How to navigate your tax return in Spain as an expat
Making the decision to move abroad is no small thing. It requires lots of research, patience and fortitude to successfully move your whole life to a completely new country, and quite possibly learning a whole new language for the first time.
Spain is such a great choice for British expats. The chance at living in a wonderfully diverse and interesting culture, wonderful food and traditions and wonderful weather. It is no wonder so many relocate to this amazing country for an opportunity to experience all this. But as the famous saying describes, there are only two things in life that are certain, death and taxes.
Paying tax is troublesome enough even in your own country and language, nevermind navigating a completely new system in Spanish. But in order to avoid any problems in your new life it is very important that you understand your obligations when it comes to paying taxes in Spain.
You will have to file a tax return every year
This is quite different from the UK, where you would usually only apply for self assessment if you had additional income, not paid by your employer, to declare or are self employed. Even if you are employed by a Spanish company who will deduct tax from your wages for you, you still have to do it. If you are tax resident in Spain you may also have to pay tax on earnings from other countries, although Spain does have a double taxation agreement with the UK so you don’t end up paying twice.
Getting the timing right
The taxation year in Spain runs from January to December, unlike the UK which is April to April. The tax return is then expected to be filed between the 1st May and the 30th June, and you will need to have a NIE (foreigner identity number) to be able to do it. Regulations can often change so it is important to keep up to date with any changes, that are usually published on the Spanish Tax Agency website, which regulates all taxation issues for residents and non-residents in Spain.
You will also need to determine if you are legally a tax resident or not. Being tax resident is not the same as having a residency permit, and has set requirements that determine if you are tax resident.
If you are living in Spain for more than 183 non-consecutive days each year, you have economic interests in Spain such as a job or self-employed, or your spouse and children live in Spain then you will be considered tax resident.
Types of tax you may have to pay
The main one is income tax. This can cover paid work, or income you receive through being self employed and issuing invoices. It will also include pension contributions and benefits, as well as capital gains tax that you receive from dividends or property. You will need to pay for any income worldwide if you are a Spanish tax resident.
However, if you are not considered tax resident, then you will only have to pay tax on your interests in Spain that generate an income, currently fixed at a flat rate of 25%.
What is progressive taxation rates?
For those who are tax resident the tax you pay is variable based on the level of your income.
Currently, below the first 12.450€ you make worldwide, you should expect to pay 19% income tax. The next tier is between 12.450€ and 20.200€ it increases to 24%, from 20.200€ to 35.200€ it is 30%, 35.200€ and 60.000€ it is 37% and above 12.450€ it is 45%.
Of course there are deductions and allowances that can be quite complex, so you should definitely consider hiring an accountant or tax lawyer to help you, especially the first time.
You will need to contribute to social security too
Non-tax residents expats do not need to worry about social security, but those who are tax resident will more than likely need to have social security deductions taken too. Unless you have a certificate of coverage from your home country.
What is the Beckham Law?
The progressive tax rates can seem quite eye watering compared to the tax rates in the UK. Step forward the Beckham Law, so called because the footballer David Beckham was one of the early high profile cases that took advantage of the law.
It is a law that allows expats who come to Spain to pay a flat taxation rate of just 25% rather than the progressive rates previously mentioned. Conversely it means that you are considered non-tax resident. There are however certain conditions. You must not have lived in Spain for the 10 years prior to the application in order for this particular tax exemption to apply. You will also need a job contract, and carry out that work within the Spanish territory.
High value assets are subject to a wealth tax
Each person has an allowance of 700.000€, but if you own a property worth more than that you will need to pay a wealth tax for it. If you live in the property then there is also an extra allowance of 300.000€. Basically the tax applies to any properties or assets you may have worldwide. Of course if you have less than that you won’t need to worry, but it is always best to consult a professional if you are unsure. The wealth tax ranges from around 0.2% to 2.5% depending on the region you are living in, and is also progressive depending on the value of your assets.
Of course there are ways to be more tax efficient if you have high value assets. Some assets are exempt, and you could save some money by making sure your investments are structured in a more tax efficient manner. If you are concerned about this, then absolutely speak to a specialist in Spanish taxation and wealth management.