Global expatriate tax guide

Expatriate tax - Spain

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Expatriates taking up employment in Spain will be subject to comprehensive rules and, in some cases, employment visa requirements.

The GMS tax team at Grant Thornton Spain can help expatriates and their employers to navigate Spanish tax, labour and social security issues as well as employment visa matters.

In particular, Grant Thornton Spain can help expatriates and their employers to identify Spanish tax planning opportunities, review tax equalisation policies, and provide compliance services regarding Spanish tax and Social Security filing requirements.

Click on each of the areas below to expand for more information:

Facts and figures
Pre arrival procedures

Non-European Union (EU) nationals who wish to work and reside in Spain must apply for work permits. Please note they may not work while their work permits are being processed.

In Spain there are different types of work permits. It would be necessary to analyse which work permit is applicable for the individual according to personal circumstances.

EU nationals are not required to apply for a work permit to undertake employment in Spain. European Economic Area (EEA) nationals and nationals of Switzerland follow the same rules.

Employment visas

After arriving in Spain, non-EU nationals are required to apply for a work permit.

Applying for a work permit in Spain is a lengthy process. In total, the procedure may take from three to 12 months (except for the special immigration procedures applicable to highly qualified employees, top executives, scientists, and international artists), depending on several factors.

Tax year

The Spanish tax year runs from 1 January to 31 December (calendar year).

Tax returns and compliance

The Spanish tax system operates through self- assessment.

Tax Returns of Spanish tax residents are usually filed from 4 April to 30 June following the end of the calendar year and no extensions are allowed.

Certain regions may deviate slightly from this timeframe.

In addition, Spanish tax residents that apply the Special Tax Regime (so called Beckham Law) will have the same filing period.

Non-residents with taxable income must file tax returns, unless they are subject to compulsory withholding tax for the entire amount due.

Specific filing deadlines apply to non-residents and, as a general rule, non-residents must report income and pay taxes on a quarterly basis (first 20 days of April, July, October and January for income accrual dates, which fall within the previous quarter). Non-Resident returns related to deemed income from the holding of real estate may be submitted until 31 December of the following year.

Additionally, Spanish residents must complete and file the Spanish informative form of assets and rights located outside of Spain (so-called Spanish FATCA). Spanish tax regulations establish requirements for tax residents in Spain to report details of their assets and rights located outside of Spain. Taxpayers should file this informative form before March 31st following the end of the tax year to be reported. Severe penalties may be imposed on non-compliant taxpayers.

This Spanish informative form of assets and rights located abroad is also mentioned in the section 'other taxes'.

Income tax rates

Spanish regulations foresee two main taxation regimes depending mainly on tax residence.

On the one hand, ordinary residents are subject to Spanish income tax on worldwide income and assets, regardless of where it was generated.
On the other hand, non-tax residents in Spain, are subject to tax in Spain on income and assets from Spanish sources only.

Further to the regimes previously commented, Spanish regulations foresee a Special Tax Regime (so-called Beckham Law) for individuals who come to Spain to work and become Spanish tax residents. In order to apply for this Special Tax Regime, the following requirements have to be met:

  • The individual has not been a tax resident in Spain for 10 years prior to his arrival to Spanish territory.
  • The arrival to Spain has to be a consequence of an employment contract/ assignment or the acquisition of the condition of administrator of a Spanish entity.

Hence, if the mentioned requirements are met, there exists the option to apply for this Special Tax Regime. The granting of the Special tax regime will entail the possibility of paying tax mainly according to the rules for non-residents (except for employment income where worldwide employment income would be subject to tax, however, at beneficial rates). This regime applies for six years (the year when the residence is acquired and the following five years).

For ordinary Spanish tax residents, the tax applicable would be the General tax rates plus the Autonomous Region rates where the individual resides.

The final marginal rate shall be the aggregate of General and Autonomous region rates that may vary between 43,5% and 52%.

Please find below the employment income tax rates for 2019:

Net taxable income (up to) - EUR

Gross tax payable - EUR

Rest of net taxable income- EUR

Tax rates (*)

0.00 0.00 12,450.00 19%
12,450.00 2,364.94 7,750.00 24%
20,200.00 4,225.50 15,000.00 30%
35,200.00 8,725.50 24,800.00 37%
60,000.00 17,901.50 upwards 45%

*Tax rates shown are made up of the sum of the state and standard regional tax rates, there may, therefore, be variations as a consequence of the regional rates approved by each Autonomous region (these rates are also used for withholding tax purposes).

Employment income derived by non-tax residents is generally subject to a flat tax of 24% (or 19% for residents of other EU member states and EEA countries).

Finally, employment income tax rates for the Spanish tax residents under the Special Tax Regime are as follows:

Taxable income- EUR Tax rate
Up to 600.000,00 24%
Over 600.000,00 45%

Please note that for capital gains and investment income there are different rates as explained in the following sections.

Sample income tax calculation

Assumptions

  • Individual ordinary tax resident in Spain for the year 2019, single with no children.
  • The rates used are the ones listed in employment income tax rates for 2019 chart above.
Tax calculation  € amount
Salary 150,000.00
Gross general tax base 150,000.00
Social security contributions -3,101.42
General expense deduction -2,000.00
   
Net general tax base 144,898.58
   
Taxable income up to €60,000.00 17,901.50
Excess 45%
   
Gross general tax liability 56,105.86
Personal allowance 5,550.00
   
Taxable income from €0.00 to €12,450.00 19%
Deduction -1,054.50
Total net tax liability after personal allowances. 55,051.36

 

Basis of taxation
Charge to tax

An ordinary resident in Spain is taxed on his worldwide income from 1 January 31 December.

Under the Special Tax Regime, tax residents are taxed on Spanish source income only, except employment income that is taxed on a worldwide basis (double tax relief available).

A non-resident in Spain is taxed on Spanish source income only.

Residence

Individuals are subject to tax based on residence and the source of income.

Determination of tax residence in Spain

According to Spanish domestic regulations, an individual is deemed to have the status of resident for tax purposes in Spain when any of the following requirements are met:

  • Presence in Spanish territory for more than 183 days of the calendar year. For this purpose, sporadic absences shall be included in the total amount of days spent in Spain during a year, unless tax residence in another country is proven (for instance a Tax certificate from a foreign country may be of aid).
  • Location in Spain of the taxpayer’s main centre of business activities or interests (centre of economic interests).

According to the above criteria, when the taxpayer’s family (non-separated spouse and dependent minor children) are Spanish tax residents, this circumstance shall lead to the assumption that the taxpayer is also a tax resident (although proof to the contrary is accepted).

In addition to this, when a taxpayer with Spanish citizenship becomes a resident of a country or territory which is officially classified as a Tax Haven, they will be deemed to be a tax resident in Spain for the period in which the change of residence takes place and for the next four tax periods.

In other words, should an individual depart to a territory considered a Tax Heaven (according to Spanish regulations), the individual shall have to pay taxes as Spanish tax resident during the following five years.

Unlike the way a person’s tax status is determined in other countries, a person’s status as a tax resident or non- resident shall last for the entire year (January 1st to December 31st). Partial residency in a particular year does not apply in Spain.

Applicable regulations

The status of tax residents or non- residents in Spain will determine the applicable regulations.

Spanish tax resident individuals are subject to ordinary resident taxation or may apply for the Special Regime taxation.

Ordinary residents shall be taxed according to the Personal Income Tax Act (IRPF), while the Special Regime residents, shall apply mainly specific rules applicable to non-residents.

Spanish non-tax residents shall mainly apply the Non- Residents Income Tax Act (IRNR).

All this notwithstanding, priority shall be given to the rules stipulated in the international agreements signed by Spain.

Income from employment

All the employment income derived by the taxpayer will be subject to personal income tax, regardless of its type (cash or in-kind), the location where it was earned, and the payor of such income.

Notwithstanding the above, tax residents in Spain can benefit from certain expenses and deductions related to specific personal circumstances (such as out of pocket expenses, joint tax returns, medical insurance, etc.).

We would like to highlight the exemption for work performed abroad (outside of Spain), that can convey important tax savings to employees that apply for this exemption.

Please note that each of the exemptions is subject to specific requirements. Therefore, each particular case will need to be analysed individually.
Finally, for non-tax residents in Spain, no deduction or reduction may be applied, with the exception of taxpayers who are tax residents in the EU and EEA.

Source of employment

Tax residents shall be taxed on employment income regardless of the country of source.

On the contrary, Non-residents shall only be taxed on income earned from employment undertaken in Spain (subject to the relevant double taxation treaty).

Benefit in kind

Benefits in kind are subject to tax in Spain and valued pursuant to the Personal Income Tax Act rules.

Under certain specific conditions, some benefits are partially or totally exempt from taxation.

Expatriate concessions

As we mentioned, Spanish tax residents can benefit from exemptions as the exemption for work performed abroad, the relocation allowance and travel expense allowances, among others.

These tax benefits have to be analysed to determine which is most beneficial, as some of these tax benefits may not be applied simultaneously.

Relief for foreign taxes

When Spanish tax residents are subject to double taxation (in Spain and in a foreign jurisdiction), tax relief can be obtained by virtue of Spanish Income Tax Act rules or the relevant double tax treaty.

Deductions from taxable income

Social Security contributions may be deducted from the taxable employment income of tax residents.

Contributions to a Spanish regulated pension plan reduce the tax base. The annual deduction is limited to a maximum of EUR 8.000 and is subject to certain conditions.

Interest expenses and real estate depreciation are deductible expenses against rental income.

It is possible to apply a deduction for donations to certain organizations, according to the conditions established by Personal Income Tax Law. A deduction of 75% could be applicable on the first 150 Eur donated and 30% on the excess of the amounts donated to certain Spanish non-profit organisations.

Non- residents are generally not entitled to deduct any expenses, except when they qualify as tax resident in other EU member states or EEA member states.

Finally, there are personal allowances that can reduce the tax liability, such as the personal allowance, allowance for dependent children living with the taxpayer, or the disability allowance.

Other taxes
Capital gains tax/Investment income

Capital gains are calculated as the difference between the transfer value of an asset and its acquisition value.

Capital gains and investment income such as dividends and interest are subject to the following tax rates:

Savings taxable income- EUR Gross tax payable- EUR Rest of savings taxable income- EUR Tax rate
0 0 6,000.00 19%
6,000.00 1,170.00 44,000.00 21%
50,000.00 10,830.00 Upwards 23%

Spanish ordinary tax residents may be able to offset capital losses incurred on sales of assets against capital gains.

The same tax rates apply for Spanish residents under the Special Tax Regime (19%-23%) with different thresholds.

For Spanish non-tax residents, the applicable tax rate for interest, dividends, and capital gains is 19% and is subject to Double Tax Treaty benefits.

Inheritance, estate, and gift taxes

A Spanish tax resident is taxed on assets and rights acquired through inheritance or gift, regardless of where the assets or rights are located. If the beneficiary is not a tax resident in Spain, inheritance and gift tax applies only to assets located in Spain or to rights that may be executed in Spain.

In cases where the taxpayer and the deceased or donors are close relatives, it is possible to apply for certain tax deductions and exemptions.

Inheritance and gift tax rates, deductions and exemptions may vary depending on the Autonomous region in which the taxpayer resides.

Local taxes

There are local taxes in Spain for which a taxpayer is liable. Most of them are periodical taxes such as real estate tax and vehicle tax.

Nevertheless, owners of urban property shall be subject to the increase in urban land value tax upon disposal of the property (transfer, donation, inheritance, etc.).

Real estate tax

Real estate tax is applicable in Spain. The amount of real estate tax depends on the cadastral value of the property.

The rates vary depending on the location of the real estate, as each City Council has its own rules, rates, specific ratios, etc.

Social security taxes

Contributions

Generally, individuals working in Spain are subject to Social Security contributions.

The employee social insurance contribution rate is 6.35%. Social Security contributions are capped. For 2019, the maximum employee annual social security contribution is EUR 3,101.42.

Totalisation agreements
EU and EEA residents and residents of countries with a Social Security agreement with Spain are entitled to Spanish Social Security relief. The periods in which the relief is applied shall depend on the specific agreement that is applicable.

Stock options

Stock options are taxed as employment income at the time of exercise. The tax is based on the difference between the exercise value and the fair market value of the stock at the time of exercise.

Upon exercise, tax due may be reduced significantly by the application of exemptions and reductions should certain requirements be met.

Any capital gain derived from the subsequent sale of the stock options is subject to the capital gains tax rules described in the capital gains section.

Please note that in the case of tax residents under the Special Tax Regime and non-residents, specific rules for stock options taxation should be considered.

Wealth tax

The Wealth Tax levies the net wealth of individuals.

Ordinary tax residents in Spain will be required to pay Wealth Tax, and will be taxed on all their net assets, irrespective of where they are located (worldwide assets).

Non-residents and residents under the Special Tax Regime will have a tax liability based on assets located in Spain.

The Standard tax rates are progressive, running from 0.2% to 2.5%. Nevertheless, final rates, partial exemptions, full exemptions, and reliefs shall depend on the Autonomous region of residence.

Other specific taxes

Additionally, there are other indirect taxes such as VAT, transfer tax, and stamp duties that may effect transactions in Spain.

Although it is not a tax, we would like to point out that certain Taxpayers have an obligation to report their assets and rights located abroad Spain on the Spanish informative form (so-called Spanish FATCA).

Ordinary tax residents in Spain must file the Informative Form when they own assets and rights that are located abroad and their value exceeds EUR 50,000. Please note the Spanish tax residents under the Special Tax Regime do not have this filing obligation since they follow mainly the non- residents rules.

Failing to comply with this obligation may lead to significant penalties.

Tax planning opportunities

There are many tax planning opportunities and care must be taken to apply the specific rules appropriately. Choosing an individual’s tax residence, applying the work performed abroad exemption, complying with the Special Tax Regime, and Wealth tax planning are just a few examples of how the GT Spain team can advise expatriates on the planning opportunities that fit their personal circumstances.

For further information on expatriate tax services in Spain please contact:

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Pablo Azcona
E
pablo.azcona@es.gt.com

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Juan Martínez
E juan.martinez@es.gt.com