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Spanish Tax Information and Facts

The information below relates to the Spanish rates of taxation for the calendar year 2011. This information will be updated shortly for 2012. However, one change that you should be aware of is the change to Capital Gains Tax/Savings Tax for 2011 in Spain. To find out more information please follow the link to Spanish Capital Gains Tax / Savings Tax Rates 2012.

Introduction

Tax in Spain occurs at a national level and at a regional (‘Autonomous Community’) or municipal level. The Spanish taxation system has been subject to a significant review, and new tax legislation entered into force in Spain with effect from 1 January 2007. The tax regime in Spain is controlled by the Ministry of the Treasury. Here we provide a Spanish Tax Guide to help you navigate the system.

Income Tax Rates for the year ended 31 December 2011

From (euro)	To (euro)	State %	Local %	Total %
0	17,707	12	12	24
17,707	33,007	14	14	28
33,007	53,407	18.5	18.5	37
53,407	120,000	21.5	21.5	43
120,000	175,000	22.5	Note 1	Note 1
175,000+		23.5	Note 2	Note 2

Introduction

2011 Spanish tax returns relate to income earned during the 2010 calendar year. The
returns are due by 30th June.

Most foreigners will be considered Spanish tax resident if they were in the country
for 183 or more days during 2010. They must complete a tax declaration including
all their worldwide income unless their income is lower than the thresholds
described below. Anyone becoming tax resident for the first time (because they
moved to Spain in 2010) must file a tax declaration regardless of income levels.
Related article: Do you need to do a Spanish tax return?

Married couples can make a joint return or declare separately. The tax implications
of separate taxation versus joint taxation are significant and couples should make
sure they calculate the best option though often it is obvious - see related
article: Spanish taxation of married couples

Changes this year

> The taxation rate for capital gains and savings and investment income has
increased from 18% to 19-21%

> In 2008 and 2009 there was a 400€ tax deduction to help with the economic crisis.
This has been abolished for people earning over 12.000€.

> The deduction for rental income has increased from 50% to 60%

> The declaration threshold has been tightened for those with income from more than
one source (see below)

> The 2.500€ payment to parents of new babies ended at the end of 2010

New higher rates of tax for high earners don't come in until 2011 (declared in 2012)
- rates will rise to 44% and 45% for two new thresholds of income - 120.000€ and
175.000€. Also some autonomous regions including Andalucia have announced
additional tax surcharges for their regions.

Tax rates applicable for 2011 tax returns (relating to calendar year 2010)

Rate for capital gains and investment income - 19% for income up to €6.000 and 21%
above €6.000

Personal allowances

Individual €5.151

65 and over €6.069

75 and over €7.191

Disability allowance

Grade 33-65 €2.316

Grade 65-100 €7.038

Add if 3rd party care required €2.270

Additional allowances for children (less than 25, living in and income less than
€8.000):

One child €1.836
Two children €2.040
Three children €3.672
Four or more children €4.182

Add for child under 3 €2.244

Additional allowances for mother or father living in (conditional on their income
being less than €8.000):

Over 65s €918

Over 75s €1.122

Earned income allowance (includes pension income)

Earnings up to €9.180 €4.080

Earnings over €13.260 €2.652

(sliding scale applies for income between the two limits)

Dividends receivable tax free €1.500

Declaration thresholds

Allowable levels of income before a declaration must be made:

Earned income already subject to employer deductions €22.000

(and other income less than 1.500€)

Reduced limit if earned from more than one employer €10.200

Bank interest and other investment income €1.600

Rent €1.000

Capital gains for individuals

The rate of taxation is 19% on the first 6,000 euros and 21% thereafter

Tax Year

The tax year in Spain is from 1st January to 31st December

Assessment Basis

Spanish residents are taxed on their worldwide income (earned and unearned), capital gains from all sources and on their worldwide assets. Spain operates a self-assessment regime.

For personal income tax purposes, married couples may choose to file tax returns jointly or separately.

Income Tax

Spanish residents are subject to Spanish Personal Income Tax (‘IRPF’). Individuals and couples benefit from personal allowances which reduce their liability to tax, and which increase in line with the number of dependent children.

A new structure has been created for the taxation of income which now falls into two categories: the general base and the savings base of income.

The general base includes salary and other benefits from employment, income from economic activities, and property rental income (either actual or deemed). It is subject to a progressive scale which is applied to successive portions of taxable income, and rates range from 24% to 43%.

Taxation of Investment Income

The savings base is subject to a fixed tax rate of 18% and includes interest, dividends, and capital gains/losses, together with life and disability insurance proceeds paid by a Spanish entity to residents in Spain. Any investment income received will form part of the taxpayer’s income tax
calculation and any withholding tax deducted will be held as a credit against the final calculation of income tax due. Generally an annual exemption limited to €1,500 is granted to resident individuals in respect of all dividends.

Tax on Property Rental Income

Property rental income after deduction of certain expenses forms part of taxable income. Property which is not used for rental or economic activity and is not the taxpayer’s permanent residence will be taxed on a deemed income basis based on cadastral value.

Wealth Taxes

An annual net wealth tax is applied to residents based upon the value of their worldwide assets. A tax free allowance of €108,182.18 (2007) is applied though it may vary depending on the Autonomous Community in which the taxpayer is resident. Any excess wealth is taxed on a progressive scale. Wealth tax rates vary between 0.2% and 2.5% on successive portions of taxable wealth.

Moreover the primary residence of the taxpayer is tax exempt for values under €150,253.03.

Capital Gains Tax

Capital gains are included in the savings base. There are some capital gains exemptions, e.g. the sale of the primary residence of the taxpayer is granted full or partial rollover relief as are the capital gains for the sale of qualifying collective investments. Capital gains from investment funds are subject to a flat withholding tax of 18% unless rollover relief applies.

Collective investments from jurisdictions included in the list of tax havens issued by the Spanish tax authorities are deemed to have a minimum net capital gain of 15% of the acquisition value.

Inheritance and Gift Tax

Inheritance and Gift tax is payable by the recipient of the assets at rates of between 7.65% and 34%. Residents are taxed on their worldwide assets and non-residents are only taxed on the assets and/or rights located in Spain.

The amount of tax paid depends upon the value of assets received. Tax rates are subject to a further multiplication factor (ranging 1 to 2.4) based on the relationship of the recipient to the donor or deceased, and the existing wealth of the recipient. Different tax rates may apply in each Autonomous Community.

Various reductions to the tax base on inheritance apply, and are dependent on the relationship between the recipient and the deceased, and the age of the recipient. For example, where a recipient is a dependent child under the age of 21 the taxable base can be reduced by as much as €47,858.59 (2007).

No reduction is available for fourth or more distant relatives or unrelated parties. Additional reductions in each Autonomous Community may apply.

The Law also provides reductions to the taxable base for life insurance, the inheritance of the habitual dwelling of the deceased and the inheritance and gift of assets and shares of family business.

Regional and Municipal Taxes

Wealth tax, inheritance and gift tax, capital and property transfer tax as well as a proportion of income tax is raised by the Autonomous Community/Region in which the taxpayer is resident.

Property Taxes

An annual real estate tax is payable to the local municipality. The tax is based upon a percentage of the cadastral value of the property, and the rate varies from 0.4% and 1.1% on urban properties and 0.3% and 0.9% on rural properties. Municipalities may, within certain limits,
increase or decrease these rates.

If there is a change in land title a municipal tax (‘land appreciation tax’ or ‘Plus Valia’) is raised based upon the increase in value of the land since it was last sold. The rate is set by the Municipality and varies depending upon the cadastral value and the length of time since the preceding transfer.

Stamp Duty/Transfer Tax

The general rate of Stamp Duty/Transfer tax is 6%-7% (depending upon the Autonomous Community) on ‘second hand’ property transactions. Lower rates apply to the acquisition of other assets. Documentary stamp duty is typically 0.5%, or 1% for most regions. No Stamp duty
applies if the transaction is subject to VAT.

Sales Tax (Value Added Tax)

Sales tax (IVA) of 16% is generally added to the sale price of goods. Some items are exempt from sales tax or are taxable at a reduced rate. ‘New build’ properties capable of being used as dwelling are subject to a sales tax of 7% which is charged in place of a transfer tax.

Social Security Contributions

An employee is liable to pay social security contributions as a percentage of earnings. The rate is generally 6.35%, but they are capped at €2,283 for the year 2007. Compulsory social security contributions made are deductible from taxable income.

Taxation of Expatriates Living in Spain

Expatriates living in Spain will be classified as resident or non-resident. An individual is considered resident if:

They spend more than 183 days in Spanish territory in a calendar year or,
Their principal place of business, professional or economic interest is based in Spain or,
Their spouse and/or dependent children are habitually resident in Spanish territory (unless the individual is separated from their family or can prove tax residence elsewhere)

In Spain there is no concept of a part tax-year. An individual will be considered to be resident or non-resident for the whole tax year according to the above rules and taxed accordingly.

Income tax is raised in two parts – the majority is raised by the central government with a smaller percentage being raised at a regional level by the ‘Autonomous Community’ in which the individual is living. The ‘Autonomous Communities’ also control wealth tax and inheritance/gift tax rates. If the ‘Autonomous Community’ does not establish its own tax scales then a default tax scale is applied.

Income generated from employment for services rendered in a foreign country is tax exempt up to a limit of €60,100 (2007), provided that the work is performed for a company or entity non-resident in Spain or for a permanent establishment located in a foreign country and provided that a tax similar to the Spanish Personal Income Tax is applied in the territory where the work is performed. In addition, the territory must not be considered a ‘tax haven’ by the Spanish tax authorities.

International assignees moving to Spain, may, if certain conditions are met, choose to be taxed under the Special Taxation Regime for Expatriates described below.

Taxation of ‘Non-Residents’ Living in Spain

From 1st January 2004 individuals who acquire tax residence in Spain as a result of their transfer to Spain may opt to pay Non- Resident Income Tax in the tax period in which the change of residence takes place and in the following five tax periods when the following conditions are met:

The taxpayer cannot be considered tax resident in Spain in the 10 years previous to their assignment to Spain.

Their transfer to Spain results from an employment contract. The individual needs to have a local contract with a Spanish company. In case of a group of companies, an employee can maintain a home country employment contract and be seconded to work for a Spanish entity.
The work is effectively carried out in Spain. The work must be performed physically in Spain. This requirement will not be met if the employee works out of Spain and the income related to the duties performed out of Spain exceeds 15% of their annual employment income. In case of employees who work for other foreign entities of the group, the above percentage will be 30%.
This work is for a company or entity resident in Spain or for a permanent establishment located in Spain of an entity not resident in Spanish territory.
The earned income derived from the employment contract is not exempt from Non-Resident Income Tax.

Expatriates living in Spain who choose to be taxed under the Non-Resident Income Tax regime are taxed only on income and gains obtained or generated in a Spanish territory, compared to worldwide income and gains for residents. Non-residents may only file individual tax returns, unlike residents who may file joint returns in respect of a married couple.

The tax rates applicable to non-residents were amended with effect from 1st January 2007 in line with those applicable to residents

24% on general income including salary and royalties
18% in respect of interest and dividends and capital gains

A non-resident does not normally benefit from tax free allowances/deductions. However, certain exemptions may apply to nonresidents, in particular, residents of other EU countries are not normally subject to Spanish tax on Spanish sourced interest income or capital gains realised on the sale of certain personal property.

With regard to capital gains arising from the transfer of real property from non-residents, the purchaser is required to withhold 3% of the agreed consideration. This amount is paid to the Spanish fiscal authorities on account against the seller’s potential liability to capital gains tax. In addition, dividends and interest are paid to non-residents net of withholding tax. Dividends paid to nonresidents are exempt up to €1,500 pa, however withholding tax applies and a refund must be requested. The amount of the tax withheld will depend on the terms of any Double Taxation Treaty with the payee’s country of residence. Spain has negotiated over 50 Double Taxation Treaties.

Non-residents are subject to Wealth Tax at the same rates as residents but only in respect of the assets located in Spain and the rights that may be exercised in the country. No tax free allowance, relief or exemptions apply to non-residents. Inheritance tax only applies to non-residents in receipt of assets and/or rights located in Spain.

This is a guide from AILO (Association of International Life Offices) and the content is the views of AILO, not The Spectrum IFA Group