Before going into the subject of expatriate taxes in Spain, it is essential to define: What is an expatriate and when is an expatriate considered an expatriate in tax terms?
An expatriate is a person who has left his or her country of birth and has his or her residence in another nation. Thus, an expatriate worker is one who offers his services to a company in a foreign country.
In tax terms, an expatriate is someone who abandons his or her tax residence in the country of origin and becomes a tax resident of the destination country.
Becoming an expat is one of those experiences that generate different feelings to each person who either decides to do it, or is forced by external factors (usually an unfavorable situation in her/his home country). And one of the most prevalent ones, is a sense of uncertainty due to the taxes one has to pay.
Spain’s tax system for expats has a clear definition, and makes it very clear who has to pay what taxes, this is convenient to avoid misunderstandings, and to make sure that investing in real estate in Spain is the right choice for you.
Whether you are looking to invest in Spain to get a Golden Visa, or you want to relocate to Spain to work or study in the country; it’s vital for you to determine if you qualify as a resident (for tax purposes), or not, and determine how much you must pay from there.
Spanish tax system for expats
Do you want to know if an expatriate must pay taxes in Spain? The correct question is whether the foreigner is a resident in tax terms.
Thus, a person is a tax resident if he/she meets any of these requirements:
- If you have lived in Spain for more than 183 days per year, without the need for them to be consecutive.
- Have economic interests in Spanish territory, this refers mainly to carrying out remunerated activities, either self-employment or work for third parties.
- If the non-separated spouse and/or their minor children live in Spain.
Before considering the taxes expats in Spain must pay, it’s worth noticing that there exists a double tax treaty with the UK, and therefore, you don’t have to pay for your taxes twice, and you can pay only in either the UK or Spain.
The tax year in Spain comprises the entire year, from January 1st to December 31st, and you should pay between May 1st and June 30th.
If you are resident in Spain, you must pay income tax in Spain on all your worldwide income. The Spanish income tax rate for residents is progressive, meaning that it increases as your income increases. These are the annual rates and earnings from 2020:
Below €12,450 = 19%.
Between €12,450 and €20,200 = 24%.
Between 20.200 € – 35.200 € = 30%.
Between 35.200 € – 60.000 € = 37%.
Above 60.000 € = 45%.
For residents, there is a basic annual tax allowance of €5,550. For people over 65, this is €6,700, and for people over 75, this rate is €8,100.
Non-residents only pay income tax on earnings in Spain, but do not have a personal tax allowance. This tax rate is set at 24% on earnings up to €600,000, and for income above that figure, the flat tax rate is 45%.
It is important to know that if you are self-employed in Spain, you must register as an Autónomo and pay your taxes quarterly.
Wealth tax is based on the value of the assets a person has, such as property, bank deposits, cash, insurance and pension plans, shares, etc.
If you are a non-resident, this will only be on assets held in Spain. However, if you are a resident, this will apply to all assets held worldwide.
This tax only applies to assets worth more than €700,000 (or €500,000 in Catalonia) for both residents and non-residents. There is an additional tax allowance of €300,000 granted to residents for their main residence in Spain. These tax allowances may vary depending on the region.
There are other taxes, such as the Spanish capital gains tax, which are not as straightforward, and it’s therefore worth it requesting advice with a professional Spanish tax expert or lawyer; as well as if there’s any doubt in regards to which of these taxes you must pay.