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Income tax Spain

Personal income tax in Spain is levied on a resident individual's global income from any source. Typical examples of such are:

  • Salary income.
  • Subsidies received.
  • Professional income.
  • Capital gains.
  • Interest payments.
  • Rental income.

Some of these may be taxed at source i.e. tax is withheld on payment by the payer and paid on account into the exchequer. The applicable withholding tax percentages in Spain can vary according to the nature of the income following either a fixed or a sliding scale. For example a sliding scale would apply to salary income whereas a fixed withholding tax scale would apply to professional income. Irrespective of these scales whish are simply to ensure ongoing payment on account, your definitive tax rate and tax burden in Spain will only be established on incorporating all income sources (less deductible expenses) for the fiscal year which are then subject once again to a sliding scale.

Residence Status in Spain for Income Tax Purposes

An individual would be considered to be a resident in Spain for personal income tax purposes if he/she remains in the country for more than 183 days in one calendar year. He or she is thus liable under so-called personal obligation and this liability will extend to that person's worldwide income. An individual is also deemed to be a resident in this sense if the main nucleus or the base of his or her professional or business activities or of his or her economic interests is in Spain. The presumption is also made that, unless proven otherwise, the taxpayer has his/her habitual residence in Spanish territory, when his/her not legally separated spouse and dependant underage children usually live in Spain.

Salary related Tax Exemptions

Many companies, apart from paying the standard (and taxable) monthly salary provide certain benefits to their employees that are exempt for tax purposes. Since January 1st 2014 the most attractive of these benefits including: meal vouchers, nursery school vouchers, pension plans, stock options and transport tickets, previously exempt from tax are now all taxable. The remaining salary related tax exemptions are:

  • Travel expenses for work-related journeys if in possession of public transport receipts. Private transport is exempt at 0,19 euros/Km plus tolls and parking tickets.
  • Travel expenses for work-related trips: Overnight trips in Spain 53,34 euros/day; overnight trips abroad 91,35 euros/day. Day trips in Spain 26,67 euros/day; Day trips abroad 48,08 euros/day.
  • Indemnities for transfers, suspensions redundancies or death.
  • Necessary training/study costs for employees.
  • Overtime.

Working for Non-resident companies in Spain

Quite a few people in Spain work for non-resident companies who do not withhold the obligatory income tax and social security. Legally speaking, even though the company is not resident in Spain, as it has a resident working for them, it should register and make the necessary withholding tax and social security payments here. If this is not the case then the employee will have to perform a self-assessment at the end of the year and pay the taxes based on the Euro exchange value of his or her annual salary (assuming they are being paid in a different currency). Bearing in mind that there will have been fluctuations in the exchange rate during the year, the employee would have to calculate the Euro value of his or her salary received on a month by month basis. You can receive this information from the Bank of Spain.

Tax Deductible Expenses for Professionals: Car

In relation to car expenses the law is quite contradictory. As far as income tax (IRPF) is concerned, the law expressly excludes the right to deduct any car expenses, purchase, maintenance or otherwise unless they are for the carrying out of the following activities and professions: driving instructors, taxis, industrial transport vehicles, car hire or commercial agents. With regard to VAT (IVA), the law is based on the presumption that the vehicle is used in the same proportion for both professional and personal needs. In practice therefore, Hacienda will allow you to deduct 50% of the VAT based on the above-mentioned presumption but will allow for no such deduction when it comes to income tax.

Declaring Rental Income

Rental income comes under the category of Real Estate Income (Rendimientos de Capital Inmobiliario) and is declared as the total amount received from the tenant less deductible expenses. These expenses include all those that are necessarily incurred in the disposal of the flat for the purposes of generating rental income. Specifically these include:

  • Interest payments on mortgage loans.
  • Taxes and rates paid on the property.
  • Bad debts (as established by law).
  • Amounts paid for the repair and upkeep of the property.
  • Depreciation: this currently stands at 3% of the higher of the following 2 values a) The purchase price b) The cadastral value (valor catastral-a theoretical value established by the local council).

Once the net rental income has been calculated, it should be borne in mind that there is a further reduction of 50% of this net figure on rental income pertaining to houses (i.e. not offices or otherwise).

Tax Exemptions-Capital Gains-Over 65s

According to article 55 of Law 40/98 on income tax, capital gains on the sale of a first home are exempt from income tax if the following conditions are met:

  • That the tax payer is 65 or older on selling the property.
  • That the property would be considered a first home (essentially, that you are living there) at the moment of sale.

To find out more about Spainwide's accounting and tax solutions, please click here

Updated March 2014