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The Spanish tax system

As in most countries, direct and indirect taxes are payable in Spain. Direct Taxes are paid to local, regional or government agencies. Examples of Spanish indirect taxes are e.g. IVA (V.A.T), tax on alcoholic beverages and vehicles. There are also Inheritance tax, various transfer and stamp duties applicable e.g. when you buy a car or acquire a property.

The taxes most of us are familiar with are usually income, wealth and capital gains taxes. To determine whether you are liable to pay these in Spain or in your own country, your tax residency status has to be established i.e. are you a resident or a non-resident? If you spend more than six months per year in Spain (over 183 days) you are a resident, whether you like it or not. Your residency status can be confirmed by applying for residency documents at your local Spanish police station. Likewise, if you spend less than 183 days per year in Spain, you are a non-resident.

Taxes for non-residents

As you only spend a short part of the year in Spain, you are only liable to pay tax on income generated in Spain. Such as short term employment, proceeds from property rentals plus wealth tax on assets in Spain.  Also, when you sell a property in Spain, you will be liable to pay capital gains tax on the profit you make. Taxation rate for income generated from employment and rentals is 25% for a non-resident person. Wealth tax on assets in Spain is usually 0.2% of the value of the asset/property. The value is decreased if there are outstanding loans. If the asset is valued at more than 160,000 Euros the taxation rate is 0.3%. Larger assets are taxed at a higher rate. Spouses are taxed separately for their share of the wealth. Your property will also be subject to a “plus-value” tax, usually 0.5% of the taxation value of the property. If the owner of the property is deceased, certain regions in Spain apply an inheritance tax on the value of all assets owned by the deceased person, including properties. 

Taxes for residents

If you spend at least 6 months in Spain each year, all your income – worldwide – will be taxed in Spain. It can be an old age or private pension you receive, dividends from offshore investments, or income from another country. The tax system in Spain is built on the premise that low income earners pay very little tax, in some cases none at all. High income earners pay a relatively low marginal tax. Spouses can choose whether to be assessed separately or jointly.  Income from employment/pension is subject to deductions such as; private pension scheme contributions, costs relating to the upkeep of minors or elderly parents, disability and part of interest/mortgage payments on the primary residence. 

Capital gains tax is applied on profits made from capital investments as well as property, provided that the property has been in your possession for at least one year. In accordance with tax agreements between Spain and the EU, transactions involving securities will only be taxed in Spain from the day that the change of residence from your original country took place. Those who have reached pension age (65+) at the time of the sale of their main residence, have resided in the property for a minimum of three years and have filed their tax returns in Spain will not be subject to capital gains tax on profits generated by the sale. You are also exempt from capital gains tax if you sell your primary residence for the sole purpose of buying another, provided the new home is bought within two years. Inheritance tax is applicable in some regions in Spain. Inheritance left by a Spanish resident is taxable in Spain. Wealth tax exists but it does not affect very many and even so, the amounts are relatively low. Spouses are assessed separately for wealth tax purposes; each owner is tax exempt up to 150,000 Euros. The standard deduction for all other assets is 108,000 Euros per person. If total wealth supersedes these standard deductions, tax is applied at the rate of 0.2%. If the taxable amount is over 160,000, any amount above that limit is subject to a taxation rate of 0.3% - the larger the wealth, the higher the tax rate.

Please note that local tax rates may vary depending on the location of your property, make sure to check with the town hall in your area.


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