Being taxed for income in Spain
If you are a Non-Spanish national living and working or retired in Spain, or are looking to live in Spain full time, you will need to know the relevant taxes related to your specific income.
Sometimes, it is difficult to obtain the necessary income & tax answers that you need. Therefore, at PSI Consultants we have compiled a list of the most important income taxes that are liable to be paid in Spain.
1). EMPLOYMENT INCOME
British residents living in Spain are liable to taxed on worldwide income from any employment. It is irrelevant if the work is provided in Spain or in another country. So long as you earn gross employment income and bonuses, you will be taxed in Spain as general income. Having said that, there are some special rules for certain benefits, meanwhile you may be able to apply for an exemption for work performed overseas, although this is subject to specific requirements.
2). BECKHAM LAW
British nationals who become Spanish residents as a result of employed work in Spain, may be able to utilise a special tax regime. You will be allowed to opt to be taxed as non-residents for the year of arrival and the following five years. Although, you will have to manually apply for this regime in the first 6 months of employment and living in Spain.
There will be many terms and conditions and therefore you will need to investigate if your particular circumstance is applicable to this regime. The Beckham Law only apply’s to applicants who work directly for a business and not self-employed work or to retired pensioners.
3). SELF-EMPLOYED INCOME
Income from self-employed work will be subject to a specific tax band depending on how much is earned. The net profit of income is considered for taxation, this is the gross income minus the business expenses.
Regardless of how much is earned, you will have to register for VAT (IVA) whether you are self-employed or your business is structured as a company. The standard rate of IVA is 21%. However, certain services are exempt or subject to reduced rates.
4). RENTAL INCOME
There is a 60% tax reduction for Spanish residents, available against the net rental income before tax is payable. This is applicable to a property that is being rented from the renters main home (Arrendamiento de bienes inmuebles destinados a vivienda) and not short-term holiday lets.
The net rental income is the amount due after deducting usual day-to-day running expenses, such as managing agents’ fees, home insurance, mortgage interest, repairs and maintenance and so on.
Non-residents who live in a country a part of the European Union are taxed on the net rental income from Spanish property after expenses at the flat rate of 19%. Non European Union residents pay tax at 24% on the gross rental income and expenses cannot be deducted.
5). NATIONAL RENTAL INCOME
If you own a property in Spain that is not your main home, a notional rental income (Imputación de Rentas Inmobiliarias) is deemed to arise for periods where the property is not being let and is empty. This income for Spanish residents is added to their general income and taxed at progressive rates relating to how much is earned. Non-residents from the European Union are taxed at 19% while non-residents from outside the European Union are taxed at 24%.
This tax is based on 1.1% of the value (Valor Catastral) of the property owned in Spain. This is shown in IBI (Impuesto sobre Bienes Inmuebles) or SUMA, depending where your property is located in Spain. The Valor Catastral value will increase to 2% if it has not been revised in the last ten years.
This national rental tax applies to empty overseas properties owned by Spanish residents.
6). PENSION INCOME
Spain taxes pensions as general income and therefore the rates vary depending in which area you are a resident in Spain. There is a UK - Spain ‘Double Tax Treaty’ which determines where Spanish residents are taxed, however the completion of Brexit may change this situation. For now:
Lump sum pensions from the UK are completely taxable in Spain.
Private pensions from the UK are taxable only in Spain.
State pensions from the UK are taxable only in Spain.
Occupational pensions from the UK are taxable only in Spain.
Government service pensions from the UK are only taxable in the UK.
It is important for you to notify HM Revenue & Customs that you no longer reside in the UK and that you are registered and paying tax in Spain, otherwise pension income will be taxed in the UK. For UK state retirement pension, you will be paid at gross.
You will need to obtain a tax residency certificate from your local Spanish tax office to confirm your residency in Spain, and send this off to HMRC PAYE, PO Box 1970, Liverpool, L75 1WX.
At PSI Consultants, our experienced legal, fiscal & visa experts can help you acquire residency & nationality in Spain through property investment in Spain. We will guide you through the whole process of gaining Golden Visa residency in Spain and we offer a wide range of services related to the management and transmission of property ownership in our department dedicated to conveyancing, donations & inheritances. Also in our legal department we manage the obtaining of NIEs, Residences, Wills, private contracts, representation and personalized legal consultation on all related matters.
If you would like to learn more about our Spanish services in the Costa Blanca area, please feel free to contact us at any time when our office is open between 9am - 2:30-pm, Mondays to Fridays.
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