Spain’s taxation system is structured to address both national and regional requirements. Taxes are imposed on individuals, companies, and goods.
The tax system is divided into state, regional, and local taxes. Learn the details, including taxation law of Spain for Golden Visa holders, with Albert Ioffe, a Legal and Compliance Officer at Immigrant Invest.
Income tax in Spain
Known as Impuesto sobre la Renta de las Personas Físicas (IRPF), the income tax applies to individuals based on their residency status, including Spain residency by investment.
Spanish tax residents are subject to taxation on their worldwide income, while non-residents are taxed only on income generated within Spain.
Income tax rates
- up to €12,450: 9.5%;
- €12,451—20,200: 12%;
- €20,201—35,200: 15%;
- €35,201—60,000: 18.5%;
- above €60,000: 22.5%.
Regional income tax rates can be different in autonomous communities. For instance, 18.5% in Madrid, or 23.5% in Catalonia for incomes above €60,000.
Deductions and exemptions on the individual income tax are aimed at families and retirees. The basic tax-free personal allowance is €5,550, which increases to €6,700 for individuals over 65 and €8,100 for those over 75.
Family allowance deductions are: €2,400 for the first dependent child, €2,700 for the second, €4,000 for the third, and €4,500 for the fourth child. There is an additional €2,800 for each child under three years of age.
Those who have an elderly relative living with them and the total income below €8,000, can claim an allowance of €1,150 if they’re over 65 and €2,550 if they’re over 75.
Mortgage interest on primary residence can be subjected to deduction of up to 15% of the interest paid, with a cap of €9,040.
Non-resident income tax (Impuesto sobre la Renta de no Residentes) rates in Spain depend on income type:
- employment Income — 24% up to €600,000, or 47% above €600,000;
- investment Income — 19% on dividends, interest, and capital gains;
- rental income — 24% on gross income.
Working non-residents can also use the Beckham Law and opt for a flat tax rate of 24% on their income up to €600,000 for six years.
The filing period for the income tax in Spain is from April to June of the following year. For example, for the 2023 tax year, the returns must be filed between April and June 30, 2024. During this period, taxpayers submit their tax returns online, by phone, or in person at the tax office.
Wealth tax in Spain
Wealth tax (Impuesto sobre el Patrimonio) for Spanish residents is levied on their global assets. There are several types of allowances:
- General allowances depending on a region. For example, in the Comunidad Valenciana, residents receive a €500,000 deduction per person, while in Murcia, it’s €700,000 per person.
- Main home allowance. €300,000 per owner is applied to one’s main home, reducing the taxable value of this property.
Assets exempt from wealth tax include business assets if the owner is actively involved, certain cultural assets like art collections, pension plans, and life insurance policies under specific conditions.
Shares in both listed and unlisted entities can qualify for wealth tax exemptions if certain criteria are met:
- An individual must own at least 5% of the company’s share capital. Alternatively, their close family must collectively hold at least 20%.
- An individual actively manages the company and earns a salary, making up at least 50% of their total net income.
- The company’s main activity must not be property or financial management but an active business.
Non-EU residents in Spain are taxed only on assets they own in Spain, such as property, or investments. They can apply the wealth tax rules of the autonomous region where their highest-valued assets are located, potentially benefiting from local tax treatment. General wealth tax deduction for non-residents is €700,000 per person.
All non-residents must file a declaration if the net taxable amount remains positive after applying deductions, or if the total gross value of Spanish assets exceeds €2 million, regardless of deductions.
Inheritance and gift taxes (Impuesto sobre Sucesiones y Donaciones) vary based on the relationship between the donor and recipient:
- between 7.65% and 34% for children and parents;
- between 15% and 45% for siblings, nieces, and nephews;
- between 34% and 48% for non-relatives.
Spouses receive a tax exemption if inheriting up to €1 million in assets. Children under 21 are eligible for a full inheritance tax exemption on inherited amounts up to €100,000. Disabled individuals are granted an additional inheritance tax exemption of €47,859, on top of the standard exemptions.
Corporate tax in Spain
Also known as Impuesto de Sociedades, the corporate tax in Spain applies to resident companies on their worldwide income. Non-resident companies are taxed only on income generated in Spain. The standard rate is 25%. Income derived from foreign sources can be deducted to avoid double taxation.
Reduced rates are applied to the newly established companies: 15% for the first two years of profit. Small and medium-sized enterprises (SMEs) with a turnover below €1 million are taxed 20% for companies. Capital gains from the sale of shares in startups held for more than three years are exempt.
Depreciation rates vary by asset type, with buildings typically depreciated at 3%, machinery at 12%, and vehicles at 16%. Deductions starting at 8% can apply to expenses related to R&D activities and technological innovation activities.
Environmental taxes include levies on carbon emissions, waste management, plastic packaging, and water usage. For instance, the carbon tax is €30 per ton of CO2 emitted, but companies investing in green technology can receive tax credits. The plastic tax is €0.45 per kilogram of non-recyclable plastic, with the exception of biodegradable plastics.
Social security contributions, or Contribuciones a la Seguridad Social, are mandatory for both employees and employers. The general rates are:
- For employees — 6.47% of gross salary.
- For employers — 30.48% of gross salary.
Corporate tax filings in Spain are due within six months and 25 days after the fiscal year ends. Companies must submit Form 200, report financial details, and pay taxes on profits. Extensions or deferrals may apply. Social security contributions are paid monthly.
Value-added tax in Spain
Also known as Impuesto sobre el Valor Añadido (IVA), the VAT is levied on the sale of goods and services in Spain. The standard rate is 21%.
Reduced VAT rates apply for the following goods and services:
- basic foodstuffs; fresh fruits, vegetables, bread, milk, and eggs typically — 4%;
- pharmaceutical products; medications, medical devices, and certain healthcare products — 4%;
- books, newspapers, and magazines; printed publications, excluding advertising material — 4%;
- passenger transport services; public transportation, including buses, trains, and flights within Spain — 10%;
- tourism and hospitality services; hotel accommodations and related services — around 10%;
- cultural events; theatre, concerts, museums, and similar cultural activities — 10%;
- social housing projects — 10%.
VAT exemptions are applied to healthcare, educational, social, and financial services.
Simplified VAT regime (Régimen Simplificado) is available to businesses with turnover under €250,000, where VAT is calculated based on standard profit margins. Other special VAT regimes include:
- for agriculture, livestock, and fisheries — a flat-rate compensation of 12% replaces regular VAT;
- for retailers — a surcharge of 5.2% for general goods; 1.4% for goods with a 10% VAT rate; 0.5% for super-reduced 4% VAT goods;
- for travel agencies — VAT is calculated on the margin between service costs and sales prices;
- for used goods, art, antiques, and collectibles — VAT is applied only to the margin, which often results in lower effective rates.
VAT grouping regime in Spain has no specific rate, and allows groups of companies to file VAT returns collectively, simplifying administration for businesses with multiple entities.
Property tax in Spain
Also known as Impuesto sobre Bienes Inmuebles (IBI), the property tax in Spain is levied on the ownership of real estate. Urban properties are taxed between 0.4% and 1.1% of cadastral value, while rural properties are taxed between 0.3% and 0.9%.
Government-owned properties and properties used for charitable purposes are not taxed.
Capital gains tax is levied on the profit made from selling a property. The rates are:
- up to €6,000 — 19%;
- between €6,001 and 50,000 — 21%;
- over €50,000 — 23%.
Exemptions are available for those reinvesting in another primary residence, and for individuals over 65 years old who sell their primary residence.
Why consider Spain as a tax residency
Despite still being one of the few EU countries with a wealth tax, Spain can be advantageous, particularly for expatriates, businesses involved in innovation, and individuals residing in specific regions. Let’s elaborate on several such advantages.
1. The Beckham Law, which includes being taxed at a flat rate of 24% on income up to €600,000, is especially convenient for foreign workers, providing they have not been Spanish residents in the last 10 years. This regime is available for those with a permanent resident status.
2. Residence permit holders who establish research and development activities in Spain and engage in can access the country’s generous R&D tax credits. The deductions can reach 25%. These incentives are not limited to Spanish nationals, meaning foreign residents with permits can also benefit.
3. The standard corporate tax rate of 25% is competitive compared to many other European countries, especially considering the reduced rates for SMEs and new businesses. Foreign nationals with a residence permit who start small or medium-sized enterprises (SMEs) in Spain can be eligible.
4. Resident permit holders who choose to live in a region like Madrid can benefit from the regional exemptions from the wealth tax. This is particularly relevant for those who might accumulate significant assets while residing in Spain.
5. Various personal income tax allowances are available to tax residents with a residence permit in Spain, such as those for dependents, elderly family members, and disabilities.
How to become a resident of Spain
Spain is one of the Golden Visa countries. While the program is supposedly set to be discontinued, investors still have time to apply.
Investment options include:
- Commercial or residential real estate — €500,000+.
- Bank deposit — €1,000,000+.
- Company shares — €1,000,000+.
- Investment fund units — €1,000,000+.
- Government bonds — €2,000,000+.
Additionally, an investor must transfer €28,800+ to a bank account in Spain.
Family inclusion is supported. Investors can add their spouse, dependent children, and dependent parents in their application.
If approved, applicants receive a residence permit for three years, which can be extended for another five.
After 10 years of living in Spain, they can either become permanent residents, or apply for citizenship. Note that Spain does not support dual citizenship, so any other one will have to be revoked.
In a nutshell
Spain’s tax system in 2024 remains structured, and can be beneficial for both individuals and entrepreneurs, residents, and non-residents. One of the best ways to become a resident is by applying for the Spain Golden Visa program. It is set to end, but investors can still apply as of Autumn 2024.
