It is no surprise that Spain has attracted people from all over the world looking to relocate, start a company or invest in property but one key thing everyone should know is how the Spanish tax system works. The tax system in Spain changes constantly, so it’s best to be aware of all changes as more often than not expats are the ones who can end up being affected the worst. It is best to understand where you stand to make sure you aren´t doing anything illegal, as the penalties in Spain for failing to declare or paying the wrong amount for your taxes can incur hefty fines and harsh penalties.
Below you will find provided a guide of how much tax you should be paying for the 2016 tax year if you are a resident or non-resident in Spain.
Income tax in Spain
Tax residents in Spain are legally responsible to pay income tax on all worldwide income, after allowances have been calculated and taken into consideration.
The rules vary for a non-resident of Spain, who is only required to pay any tax on income gained in Spain (such as income gained from renting out a property). The taxation rate for non-residents is fixed rate, where they are not granted any personal allowances or deductions.
For this reason it is vital you are clear about whether you are a tax resident in Spain or not, as this can have a significant effect on the amount of income you are required to pay.
Income in Spain can be split into two different categories, general income (renta general) and savings income (renta del ahorro). The total income from each category is classed as the base, after which deductions and allowances can be made.
Residents in Spain are taxed on their worldwide savings income at the relevant progressive tax rates, however non-residents are taxed on their Spanish savings income at a fixed rate.
Some things that come under savings income are:
- Interest income
- Income from life assurance contracts
- Purchased annuity income
- Income from capital gains on the sale/transfer of assets.
If you are a resident in Spain, we have a table below which will give you a clear idea of the rates of tax for savings income in 2016:
If you are a Spanish resident, you are taxed on your worldwide ‘general’ income at progressive scale rates. Anything not categorised as savings income is included here, including:
- All earned income (i.e. salary, self-employment and pension income)
- Income from rentals
- Notional rental income
- Income gained through royalties
- Imputed income and gained not made from the sale/transfer of assets (gambling for example).
Below is a table showing you the general tax rates for general income in 2016. The Spanish government decided to slightly decrease the amount of taxes from 2015 – 2016:
Generally income tax rates will start at 19% for income less than €12,450 and increase to 45% for income higher than €60,000. However, tax rates can vary from region to region therefore meaning that tax rates in your area may be less or more than this.
If you are a non-resident in of Spain, remember that you should only pay taxes on your source of income gained in Spain (eg salary from employment, pension income, rental income, notional rental income etc) and all capital gains at a fixed rate of 19% in the case that you are a resident of an EU or EEA (European Economic Area) country. If you are a resident from outside these EU/EEA states you are required to pay a fixed rate of 24%.
For more information about current tax rates in your region contact Carbray who can assist you with any questions you have.