Income tax in Spain
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Personal Income tax in Spain (IRPF) was introduced in 1900. It represents over 50% of government revenues. Since 2007, the responsibility for tax revenue has been decentralised, with the autonomous regions responsible for collecting 50% of tax revenue, although it is collected by the central tax authority on their behalf. A single national rate applies per taxation band for the whole nationportion of the income tax. Tax rates on the regional portion vary from region-to-region with Madrid having the lowest and Catalonia the highest. Tax is withheld by the employer monthly on behalf of the tax authority. Tax returns are submitted between April and June of the following year and reimbursals are paid between May and July.
As in other jurisdictions income tax is payable by both residents and non-residents with different rates applying.
Residence status must be established when filing a Spanish tax return and has consequences for the amount of tax due. The rules are complex. Spain considers any alien to be resident if they were living in Spain for more than 183 days in the tax year. Sporadic periods of time outside of Spain are not counted towards establishing oneself as non-resident for tax purposes. An alien is also considered resident if s/he has a spouse or underage child who are residents, as well as any alien who has their main economic centre in Spain. When there is a residence conflict double taxation agreement must be checked.
Non residents, need to fill a form 210, for every income earned. Some examples of most common income earned by non residents:
- Rented real estate. Must fill every term. Is not allowed to deduct any expenses, unless you are a E.U. resident. Deadline 20 days after the end of each term.
- Non rented real estate. Taxable base is the 1.1% of cadaster value. Deadline December 31 of next year.
- Interest. There is not need to fill any form, if bank withholded 21%, or percentage stated in double taxation agreement. E.U. residents are exempt of tax and withholding, they should pay tax in the residence country.
- Dividends:There is not need to fill any form, if bank withholded 21%, or percentage stated in double taxation agreement.
Certain residents may be considered non-residents under the ¨Impatriate regime¨. This applies to professionals who have not been resident in Spain in the previous 10 years and who move to Spain for professional reasons. This is also known as the Beckham law as it is used by many professional footballers. In 2012 Spain made significant changes to the Beckham Law, effectively ending many of the tax-lowering benefits for non-residents of all income levels. They are only taxed on Spanish source income, up to 600.000 € there is a flat rate of 24,75%.
Residents are taxed on all earned income (wages and investments). Tax payers may choose between the individual regime or the couples regime. Under the couples regime, the combined income of the two taxpayers are considered and the allowances for both taxpayers are deducted (even if one has no income). This method effectively reduces income tax on couples. Taxable income is divided in to parts: general base, saving base. General base includes: salaries, self-employment income, real estate income, short term capital gains and other gains not arising from savings (as prices...) Saving base includes two parts that cannot be compensated one with the other. First one includes interest, dividends and insurance. The other part includes long term capital gains (more than one year)as: stocks, investment funds, real estate.
Determination of taxable income
In order to determine taxable income the tax code allows certain allowances to be deducted from income.
- General allowance for working person:
- Annual income below 9,180: 4,080 euros allowance
- Annual income below 13,260: 4,080 euros minus 0.35% of difference between annual income and 9,180.
- Annual income above 13,260: 2,652 euros allowance
- Personal Allowance: 5,150 (filling jointly deducts 3.400 from taxable base)
- Child allowance:
1st Child 1,836 euros 2nd Child 2,040 euros 3rd Child 3,672 euros 4th & subsequent 4,182 euros
In addition to the basic allowances the tax code also allows taxpayers to deduct social security contributions and private pension plan contributions up to 10,000 euros per year. Once the taxable income has been determined the tax amount is determined.
Determination of general tax payable
The table below determines the amount of tax payable. Tax rates apply per band of income. The rates are marginal rates of tax.
General Scale (Autonnomies could change half of the percentage scale). This scale is applied since 2012 due to European exigencies and the finance crisis in Spain.
|Taxable general base||Tax||Up to||%|
Lowest IRPF: Madrid and Rioja(23%-51,9%), Navarre, Biscay(Bilbao) (22%-43%)
Highest IRPF: Asturias, Catalonia, Andalusia, Extremadura(24,75%-56%)
Source(In Spanish): "Income Tax Law 35/2006"
Example to apply the IRPF Tax
A couple with 2 child and a €100,000 income.
Allowances= 5.151 (for everybody) + 3.400 (for filling jointly)+ 2652 (for any salary, over 13.260 €) + 1,836 (1st child) +2,040 (2nd child)
Taxable income: Tax on general part of income (savings are taxed at a rate in the range 21%-27%)100.000 - salary reduction - joint reduction = 93.948,00
Calculate Tax= + 17.707,20 x 24,75% = 4.382,53 + 15.300,00 x 30,00% = 4.590,00 + 20.400,00 x 40,00% = 8.160,00 + 40.540,80 x 47,00% = 19.054,18 Total taxable income 93.948,00 = Total tax 36.186,71 €
Deduction for allowances 5.151 (for everybody) + 1,836 (1st child) +2,040 (2nd child)= 9.027,00 € Using same scale as before: 9.027 x 24,75 % = 2.234,18 €
Total taxation: 36.186,71 - 2.234,18 = 33.952,53
Amount to pay = Total taxation minus withholding
Deductions from tax due
Once tax due has been determined the tax authorities allow the taxpayer to reduce the tax due by applying certain further allowances. These include,
- Mortgage repayment relief
- Rental cost relief
- Investment in deprived regions
- Regional allowances (Schooling, Children under 3, donations etc.)
Tax on investment income
- Interest, coupon, bonds, insurance and dividends are generally withholded at 21% rate, but are added to savings base and taxed at savings scale. The first 1.500 € of dividends are exempt.
- Long term (+1 year) capital gains on: stocks, investment funds and real estate, are also taxed at savings scale.
- Sort term (-1 year) capital gains are taxed at general scale (24,75%-52%)
* up to 6.000 €: 21% * from 6.000 to 24.000 €: 25% * over 24.000 €: 27%
- Spanish Tax Authority Tax Report 2012. http://www.agenciatributaria.es/AEAT.internet/Inicio_es_ES/La_Agencia_Tributaria/Memorias_y_estadisticas_tributarias/Memorias/Memorias_de_la_Agencia_Tributaria/_Ayuda_Memoria_2012/_Ayuda_Memoria_2012.html
- Tax Residence concept. http://jullastres.es/wordpress/?p=400
- Non Resident Income Tax Law (Spanish) http://noticias.juridicas.com/base_datos/Fiscal/rdleg5-2004.html
- Official non resident tax manual in Spanish http://www.agenciatributaria.es/AEAT/Contenidos_Comunes/No_residentes/Tributacion_de_no_residentes/Folletos_divulgativos/tribnoreside.pdf
- Official non resident taxation manual in English http://www.agenciatributaria.es/static_files/AEAT/Contenidos_Comunes/La_Agencia_Tributaria/Segmentos_Usuarios/Empresas_y_profesionales/Empresario_individuales_y_profesionales/Folletos/IRNR_enero2011_en_gb.pdf
- Non resident income form http://www.agenciatributaria.es/AEAT.internet/Modelos_formularios/modelo_210.shtml
- Taxation of non resident real estate. http://jullastres.es/wordpress/?p=632
- Spanish Income Tax Law (for residents). http://boe.es/buscar/act.php?id=BOE-A-2006-20764