Spanish tax and international tax agreements are constantly changing so it’s important to keep up-to-date if you plan to invest in property in Spain. Spanish taxes are decided at both the regional and state level with each of the 17 autonomous regions setting their own rates. However, there are some need-to-know basics that can help you get started, wherever you choose to buy.
Firstly, it’s imperative to get your NIE number. You can apply for this through the local police station in your chosen region in Spain, or via your Spanish consulate at home. This will act a little like a National Insurance number, or an American Social Security number. Without it, you can’t get a job or buy a home because you won’t be registered to pay tax on them.
Types of tax
Indirect taxes are levied on goods and services, which means you don’t necessarily see them. Indirect taxes in Spain include value added tax, excise tax, insurance premiums tax, wealth transfer tax and stamp duty.
Direct taxation is applied to your income and assets and includes income tax, capital gains, corporate tax, inheritance and donations tax and wealth tax. If you work in Spain, there is also a social security levy that covers state benefits ranging from free healthcare to maternity cover and sick pay.
Anyone who earns money in Spain has to pay an income-based tax. For residents, the amount you pay will be set by the region on a sliding scale based on your worldwide earnings. For non-residents, there is a regionally set flat rate.
Owning a property
There are taxes you need to pay if you want to own a home in Spain. These include property tax and stamp duty, both of which are paid at purchase.
The former is usually around 10% and the latter around 1% of the sale price. Property tax rates are set by the local government which runs out of the municipal town hall. Costs can vary wildly from region to region, so do carry out your homework before you make an offer.
Even if you are a non-resident and don’t let your property out, you need to pay tax on any potential earnings on a Spanish property regardless of whether you let it or not. This is called IBI and is used by local governments to reinvest in the community.
The municipal town hall also sets the rates for motor vehicle tax, which applies to all motorised, roadworthy vehicles, and waste disposal tax paid according to the size and type of dwelling.
You are classed as a non-resident if you spend less than six months of the year in Spain and you keep the bulk of your assets and interests elsewhere. You are classed as a resident if you spend over six months in Spain and have a family, business or both based there.
Residents must submit a tax return in Spain if:
- Your annual salary is greater than €22,000.
- You are self-employed or run your own business.
- You receive rental income of more than €1,000 a year.
- You have capital gains or savings income of greater than €1,600 a year.
- It is your first year declaring tax residency in Spain.
It’s also necessary to declare any overseas assets worth over €50,000. Your worldwide income is what’s left after deducting expenses, social security, pension and your personal allowance.
Just when you thought it was getting complicated, along comes Beckham’s law. Named because it was first applied when David Beckham transferred to Real Madrid. It’s a specific tax break for foreign people who move to Spain for a work placement. It allows people to pay a flat rate of 24% income tax for the first €600,000 earned. And it also means that despite your resident status, you only pay taxes from your Spanish income streams. You’ll need to apply within the first six months from the date you began working in Spain.
How to pay
The Spanish tax year starts on 1 January and ends on 31 December. You can register to submit a tax return and pay tax at the Agencia Tributaria, the Spanish version of the Inland Revenue and you’ll need to present an NIE number to receive a Modello 30 form — which you fill in and return to declare your obligations. There is an English language version of the Agencia Tributaria website.
For the sake of your inheritors, it’s worth writing a Spanish will if you have Spanish assets, as it can save complications for your loved ones if you make your wishes clear under Spanish law. Make sure these assets are then left off subsequent overseas wills to avoid any contest. Spain offers different levels of inheritance tax to different people, so spouses and children get the highest level of tax-free allowance, then siblings, aunts, uncles, nieces and nephews, with “4th-degree” friends and relatives given no allowance at all.
Finally, there are a number of countries who have signed treaties with Spain to avoid double tax billing, you can check if your country is listed on the Agencia Tributaria website.
Penalties and fines are high in Spain for tax-related crimes, often more than €120,000 or even imprisonment. Changes can be swift and unexpected, so although these basics are true at the time of writing, they are subject to change. Make sure you get expert help from a Spanish tax specialist if you can.