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Overview of Tax Issues for Expats in Spain

Submitted: April 2014

The Spanish tax year runs from the 1 January to the 31 December.

Tax Residence

Generally you will become a tax resident in Spain if you stay for longer than 183 days in a tax year, or if your principle business interests are located in Spain. You may also be considered resident if your spouse and/or dependent children are themselves resident in Spain. As a non-resident you will only be taxed on your Spanish earnings. If you are a resident you are taxed on your worldwide income. If you come to Spain to work for longer than three months, you must obtain a certificate of residence. The certificate will include a foreigner’s identification number or Numero de Identificacion de Extranjero (NIE). For more details see: Taxation - Employment Taxation for Expats in Spain.

Employment/Business Taxes

Spain operates a Pay As You Earn system of employment tax. Income tax (between 24% and 43% after allowances) and social security (approx 6%) will be deducted from your pay by your employer. It is important to give your NIE to your employer as soon as possible to ensure that the correct amount of tax is deducted. Tax varies slightly from region to region in Spain. You may be required to submit a tax return after the end of the year. For more details see: Taxation - Employment Taxation for Expats in Spain.

If you come to Spain to set up in business, you can either be self-employed, or start your own company.

If you plan to be self-employed in Spain, you must choose whether to be a sole trader or an independent professional. You will be taxed on your profit, but also receive the same allowances as if you were an employee.

Starting a company in Spain is a four step process. Companies pay tax in April, October and December on a provisional basis based of the previous year’s earnings; usually with the actual balance due being payable towards the end of July of the following year. The corporate tax rate generally varies between 20% and 30%. New small companies can pay as little as 15% tax in their first year of profitability. For more details see: Taxation - Business Taxation for Expats in Spain.

Investment Taxes

For residents, interest and dividend income is subject to a withholding tax on Spanish-sourced interest of 21%, and must also be reported on your tax return, together with any interest or dividend income from abroad. There is also an additional charge of between 2% and 6% for the 2014 tax year. Non-residents are also subject to withholding tax on Spanish-sourced interest and dividend income; though this may be refundable under certain circumstances. Interest and dividend income received from abroad is generally tax exempt for non-residents in Spain.

Rental income worldwide is taxable for residents in Spain. Non-residents pay tax on Spanish-sourced rental income; tenants may be required to withhold some of the rent to pay a portion of the tax directly to the tax authorities. For more details see: Taxation - Investment Taxation for Expats in Spain.

Tax Treaties

Investment income may also be liable to withholding tax in the country of origin. Spain has a large number of tax treaties in place with other countries. The treaties mean that the amount of withholding tax charged in the country of origin is lowered. Generally the amount that can be charged under a treaty is reduced to 15% or less. For more details see: Taxation – Tax Treaty Considerations for Expats in Spain.

 

 




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