Taxes in Spain for Foreigners (Residents and Non-Residents)

Navigating through the complexities of taxes, whether as a resident or non-resident, can be a challenging task, especially in a country like Spain. The Spanish tax system encompasses various elements, each with its own set of rules. 

Key aspects of taxation in Spain

In this article, we’ll walk you through the key aspects of taxation in Spain, shedding light on what you need to know to ensure compliance and make informed financial decisions. So, whether you’re an experienced resident or a newcomer to Spain, keep reading to understand the world of Spanish taxation.

Taxes in Spain:

All tax matters in Spain, whether you’re a resident or non-resident, are overseen by the Spanish Tax Agency. In Spain, the fiscal year runs from January to December, following the calendar year, similar to what happens in the United States. This simplifies the process, making it easier to manage your tax obligations based on your activities and personal situation in the country.

What this means is that all tax obligations arising between January 1st and December 31st are consolidated. You’ll need to declare and pay these taxes the following year through your annual tax return, known as the “income tax return”. The filing period generally extends from May 1st to June 30th of the following year, and it’s crucial to meet this deadline to avoid significant financial penalties.

However, if you earn less than €22,000 annually and receive income from a single source, such as a company, you may not be required to file a tax return. To make these payments, you must have a tax identification number (NIE), which is essential for foreigners when conducting legal procedures.

Are you a tax resident or not?

Determining whether you’re a tax resident or non-resident is crucial to understanding your specific tax obligations and applicable rates. This distinction refers solely to tax matters and is not related to your legal residency status in the country.

Having a residency permit in Spain doesn’t automatically make you a tax resident. To determine your tax residency, you must meet certain criteria. You’ll be considered a tax resident in Spain if one of the following three conditions is met:

• You spend more than 183 days in Spain during the calendar year, from January to December. These days don’t have to be consecutive to count.

• You have economic interests in the country, meaning you carry out your professional activities in Spain, either as an employee of a Spanish company or as a self-employed worker. This situation often applies to those working for Spanish companies but traveling extensively and working with clients worldwide.

• Your spouse and/or children live in Spain, as this family connection can also establish your tax residency.

Simple Examples of General Tax Rates for Different Regimes

In Spain, there are several tax regimes with varying tax rates depending on the type of activity and specific regime. Below are some examples of general tax rates:

Personal Income Tax (IRPF)

IRPF is a progressive tax levied on the income of individuals residing in Spain. The rates for 2024 are as follows:

• Up to €12,450: 19%
• From €12,451 to €20,200: 24%
• From €20,201 to €35,200: 30%
• From €35,201 to €60,000: 37%
• From €60,001 to €300,000: 45%
• Over €300,000: 47%

Corporate Tax

Corporate Tax is levied on the profits of companies. The general rates are:

• General rate: 25%

• Newly created companies (except holding companies): 15% in the first tax period with a positive tax base and the following one.

Self-Employed Regime (autonomous quota)

Self-employed individuals in Spain must pay a monthly fee to Social Security. As of 2023, the self-employed fee varies based on net income:

• Net income up to €670: €230/month (2023), €225/month (2024), €200/month (2025).

• Net income over €6,000: up to €500/month (2023), €530/month (2024), €590/month (2025).

Differences in Tax Regimes According to Province of Residence in Spain

In Spain, the tax regime can vary according to the autonomous community, as some communities have certain fiscal powers. Below are some important differences:

Chartered Community of Navarre and the Basque Country

These communities have their own tax systems that differ from the general regime of the rest of Spain. They have their own tax offices and can set their own rates and tax regulations.

• Navarre: Has its own tax regime but very similar to the general Spanish regime, with some differences in rates and deductions.

• Basque Country: The three provinces (Álava, Guipúzcoa, and Vizcaya) have their own tax offices with regulations and rates that may differ from the general regime.

Community of Madrid and Catalonia

• Madrid: Known for having a more favorable tax policy, with lower wealth and inheritance taxes compared to other communities.

• Catalonia: May have higher rates on certain taxes, such as Wealth Tax and Inheritance and Gift Tax.

Do Foreigners Also Have to Declare Taxes in Their Country of Origin (Double Taxation Treaty)?

Yes, foreigners residing in Spain may be subject to declare taxes both in Spain and in their country of origin. However, many countries have double taxation treaties to prevent individuals from paying taxes on the same income in both countries. Here’s how these treaties work:

Double Taxation Treaty

A double taxation treaty is an agreement between two countries that establishes rules on how individuals and companies’ incomes should be taxed to avoid double taxation. The main points include:

• Tax Residency: Determines in which country the individual is considered a tax resident.

• Elimination of Double Taxation: Treaties usually stipulate methods to eliminate double taxation, such as tax credits (where taxes paid in one country can be credited against taxes owed in the other country) or exemptions.

• Types of Income: Specify how different types of income (e.g., employment income, capital income, pensions) should be taxed.

Example: Spain and the USA

A U.S. citizen residing in Spain may be subject to taxes in both countries. The double taxation treaty between Spain and the USA helps avoid double taxation:

• Employment Income: Generally taxed in the country where the work is performed.

• Tax Credit: Taxes paid in Spain can be credited against taxes owed in the USA.

• Declaration: The individual must declare their worldwide income in the USA and may need to file specific forms to benefit from the double taxation treaty.

It is important for foreigners to consult with a tax advisor to ensure they comply with all tax obligations in both Spain and their country of origin and to take advantage of the benefits of double taxation treaties. 

Income tax

In general, income tax is paid by both tax residents and non-residents but non-residents follow a different tax regime. For income tax purposes, various sources of income are considered, such as employment salaries, self-employment earnings, capital gains from dividends or interest rates, contributions and pension benefits, rental income, asset sales profits and more. All these forms of income are subject to income tax and must be included in your income tax return.

If you’re considered a Spanish tax resident, you’re required to pay income tax on your worldwide income and gains. The exact amount you must pay depends on your global income. This means that income tax is progressive, with the percentage increasing as your annual income rises.If you’re a non-resident, you only have to pay income tax on the income you earn in Spain.

We have partnered up with a top financial entity to help our clients navigate the complications of Spanish Tax system while staying current with their fiscal obligations. If you have further questions or concerns, or would like to explore their professional services, Schedule a free consultation with Entre Tramites.