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Image by Ken Cheung

Spain is one of the most popular European destinations for expats. Not only does it rank well amongst expats from other European countries, but it has also recently been receiving a higher number of expats from outside of Europe. The reasons for this are due to its favourable climate, particularly along the Mediterranean coast, and due to its modest standard of living and laidback lifestyle.

Whilst the Spanish way of life is fairly laidback, Spain’s tax system certainly isn’t. With income tax, capital gains tax, wealth tax and succession/inheritance tax amongst others, seeking financial advice for your tax and wealth planning has become far more of a priority.

Our team of advisers will be able to provide you with a tailer-made personalised financial plan targeted at achieving your long-term financial goals. We will help you achieve your dream of becoming financially independent and give you the ability to make the most out your time in Spain.

Residency | tax rates

You are considered tax resident if you are resident in Spain for more than 183 days during the year (January to December) or if your major source of income or economic activity occur in Spain. If you are considered Spanish tax resident, you are subject to tax on your worldwide income and gains.

Spanish residents must submit a spanish tax return and pay spanish income tax on their worldwide income in the following cases:

  • Their annual income from employment is more than €22,000

  • They are self-employed in Spain or run their own business

  • They receive rental income of more than €1,000 a year

  • They have capital gains and savings income of more than €1,600 a year

  • It is their first year declaring tax residency in Spain.

Income tax

In Spain, income tax is split into two categories; income which is savings related versus income which is non-savings related (also known as general income).

Your personal income, which is not categorised as savings-related, is subject to Spain’s general income tax rates. This includes:

  • All earned income (i.e. salary, self-employment and pension income)

  • Income from rental properties

  • Notional rental income (imputación de rentas inmobiliarias)

  • Royalties

  • Any imputed income and gains not made on the sale/transfer of assets (for example, from lottery/gambling)

In Spain, tax rates are not uniform across the country. The amount of income tax you pay is based on your earnings, and which of the 17 autonomous regions you live in. Your total tax liability will be a calculation of the state’s general income tax rates plus the relevant regional tax rates.

Spain’s general income tax rates in 2021 are the following:

EUR 0 – EUR 12,450 19%

EUR 12,451 – EUR 20,200 24%

EUR 20,201 – EUR 35,200 30%

EUR 35,201 – EUR 60,000 37%

EUR 60,000 – EUR 300,000 45%

Over EUR 300,000 47%

Income which is considered as savings related is taxed differently. This includes income from:

  • Interest on savings

  • Shareholder dividends

  • Income from annuities

  • Income derived from life assurance contracts

  • Capital gains on the sale/transfer of assets.

Residents are taxed on their worldwide savings income and non-residents on their Spanish savings income at a fixed rate. The rates for 2021 are as follows:

 

The Beckham Law

You may be forgiven for believing that footballer David Beckham only made an impact on the football pitch, however, he also left his mark on the Spanish tax system. When David Beckham joined Real Madrid in 2003, the Beckham Law was allegedly set up so that he did not have to pay tax on his worldwide image rights.

As a result, the Spanish authorities introduced a special tax regime for foreigners working in Spain on an employment contract with a Spanish company. This allows foreign workers to pay a flat fee of 24% instead of the progressive tax rates on their worldwide incomes. The flat rate of 24% can be applied for income up to the amount of €600,000. The excess will be liable to tax at 47% (this was increased from the 2021 tax year from 45%).

Personal Allowances & Deductions

 

You can also claim tax deductions in Spain for:

  • Payments into the Spanish social security system

  • Spanish pension contributions

  • Buying and renovating your Spanish home

  • Joint filings

  • Charitable donations.

Disclaimer:

The content of this guide is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing in this guide constitutes a solicitation, recommendation, endorsement, or offer by MWC Group or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the laws of such jurisdiction. Please contact your own lawyer, accountant, or tax professional with any specific questions you have related to the information provided that are of legal, accounting or tax nature. The content of this guide is of a general nature and does not address the circumstances of any particular individual or entity. All information of this guide is provided in good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information. By reading this guide, you agree not to hold MWC Group, its affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other content made available to you by this guide.

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