Taxation

If you spend more than 183 days of the year in Spain you are officially classed as a tax resident and liable to pay tax on your world wide income. If you are not a tax resident you will only be taxed on income arising in Spain. Tax fraud in Spain was once common place, however it may be in your best interest to pay Spanish taxes as income tax is below the European average and social security payments are reasonable. The double taxation treaties which Spain has with 45 other countries ensure that income that has already been taxed in one treaty country isn’t taxed again in another treaty country. Being a tax resident in Spain could save you money.
 

We strongly advise that you engage the services of a professional to help you to pay your taxes and complete your end of year tax returns. Completion of an end of year tax return is obligatory in Spain unless you earn less than €22,000 per year in which case your income will have been taxed correctly at source.

Income Tax
Income tax is payable on both earned and unearned income. Taxable income includes salaries, pensions, capital gains, property, investment and income from professional, business or agricultural activities. If you are a non resident or the owner of a second property in Spain, two per cent of its fiscal value will be added to your taxable income. Principal residences are exempt from this.

Pensions
If you move to Spain from a country in the EU you can have your state pension paid to your Spanish bank account. Or if you wish you can choose to have payment by payable orders sent straight to you by post. Whichever you choose, payment is made every four or 13 weeks in arrears.

If you worked for a Government agency, Police or armed forces, etc., you will not be liable for tax on that pension by the Spanish tax Authorities. All other pensions from whatever source are liable for inclusion in your Tax declaration to the Spanish Tax Authorities. If you take a lump sum from your pension while you are living in Spain, only 40% is subject to tax.

If you have lived and worked in Spain for a minimum of 15 years and paid your national Insurance contributions and Income tax you are eligible to receive the Spanish State pension. If you have worked throughout Europe and made the applicable contributions there is provision within the law that entitles you to a pension in proportion to the time you have lived and worked here.

Pensioners
If you are a pensioner and your worldwide income from pensions and investments is less than €8000 and €1600 respectively, you aren’t required to make a tax declaration or pay Spanish income tax. The taxation of pensions in Spain becomes more complex depending on the type of pension you have. A professional will ensure that you receive the help you need to pay the correct taxes.

Non-residents
Non resident property owners in Spain are liable to pay 25% tax on any income received in Spain, including income arising from rental of their property. A professional will ensure that your property is registered for rental purposes and the correct forms relating to tax are completed. Different forms are available depending on many factors.

The Spanish tax system is complicated and even experts have difficulty agreeing with the tax authorities. If in doubt always seek the help of a professional accountant or lawyer. For a simple query you can contact your local tax office. Penalties for non payment of taxes can be stiff so ensure you are paying all that you should be by asking an expert. Documents about tax in Spain can appear to give conflicting information.

Capital gains tax on property
Spain has a comparatively high rate of capital gains tax and you should familiarise yourself with this to help with long term planning. Capital gains tax, or ‘Plus Valia’ must be paid when the property is sold. It is calculated as 35% of the difference between the present value of the land and its value when last sold. Spanish law does not specify who is liable for this tax so it’s very important to include this in your negotiations and to have the agreement documented by a lawyer.

The amount of capital gains tax payable on the sale of properties purchased now and since 1995, reduces annually inline with inflation. Good news if you are a resident and sell a property which is your principal residence in Spain. As long as you have owned it for at least 3 years, and all the capital is reinvested into a more expensive property, and the new property is also your principal residence in Spain, then any capital gained from the sale will not be taxed.

Good news for resident pensioners is that from 2000 resident persons over 65 years old, who have owned a property for at least 3 years, which is their principal residence in Spain, will not have to pay any tax on the capital they gain from the sale of the property.

To make sure a non resident pays this tax when selling a property, the Hacienda (the Spanish tax department) requires the buyer to pay 5% of the purchase price to them, the seller can later claim back this money minus any taxes due. Both parties can agree with the Notario to waive this payment, If you agree to such a waiver, you as the new owner will be responsible for any taxes due - if these taxes are not paid the Hacienda will place an embargo on your new property - the taxes due can also exceed 5%.