Tax guide for foreigners establishing their residency in Spain

Moving to Spain involves much more than just changing countries: it also means adapting to a new tax system. Knowing your tax obligations from the outset can help you avoid surprises. In this article we offer a brief guide summarising the most relevant taxes and obligations.

When do you acqTax guide for foreigners establishing their residency in Spainuire tax residency in Spain?

Tax residence in Spain determines which taxes must be paid in this country and on what income. In general, a person is considered a tax resident in Spain if they:

• Stay in Spanish territory for more than 183 days a year (from January to December).

• Have their centre of economic or vital interests in Spain.

• Have a spouse or dependent minor children who habitually reside in Spain.

Main taxes

The most relevant obligations for a tax resident include:

·         Personal Income Tax: progressive tax on worldwide income (income obtained in Spain and abroad), with different tax bases and rates, depending on income received. This income includes salaries, rental income, interest, dividends, capital gains, etc.

·         Wealth Tax: levied on the net value of assets and rights as at 31 December each year, with variations in the minimum exemptions and tax rates depending on the Autonomous Community of residence.

·         Declaration of assets abroad and cryptocurrencies (Forms 720 and 721): informative declaration on bank accounts, real estate, securities or crypto-assets outside Spain with a value exceeding €50,000.

·         Inheritance and Gift Tax: applies to inheritances and gifts received by residents in Spain or residents outside Spain who acquire assets located in Spanish territory.

·         Municipal taxes: IBI (property tax) and municipal capital gains tax (taxes the increase in land value when transferring property; in the case of inheritance, it is paid by the heirs).

·         Taxes on the purchase of property: Transfer Tax for second-hand properties, VAT for first-time sales and Stamp Duty in specific cases.

Double Taxation Agreements

Spain has agreements with over 90 countries to avoid double taxation on the same income. These agreements establish which country has priority for taxing income such as salaries, pensions or dividends, and how taxes paid abroad are offset.

Self-employed obligations

Anyone carrying out an economic activity in Spain must register before the Tax Authorities and the Social Security, keep accounts of their activity and submit periodic tax returns. Only expenses exclusively related to their activity can be deducted.

Special tax regime (‘Beckham Law’)

Some expatriate workers, those appointed as administrators of Spanish companies or new self-employed workers coming from abroad may choose to pay tax at a reduced fixed rate for six years, applicable only to certain income obtained in Spain. To be eligible for this special regime, one cannot have been a tax resident in Spain in the last five years.

If you would like to know in detail all your tax obligations as a tax resident in Spain and how to comply with them correctly, we can provide you with a guide detailing the most important features of each obligation and each tax return. Do not hesitate to ask for more details.

Balagué-Sala Lawyers