The Beginner’s Guide To Tax In Spain For Residents

Tax in Spain for residents

Perhaps you are looking to move to Spain or perhaps you already live here. Either way, you should be aware that if you are in Spain for more than 183 days in a calendar year (and these need not be sequential) then you are a resident.

As a resident you have certain obligations tax wise:

  • Local Taxes (Council Tax, IBI)
  • Resident income tax

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LOCAL TAXES

Residents have one tax to pay on their property provided it is their main residence. This is the council tax or IBI (Impuesto Sobre Bienes Inmuebles). The time when it is due depends upon the region you live in. In some areas it is paid directly to the town hall whereas in others a third party, such as SUMA, is responsible for collecting it.

This tax goes towards paying for local services such as the maintenance of facilities, parks and leisure areas and other infrastructure provided by the Town Hall. Rubbish collection is charged for separately either as part of your water bill or as a separate service charge issued by the Town Hall or SUMA.

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INCOME TAX IN SPAIN

Perhaps what worries people most is the prospect of paying income tax in Spain. According to certain criteria, every resident is required to complete a resident tax declaration before the end of June each year.

This resident tax declaration covers the period of income for the year before. So at the 25th June 2015 deadline, the tax period in question will be from January 2014 to December 2014. In your declaration you should declare all the world-wide income you have including any interest received from savings, any rental income or any capital gains from the sale of a house or other assets.

You will also declare at this point any earned income, either from work you are still doing or from a pension that you have. If you have a civil service pension that has already had the tax deducted at source, then you will not be taxed on this twice. However, it is now taken into consideration when working out your total income and can make a difference to your tax band.

The amount of tax you are charged depends upon your allowance and your income.  Your personal allowance is based upon your circumstances including age and if you have a disability.

If you are working in Spain and are on a contract then you will already have had a “retention” from your salary which means that you have the predicted tax already deducted from your wage. When it comes to tax declaration time you should not have much, if any, tax still to pay and may even have some returned to you.

Autonomos (the self-employed) pay their tax quarterly and usually require an accountant to calculate it. At the resident tax declaration time, the exact amount of tax they should have paid for that calendar year is calculated and again, some tax may be returned or further payment might be needed.

Not everyone must make a resident tax declaration. For example, if you receive only one pension that is less than 11,200€ you are exempt from having to make one unless you have other income like interests, capital gain or dividend. However, we still recommend that you complete a tax return as a means of showing that you are a fiscal resident and compliant with Spanish tax law. It is possible to make one and submit a nil return.

 

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TAX ALLOWANCES 

Everyone has an “allowance” below which their income will not be taxed. Working out exactly what this allowance will be can be quite complicated. Any tables, such as that below, should be used as a rough guide and your exact tax bill should be calculated by a fiscal expert.

The fiscal reform has introduced new levels of allowance and tax bands that you should be aware of. The resident tax declaration in June 2015 will use the current allowances and bands, as it applies to the 2014 tax year. The tax declaration in 2016 will be based upon the new rates.

 

  Tax year 2014 Tax year 2015
Personal allowance 5151€ 5,550€
Over the age of 65 +918€ + 1,150€
Over the age of 75 +1,122€ + 1,400€
Incapacity allowance +2,316€ + 3,000€
Incapacity allowance  > 65% +7,038€ + 9,000€
Married persons allowance joint tax 3,400€ 3,400€
Deduction for other work related expenses _ 2,000€

 

The amount of tax you will pay depends upon which band your earnings fall into. You will not pay tax on your “allowance” but on the remaining amount.

Tax year 2014 Tax year 2015
Up to 17,707€ 24.75% Up to 12,450€ 20%
From 17,707€ to 33,007€ 30% From 12,450€ to 20,200€ 25%
From 33,007€ to 53,407€ 40% From 20,200€ to 35,200€ 31%
From 53,407€ to 120,000€ 47% From 35,200€ to 60,000€ 39%
From 120,000€ to 175,000€ 49% Upwards 60,000€ 47%
From 175,000€ to 300,000€ 51%
Upwards of 300,000€ 52%

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TAX BANDS

So, for example. If you are a single person of 66 years old, with an annual income of 28,000€ made up from three separate pensions, your tax calculation before June 25th 2015 might go something like this:

Personal allowance:   5151€

Over the age of 65:      918€

                      Total:  6069€

 

Up to 6,069€  =      tax free

11,638€  taxed at (24.75%)  =       2,880€

10,293€  taxed at (30%)       =       3,088€

                        Total to pay =      5,968€

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HOW TO MAKE A RESIDENT TAX DECLARATION

The annual resident tax declaration must be completed and presented before the June 25th 2015 each year.  A fiscal representative like Ábaco Advisers submits these on behalf of its clients and can give you the advice you need about the documents to bring to the appointment.

The appointment at Ábaco usually takes about hour, we check how much the tax will be and can tell people straight away if there is anything to pay or not.

If you are in the fortunate position of having overpaid tax and are due a refund, the Spanish Tax Authority is required to return it within 6 months. Any refunds are paid directly into your bank account.

It might seem something of a mammoth tax at first. Take it one step at a time, with advice from the professionals and paying your resident taxes will become as familiar a process as it was in your home country.

Suzanne O’Connell – Abaco Advisers

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Comments

  1. Jess says

    HI David.

    Excellent as usual, especially the information on tax.

    Although you never told me how to pay less tax. !!!!!!!!!!!!!!

    I am sure newcomers to Spain will find the information of great interest.

    Regards Jess

  2. Bernard says

    Thank you for the info: on paying Tax. But if someone only received one state pension and maybe two thousand euros in interest paid in Spain. This may only add up to less than your allowance for the year.
    Do you still have to pay someone about 150euros to fill this in for you or can it be done yourself with out this charge as in the UK. If this can be done yourself where do you obtain the forms for it.
    Thanks Bernard

  3. Suzanne O'Connell says

    Hi Bernard
    You will have to present a resident tax declaration because you have interest of more than 1,000€. You can complete the form yourself but you will have to download the programme and complete the form in Spanish. You will also need a number from the tax office in order to be able to do so.

  4. Patricia says

    We r pensioner both over 70 yrs of age. We currently pay taxes to HMRC UK ON ALL OF OUR PENSIONS, INVESTMENTS, SAVINGS . We are fiscal residents of Uk but we do spend time in Spain and are registered as residents. Surely we don’t have to pay taxes on the same income in both countries

    Regards Patricia

  5. Suzanne O'Connell says

    Dear Patricia
    The problem is that you seem to be registered as residents in two countries. You should only be resident in Spain if you spend more than 183 days here a year. From the sound of your query you don’t. If you are a UK resident and only visit Spain then you do not need to pay taxes on your income such as pensions and investments in Spain. You will, however, still need to pay property tax here.

  6. Frank Talbot says

    just looking at taking residencia in Spain and need to know about taxes etc. The article re the taxation levels are extremely helpful towards deciding what to do. The next hurdle is re Inheritance taxation levels as in the UK no tax is payable unless you have £355,000.
    thank you once again
    Frank

    • David Ruiz says

      Hi Frank,

      Thanks for giving such a great idea :-) I will propose the legal advisers writing a guest post covering that topic!

      All the best,

      David

  7. Mr stranks says

    Hi we moved to spain in May last year,I have been paying non residence tax for a few years,as we have a property here,now we are both fiscal residents.
    I receive about 18,000 euros a year pension my wife receives 3600 a year pension.
    What would I pay if I change over to pay tax in Spain.my age is 69 and my wife is
    68.
    Kind Regards Mr Norman Stranks
    Ps at the moment I am paying tax on these pensions in the uk but would it be worth me
    Paying tax in Spain on them?

  8. Kevin says

    Hi, I am in Gran Canaria (I appreciate the local tax differences.).
    My question is as folows:
    From August 2916 I will receive my pension aged 55 (via QROPS). My Spouse is 50 and my dependent. Am I enrolled to a tax break as a married couple?

    • David Ruiz says

      Hi Kevin,

      This is a guest post. Please contact the author here, they’ll help you out

      Best wishes

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