Ten questions on Spanish residents' income tax

Warning: The information set out below is a general guideline provided by DOMENECH ABOGADOS. Specific advice should be sought before any action in reliance on it is taken, as explained more fully in this website's legal notice.

1. I am planning to move to live in Spain and am concerned about Spanish Income and Wealth Tax. How does it work?

Spanish residents are subject to Spanish Income Tax on their worldwide income. So once you become a Spanish resident for tax purposes, you’ll have to pay Spanish Income Tax on any income you become entitled to in a given calendar year. In Spain, the tax year matches the calendar year. From 2011 onwards, Wealth Tax on your worldwide assets exceeding certain limits will also apply.

2. What does “Spanish resident for tax purposes” mean?

Generally speaking, that you are spending more than 183 days in Spain in any one calendar year. But, even if you don’t spend as many days as that in Spain each year, you may still be considered a Spanish resident if the core of your economic activity or interests are located in this country.

3. But, as far as I know, the laws of my country of origin will consider me as resident there even if I travel abroad for more than six months each year!

Conflictive cases – ie, where two states claim tax residency for themselves on different grounds - will be sorted out in accordance with double taxation treaty provisions.

4. What are the Spanish Income Tax rates? 

For income obtained during 2021, a general combined rate (which adds what’s due to the central tax authorities as well as to the tax authority of the autonomous region in which you live) may range from 19% to 52%.

5. 52% is a high rate!  Top rates surely apply only to huge levels of income

Yes, but there are also variations depending on the Spanish region involved. Thus, for example, 50% is the rate applicable in Catalunya for general income in excess of Euros 300,000.

6. And this applies to all kind of income? What about capital gains? Are there any exemptions or reductions for capital gains tax?

Certain parts of income, known as “income derived from savings” (mostly dividends and interest, although there are exceptions), and also capital gains, are taxed as follows:

• Up to Euros 6,000: 19%
• Excess up to 44,000: 21%
• Tax due up to 50,000 is 10,380. Excess from 50,000 up to 150,000: 23%.
• Tax due up to 200,000 is 44,800. Over 200,000: 26%

There still remains an important exemption concerning the transfer of an habitual home (subject to specific compliance regulations), and there are also reductions for the transfer of certain assets acquired before the end of 1994.  

7. When do I have to pay Spanish Income Tax as a Spanish tax resident?

Each year, in relation to the previous calendar year. The period to file Spanish tax returns usually runs from the 1 May to the end of June.

8. Can DOMENECH ABOGADOS prepare my tax returns?

Of course. As long as you provide us with sufficient time and information concerning your income, gains and personal circumstances.

9. But, if I’m over 65 and my income consists exclusively of a retirement pension, do I also need to pay Spanish Income Tax?

See the answer to question 1 above:  the general rule is that any resident in Spain is liable to tax on their worldwide income – including pensions. That said, certain pensions may only be subject to taxation in your country of origin, depending on the double taxation treaty applicable in your case. But this is a very tricky area and each case must be considered individually. If you need to make sure where you stand in relation to the pension you are entitled to, send us at DOMENECH ABOGADOS a query relating to your specific circumstances and we’ll be pleased to advise.

10. I heard something about the possibility of working in Spain but being taxed as a non-resident - is that possible?

This is possible under certain circumstances if you are a resident in the European Union and intend to move to Spain to work under an employment contract, so long as you’ve not been a Spanish resident during the ten years prior to your move. The election of whichever of the two systems - taxation as a non-resident or taxation as a resident of Spain - must be notified to the Spanish tax authorities and, therefore, we’d recommend you seek specific advice from DOMENECH ABOGADOS well in advance of your move.