopel around you that have already paid taxes in Spain. When an individual relocates their primary residence to Spain, or when a Spanish citizen returns after several years of working abroad, their primary concern often revolves around taxation. Upon becoming a tax resident in Spain, they are subject to the IRPF (from Spanish, ‘Personal Income Tax’), which can have a marginal rate as high as 47%. Golden Partners clarifies any doubts regarding the differences between being a tax resident and a non-resident in Spain, as well as the strategies to minimize tax liability. This applies whether one stays in Spain for more or less than 183 days during the current calendar year, or even during an extended stay for purposes such as investment, a work assignment from a foreign company, or remote work.
How can I determine if I am a tax resident in Spain?
To determine if you are a tax resident in Spain, meaning whether you are subject to taxation on all your income in Spain, regardless of whether it is generated domestically or abroad, you simply need to check if you meet any of the following criteria:
Staying in Spain for more
than 183 days
Staying in Spain for more than 183 days in a calendar year, with no requirement for these days to be consecutive. In Spain, the fiscal year aligns with the calendar year, running from January 1 to December 31.
Center of economic interests
Having your main hub or the base of your economic activities or interests, either directly or indirectly, in Spain. To determine this, it is advisable to review the applicable Double Taxation Agreement relevant to your specific situation.
Residence
of spouse and minor children
It is also presumed that a person is a tax resident in Spain if their legally non-separated spouse and/or minor children habitually reside in Spain.
Tax Obligations of a tax resident in Spain
Every tax resident in Spain is required to comply with the following tax obligations towards the Spanish Tax Authorities:
Worldwide income taxation: In your Personal Income Tax return (Form 100), you must report all income earned both within and outside of Spain. This includes, i.e., salaries, capital income (such as interest from a bank account or rental income from property), capital gains, and any other income earned anywhere in the world. However, you may be able to apply a deduction for international double taxation to avoid being taxed both in the country of origin (where you previously resided or any other foreign country) and in Spain for the same income. Additionally, the amount of IRPF you owe may be reduced by the withholdings applied to your salary throughout the year as an ‘advance payment of IRPF.’
Wealth tax: This tax applies to the net assets of individuals. Although there is a tax-exempt minimum that varies by Autonomous Community, those who exceed that limit must file a declaration and pay the corresponding tax. In the case of the Community of Madrid or Andalusia, the tax is fully exempt.
Property tax (IBI): This local tax applies to the ownership of real estate (houses, land, etc.) and is paid annually to the municipality where the property is located.
Value Added Tax (VAT): Additionally, if you are self-employed or a business owner, you are required to charge VAT on the sale of goods or services and to submit quarterly and annual VAT returns.
Declaration of Assets Abroad (Modelo 720): Tax residents in Spain who own assets or rights abroad valued at more than 50,000 euros must also declare them annually.
Advance Payment of Non-Resident Income Tax (from Spanish, IRNR): If you receive income from a non-resident, you may be required to make advance payments of the IRNR. For example, if you are a tax resident in Spain and own an apartment in Madrid that you rent out to a person residing abroad.
Withholdings and payments on account: If you have employees or make payments subject to withholding (such as rents or professional services), you must withhold the corresponding amounts and pay them to the Spanish Tax Agency.
Regional and local Taxes: In addition to state taxes, Spain has taxes managed by Autonomous Communities and Municipalities, such as the Transfer Tax and Stamp Duty, the Economic Activities Tax (IAE), among others.
It is estimated that in 2023, Spain had 47.5 million tax residents. This number includes all individuals who reside permanently in Spain and are subject to the Spanish tax system, either due to their residency status or because they spend more than 183 days a year in the country.
Given the complexity of staying up to date with tax obligations, even for Spaniards themselves, it is highly recommended to seek the advice of an expert tax attorney to prepare and file your tax returns, whether you are self-employed or an employee.
This guidance is also crucial to avoid penalties and surcharges for non-compliance, whether due to an incorrect or late tax filing, meaning one that is submitted after the deadline.
What is a non-tax resident in Spain?
On the other hand, an individual who does not meet the aforementioned criteria and, in any case, spends less than 183 days of the calendar year in Spanish territory is considered a non-tax resident in Spain for tax purposes. A non-tax resident is subject to the same tax obligations as residents, except in the case of the Personal Income Tax (IRPF).
Instead of the IRPF, a non-tax resident is required to pay the Non-Resident Income Tax (commonly referred to by its acronym in Spanish, IRNR), which is filed using Form 210. The filing frequency (quarterly, semi-annual, or annual) and tax rate (19% or 24%) vary depending on the type of income being declared (such as employment income, capital income, capital gains, or property income), the outcome of the return (amount payable, refundable, or zero balance), and whether the non-resident is from within or outside the European Union for employment income (19% if from an EU country and 24% if from a third country).
It is particularly important to consider both the year of arrival and the year of departure/return to your country of origin. If during that year, you still maintain (year of arrival in Spain) or obtain (year of departure from Spain) tax residency in the other country (either your country of origin or a foreign country), you would be considered a non-tax resident in Spain. For situations where the fiscal year does not align with the calendar year (such as in the United Kingdom and Commonwealth countries), it is highly advisable to seek guidance from an international tax expert.
Importance of the tax residency certificate
For all the reasons mentioned above, it is crucial to obtain a tax residency certificate from your country of origin in order to be recognized as a non-tax resident in Spain and thereby be subject to lighter taxation compared to a tax resident in Spain.
However, if this tax residency certificate is issued by a country considered a tax haven under Spanish tax law (referred to as non-cooperative jurisdictions), it will not be valid for Spanish tax purposes. In such a case, you would still be considered a tax resident in Spain if you meet any of the criteria outlined earlier in this post.
Best tips for paying less taxes in Spain in 2024
Depending on the reason for your move to Spain, Golden Partners can recommend specific legal frameworks that can significantly reduce your tax bill—even for your immediate family. Let’s explore the various scenarios in which you might want to become a tax resident in Spain and how you could potentially save on taxes:
I am an investor looking to invest in Real Estate
If you are a foreign investor looking to invest in Real Estate in Spain, you should know that with the Golden Visa, you can obtain a residence permit by making a minimum investment of half a million euros in Spanish real estate—whether it be residential properties, commercial premises, or land. These can be used for personal purposes, rental income, or any other profitable venture.
In return, you will gain the legal right to work and reside in Spain for an initial period of 2 years, freedom of movement within the Schengen Area (allowing travel to 29 European countries), and access to tax benefits such as the Beckham Law, which we will explain later. These benefits extend to you, your spouse, and children under 18 (or older if they are financially dependent on you). If you are a citizen of a Latin American country, you can apply for Spanish citizenship after residing in Spain for at least 2 years (or 10 in any other cases).
I am an investor looking to invest in financial assets
If you are a foreign investor interested in investing in financial assets in Spain, you should know that with the Golden Visa, you can obtain a residence permit by making a minimum investment of one million euros in commercial businesses, investment funds, venture capital, or closed-end investment funds, as well as in bank deposits; or two million euros in Spanish public debt securities.
You will enjoy the same benefits as a real estate investor in Spain.
I am a senior executive of a foreign company looking to open or expand business in Spain
If you, whether Spanish or foreign, have resided outside of Spain for the last 5 years and are employed by a company that transfers you to Spain for a mission or a new job, you may qualify for the expatriate tax regime, commonly known as the Beckham Law.
This regime allows you to obtain a tax residency certificate in Spain, while only being taxed globally on your employment income (salary). All other income will only be subject to taxation in Spain if it is sourced from within the country. Additionally, you will benefit from a reduced Personal Income Tax rate: 24%, similar to that of a non-tax resident, for your first 600,000 euros of income, with any excess taxed at 47%.
Moreover, although you will need to file a Wealth Tax return (noting that some regions, like Madrid or Andalusia, offer exemptions), you will not be required to file Form 720, which reports assets and rights held abroad. To top it off, all these tax benefits can be extended to your spouse and children under 25 (or of any age in the case of disability) if they accompany you during your relocation. They may opt for the IRNR, as previously explained in this post.
I am an employee of a foreign company who, without being a senior executive, wishes to expand my business in Spain
Similarly, even if you are not a senior executive with a high salary, you can still benefit from the Beckham Law as long as you meet the requirements. The advantage is that if your salary is less than 600,000 euros gross per year, you will only be subject to a special Spanish Personal Income Tax rate of 24%.
I am an employee or freelancer, and I want to work remotely from Spain: how can I pay less taxes?
Another strategy to pay fewer taxes in Spain is to come as a remote worker. In this case, we recommend applying for the digital nomad visa. This residence permit is designed for international remote workers who come to Spain as employees, freelancers, or contractors, seeking to enjoy Spain’s excellent climate and high quality of life.
To qualify, you should have at least 3 months of employment with your company or clients, a university degree, or at least 3 years of professional experience. You must also prove that you have a bank account with at least 25,000 euros, no criminal record, private health insurance, and demonstrate that your relationship with your company is conducted remotely and that the company has real and ongoing business activities. With these qualifications, you can move to Spain for 3 years (extendable for another 2 years) and benefit from a 24% tax rate under the Beckham Law.
Additionally, digital nomads are fully exempt from the Wealth Tax and from filing the mentioned Form 720, which reports assets and rights held abroad. All these benefits are also extended to your spouse and children under 18 who accompany you, under the same duration and conditions.
This visa allows you to obtain a tax residency certificate in Spain, while only being taxed globally on your employment income (i.e., salary). All other income will only be subject to Spanish taxation if it is sourced from within Spain. Additionally, you will benefit from a reduced IRPF rate of 24%, similar to that of a non-tax resident, for your first 600,000 euros of income, with any excess taxed at 47%.
Although you may still need to file a Wealth Tax return (noting that some regions, like Madrid or Andalusia, offer exemptions), you are not required to file Modelo 720 for assets and rights held abroad. To top it off, all these tax benefits can be extended to your spouse and children under 25 (or of any age in the case of disability) if they accompany you during your relocation. They may opt for the IRNR, as previously explained in this post.
FAQs about tax residency in Spain
Below, we address common questions raised by many of our clients, both foreign and Spanish, when they come to or return to become tax residents in Spain:
Do tax residents in Spain with income from the United Kingdom need to declare it in Spain?
Yes, tax residents in Spain must declare all their worldwide income, including income from the United Kingdom. For example, if you are a tax resident in Spain and receive rental income from the UK, you must include this in your Personal Income Tax return. In some cases, to avoid double taxation, the Double Taxation Agreement between the two countries can be applied. This agreement determines which country has the right to tax each type of income and allows, in certain situations, the deduction of taxes paid in the UK from your tax return in Spain.
If I return to Spain, do I need to declare money earned abroad?
If you return to Spain and acquire tax residency, you must declare all income earned abroad during the period when you are considered a tax resident. For example, if you worked in another country before your return, you will need to declare that income in your Spanish Personal Income Tax return.
What is the IRPF for foreign residents in Spain?
Foreigners who become tax residents in Spain are subject to the Personal Income Tax, just like Spanish citizens. The rates range from 19% to 47%, depending on the level of income. For example, a foreign resident with an annual income of 50,000 euros might face an effective tax rate of approximately 30%. However, there are options to reduce your tax bill, such as through the Beckham Law, the digital nomad visa, or the Golden Visa.
If the Beckham Law applies to me, can I obtain a tax residency certificate in Spain?
Yes, if the Beckham Law regime applies to you, which allows you to be taxed as a non-resident for the first six years (the year of relocation and the following five years), you can still obtain a tax residency certificate in Spain. This is because you are considered a tax resident for legal purposes, even though you are only taxed on income earned in Spain (with the sole exception of your salary, which is subject to worldwide taxation).
When is it possible to apply the deduction for international double taxation?
You can apply the deduction for international double taxation when you have paid taxes abroad on the same income that you declare in Spain.
For example, if you pay taxes on dividends in the United States and also need to declare them in Spain, you can deduct the tax paid in the US from your Personal Income Tax return.
How is the Social Security Agreement between Spain and the United Kingdom regulated after Brexit?
After Brexit, the Social Security Agreement between Spain and the United Kingdom remains in effect under the rules established in the Withdrawal Agreement and subsequent bilateral agreements. This means that, for example, workers temporarily posted between the two countries can continue to contribute to their home country’s social security system under certain conditions, without needing to pay contributions in both countries.
At Golden Partners, we are experts in international taxation. If you are considering becoming a tax resident in Spain and wish to plan your move as efficiently as possible, please do not hesitate to contact us through our contact form.
