Taxes in Spain

Thinking of moving to Spain? Whether you plan to work there or invest in property, it pays to understand the Spanish tax system. Taxes can look complicated in any country, but they are not as frightening as they seem. This article covers the different kinds of fees, taxes and contributions. Let's get started!

The tax system in Spain

Spain distinguishes three kinds of levies: fees (tasas), special contributions (contribuciones especiales) and taxes (impuestos). In Poland the words "fee" and "tax" are often used interchangeably, but in Spain fees and contributions are charged for services provided by public administration and are therefore not considered taxes.

Tax decentralisation

The Spanish tax system can seem complex because it is decentralised. Residents, business owners, investors and employees posted to Spain deal with national, regional and local taxes. Local authorities have the biggest influence on the tax system in a given region.

Spain consists of 17 autonomous communities and provinces with considerable freedom of action, although their decisions do not affect nationwide taxes. Note also that people liable to tax in Spain pay progressive taxes. Below is a description of the most common tax obligations.

National taxes

The basic division of taxes in Spain is between direct and indirect. Direct taxes burden the assets or income of an individual or company, using progressive or flat rates. Indirect taxes are not charged directly to those who bear them but are added when goods are bought.

Indirect taxes

Value added tax, VAT (Impuesto sobre el Valor Añadido): Spain has several VAT rates: 21%, 10% and 4%. Medical and educational services, financial operations and insurance are fully exempt from VAT (0%).

Direct taxes

Personal income tax (Impuesto sobre la Renta de las Personas Físicas, IRPF): This applies to residents who spend 183 days a year in Spain and to people running a business. It is progressive, and the rate varies with the level of income.

Tax-free allowance

The tax-free allowance depends on age:

under 65 – 5,550 euros
65-74 – 6,700 euros
over 75 – 8,100 euros

Additional allowances are available for people filing jointly with a spouse, with children, or caring for people with disabilities.

Personal income tax scale

up to EUR 12,450 – 19%
EUR 12,450-20,000 – 24%
EUR 20,200-35,200 – 30%
EUR 35,200-60,000 – 37%
EUR 60,000-300,000 – 45%
over EUR 300,000 – 47%

Corporate income tax (Impuesto sobre Sociedades): This applies to legal entities based in Spain. The general rate is 25%, with some exceptions and reliefs. Sole traders must pay income tax, VAT and social security contributions.

Income tax for non-residents (Impuesto sobre la Renta de No Residentes): Non-EU residents pay at 24% and EU residents at 19%.

Inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones): This applies to assets that are inherited or given as a gift. The tax must be paid within 6 months.

Taxation of capital gains: Tax on savings is progressive, with a minimum rate of 19%:

up to EUR 6,000 – 19%
up to EUR 50,000 – 21%
up to EUR 200,000 – 23%
over EUR 200,000 – 26%

For non-residents the rate is 19%.

Property taxes in Spain

This topic matters most to anyone interested in buying in Spain. Even if you are not a resident, you must pay tax for owning property in the country. There are tax reliefs for properties worth less than EUR 700,000.

Property tax (Impuesto sobre Bienes Inmuebles, IBI)

IBI is a municipal tax calculated by the town hall where the property is located. The tax base is the property's cadastral value, and the amount is calculated every year. If you own property in Spain you will pay from 0.40% to 1.16% of its value. For example, for a property worth EUR 350,000 the tax would be EUR 500 to 700 a year. Amounts differ from one municipality to another, so there is no universal formula.

Taxes when buying a property

When buying a property in Spain, VAT (Impuesto sobre el Valor Añadido) of 10% of the purchase price applies, plus around 1–1.5% stamp duty.

Tax on rental income

If you rent out your property in Spain, you will pay 19% income tax. In months when the property is not rented, the tax is 2% of the cadastral value, which differs by municipality.

Tax advantages for residents

Spanish and EU citizens pay 19% tax on rental income, while non-EU citizens are taxed at 24%. Residents can also benefit from a 50% deduction of expenses, which does not apply to non-residents. If you register your property as a tourist rental, you can deduct the costs of maintaining it, which lowers the tax due.

Deductible expenses

Some costs that can be deducted from actual or deemed income:

interest on mortgages taken out to buy or renovate the property,
costs of buying the property, such as transfer tax and legal fees,
taxes other than national ones, such as local rates (IBI),
maintenance and repair costs,
community fees,
insurance policies,
utilities, if paid by the landlord,
advertising costs.

Tax rules change and how they apply depends on each person's situation. Before deciding, it is worth consulting a tax adviser in Spain.