Guide to personal income tax in Spain
Taxes are inevitable, sadly. Here are details of the one you are most likely to face - personal income tax.
General information
Non-residents' income tax liability
Residents' tax liability
Tax base
When to file your income tax declaration
Where to file your income tax declaration
Deductive expenses
Wealth tax
General information
Personal Income Tax (Impuesto sobre la renta de las personas físicas/IRPF) is a direct tax levied on the income of individuals.
The individual's income may come either from work as an employee or by means of self-employment — development of a business or professional activities.
Taxable income is determined as the difference between the income earned and the expenses that are deductible according with the Spanish law.
At the moment, only those individuals earning more than EUR 21,035.42 a year in Spain are obliged to make the income tax declaration. Declarations above this amount carry a progressive tax structure.
The tax period coincides with the calendar year.
This tax is assessed differently for residents and non-residents in Spain.
Non-residents' income tax liability
Non-residents are liable for tax on any income arising in Spain, such as a money deposit with a Spanish bank, a property in Spain, or income derived of any business in Spain.
Property owners are taxed on their property income, the tax base is the property catastral value (valor catastral), which can be found on any I.B.I receipt. Tax base rate is 25 percent of a 2 percent of the cadastral value.
Should you fail to pay this tax, you will be charged by the Spanish Tax Agency if you try to sell it.
Residents' tax liability
If you are Spanish resident you are taxed on your worldwide income. You may deduct your income tax paid in your home country.
Double tax treaties are in place to avoid double-taxation. When there is no treaty with your country of origin, you may deduct the foreign tax paid. Foreign compensation may also be applied. Your Spanish lawyer may be able to calculate this amount for you.
Non-residents living more than 183 days in Spain are considered as residents for tax purposes, even if they have not obtained their residence permit.
Tax base
The income tax base may be determined in two different ways: direct evaluation or objective evaluation.
Direct evaluation
This method will be applicable to business and professional activities performed by the taxpayer that are not subject to the objective evaluation, either because that method is not applicable or, when applicable, because the taxpayer filed a waiver.
Net income will be computed as the difference between the assessable income and the deductible expenses.
Simplified direct evaluation
This method is applied to some business and professional activities, which are subject to ordinary direct evaluation and which turnover during the previous year did not exceed EUR 601,020.21.
The taxpayer may file a waiver in the month of December before he or she wishes its effects arisen,. These effects will last for three years.
Net income will be computed as the difference between the assessable income and the deductible expenses.
Objective evaluation
This method is applicable to the income resulting from those business and professional activities which the Spanish Tax Ministry appoints.
The taxpayer may file a waiver in the month of December before commencing a new tax period. The waiver effects will last for three years.
Net income is computed by applying standard methods that the Spanish Tax Ministry determines.
When to file your income tax declaration
If contributors must pay, tax declarations must be filed from 1 May to 20 June. If contributors are entitled to tax refund, then this period will be extended to 30 June.
Where to file your income tax declaration
Income tax declarations must be filed with the tax office appropriate to the contributor's address.
Contributors also have the possibility to file their tax declaration to the Spanish bank where they have an account, provided that they are entitled to tax refund or shall make any payment as a result of their tax declaration.
Deductive expenses
Certain deductible expenses, such as medicines, deductions for dependants, amounts paid for the purchase of a home or accounts opened for that purpose (Cuentas vivienda) may be claimed in the annual tax returns.
Employers must provide employees with a certificate of taxes withheld (Certificado de Retenciones) in order that they can subtract them to calculate their tax obligation. Payments into the Spanish Social Security System can be deducted.
Wealth tax
Along with the Personal Income Tax, Spanish resident and non-resident property owners are also liable to Wealth Tax (Impuesto sobre el Patrimonio). They should declare for both taxes at the same time.
Wealth tax is a direct tax levied on your assets and property located in Spain as at 31 December of every year.
Provided that taxpayers' principal wealth is normally their home, most of resident taxpayers do not pay this tax as the first EUR 108,182.18 is exempted. However, non-resident property owners are always taxed on their assets located in Spain (car, houses, bank accounts etc).
The value of the house to be declared is the official cadastral value which can be found on any I.B.I receipt, the amount you have deposited in a Spanish bank is the average cleared balance over the previous year.
Tax Rates are progressive depending on the type of property, ranging from 0.20 to 0.50 percent according to the Spanish law applicable; national or regional law.
These are only general guidelines and not definitive statements of the law. All questions about the law's applications to individual cases shall be directed to a Spanish lawyer.
Article by iAbogado Servicios Jurídicos SL (Madrid, Spain). Visit www.SpainLawyer.com for more original content like this.
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