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How Income is Taxed
Understand when and where income tax should be paid...
Income (including capital gains) is split into general income (renta general) and savings income (renta del ahorro). After being calculated according to the rules for each particular type of income within each category, the total of "general" and "savings" is termed the base imponible (or taxable base). After any deductions and allowances it is then known as the base liquidable (net taxable base).
Savings income
Residents are taxed on their worldwide savings income and non-residents on their Spanish savings income at a fixed rate. The rates for 2012 are:
- Up to €6,000: 21%
- €6,000 to €24,000: 25%
- Over €24,000: 27%
Savings income includes interest income, dividends, income from life assurance contracts, purchased annuity income and income from capital gains on the sale/transfer of assets.
General income
Spanish residents are taxed on their worldwide "general" income at progressive scale rates from 24% to 45%. Anything not categorised as "savings income" is included here, including all earned income (that is, salary, self-employment and pension income), rental income, income from royalties, any imputed income and gains not made on the sale/transfer of assets such as from gambling, for example.
Additional contributions of between 0.75% and 7% are added for 2012 and 2013 income.
Income tax rates for 2012 (including the additional contribution)
| Euro From | Euro To | National Income Tax Rate | Community Tax Rate | Total Tax Rate | Tax Payable on Band | Cumulative Tax Payable |
|---|---|---|---|---|---|---|
| 0 | 17,707.20 | 12.75% | 12% | 24.75% | 4,383 | 4,383 |
| 17,707.20 | 33,007.20 | 16% | 14% | 30% | 4,590 | 8,973 |
| 33,007.20 | 53,407.20 | 21.5% | 18.5% | 40% | 8,160 | 17,133 |
| 53,407.20 | 120,000.20 | 25.5% | 21.5% | 47% | 31,299 | 48,432 |
| 120,000.20 | 175,000.20 | 27.5% | 21.5% | 49% | 26,950 | 75,382 |
| 175,000.20 | 300,000.20 | 29.5% | 21.5% | 51% | 63,750 | 139,132 |
| Over 300,000.20 | 30.5% | 21.5% | 52% |
Differences in the Community Tax Rate may apply depending on the Autonomous Region. In particular the top rate of tax is 56% in Cataluña and 54% in Andalucía in 2012.
Deductions and allowances
Deductions and allowances are available. The "Minimo Personal y Familiar" is the tax-free allowance. Any allowance not used against the general income can be set against the savings income.
The basic personal allowance for 2012 is €5,151 per person. For joint returns the allowance given to the first spouse is €5,151 plus €3,400 for the second spouse. A single parent gets €5,661. The basic allowance is increased by €918 for someone aged 65 or more (so €6,069 in total) and by a further €1,122 for someone aged 75 or more (€6,273 in total). The personal allowance (including additions for age, dependants and incapacity) is not deducted from taxable income but is given as a tax credit against the total tax payable.
Note that the allowances are not given as a deduction against income (as in the UK), but instead are given as a tax credit against the total tax payable. The amount of credit is calculated by taking the total personal allowance and multiplying this by the scale rates of tax, starting with the lowest rate first. It is then deducted from the taxpayer’s total tax payable for the year. This has the effect of relieving tax not at the taxpayer’s marginal rate, but first at the lowest rate of 24.75% rate, and then at the higher rates where applicable.
Rental income
From 1 January 2011, a reduction of 60% is available against net rental income for residents of Spain before tax is payable, and includes any lettings income from outside Spain but not short-term holiday lets.
The net rental income is the amount of rent due after deducting usual day-to-day running costs for the period in question, including local municipal taxes such as IBI (Impuesto sobre Bienes Inmuebles), repairs and maintenance, managing agents' fees and commissions, interest on loans for purchase or improvement, and depreciation of 3% per year of the cost of the property (excluding the land value). Spanish mortgage interest is allowable provided the mortgage was used to acquire or improve the let property. The tenant is generally required to retain 15% of the rents on account of tax and pay this over to the authorities.
A non-resident is taxed on rental income from Spanish property at the rate of 24.75% on gross income without any deductions for expenses or interest costs. Again, the tenant is required to retain 24.75% of the rent and pay it to the tax authority. In the case of short-term holiday lets the agent or landlord should do this.
Where property is owned in Spain but is not the main home, a purely notional or theoretical rental income is deemed to arise for periods where the property is not actually let, based (normally) on 2% of the official value (valor catastral) of the property as shown in the IBI notice for the year (whether being a Spanish resident or not). Where such a property is empty for part of the year and rented for part of the year, calculate the notional income for the part of the year the property is empty.
Employment income
A 40% deduction is available for non-regular income generated over a period of more than two years, but the deduction is not available where the non-regular income is over €300,000.
If, for example, someone lives in Spain and works in the UK, then the income is taxed in Spain. If all or some of the employment is carried out in Spain they are subject to tax in Spain on the proportion of the employment income relating to the work performed in Spain. So a resident of Spain working for and paid by a UK employer will usually be taxed in the UK on employment income relating to duties performed in the UK. If no duties are performed in the UK, then the earnings cannot be subject to UK tax. If all duties are performed in Spain, the earnings will be subject to tax in Spain.
Social security contributions will also be payable on employment income. These are usually paid to one country only, based on total earnings. The country where they are payable will depend on various factors, including where the work is performed and where the individual is habitually resident.
Self-employment
Self-employment income is subject to tax at the progressive scale rates of tax in Spain.
The amount taken into account for tax is the net profit - the gross income less the expenses of the business.
All self-employed traders and businesses must register for VAT (IVA) in Spain regardless of turnover. The standard rate of Spanish IVA is 18%, although letting of residential private property is normally exempt, as are healthcare, educational and certain other services.
Social security contributions are also payable, and these are tax deductible in Spain. A minimum contribution of around €225 per month is payable, regardless of profits.
Useful Links
- The Spanish Government Tax Offices website (in Spanish) has further comprehensive information on the taxes due by Individuals and Companies
- The Taxpayers' Calender 2012 (PDF in English) includes information on the main national tax obligations
Disclaimer
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.
The Blevins Franks Group has been providing integrated wealth management and tax planning to expatriates in Europe since 1975.
Offices in the Costa del Sol, Costa del Almeria, Costa Blanca, Costa Brava, Canary Islands and Balearics.
Visit the website for contact details of each office
In the UK please call 020 7336 1116
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