Spanish income tax & residence rules must be considered carefully when buying property, investing or having a business in Spain.
Living in Spain is a unique experience and getting the right advice from a London-based chambers on your Spanish income tax & residency provides you with extra confidence. Please contact our team to discuss any Spanish tax and legal matters you may need information about.
“I would sooner be a foreigner in Spain than in most countries. How easy it is to make friends in Spain!”George Orwell
Spanish Income Tax & Residency
The Spanish income tax & residency system is different from the UK or USA systems which are based on citizenship or domicile. The concept of tax domicile, as understood in the English tax system, does not exist in Spain. In Spain, all income or gains obtained anywhere in the world are taxable in Spain for Spanish residents, even if they have not been remitted to Spain.
Spanish income tax returns should report the income of the taxpayer, spouse and dependants, although each member of the family can file independent tax returns.
In the Inheritance tax system, the residence will determine that all the assets belonging to the resident will be subject to the Spanish inheritance tax.
The Spanish Income Tax residency criteria
The Spanish Income Tax & Residence rules, and the Double Tax Treaty with the UK, determine that individuals are deemed resident for tax purposes in Spain if they meet the following criteria:
- The 183-day rule: for income tax purposes, if the individual spends 183 or more days during the Spanish tax year (ending 31 December) in Spain since they first took up residency, they will be treated as resident for Spanish Inheritance Tax. Temporary absences from Spain are not counted to reduce the 183-day rule, unless the individual is able to prove his/her tax residence in a country which has a double tax treaty with Spain.
- Spain is the main economic interest or the principal place of professional activity: to be deemed resident under these criteria, the Spanish Tax Agency (Agencia Estatal de Administración Tributaria or AEAT) will look at where the individual’s investments are located. They will also look at where the income derived from as well as whether it comes from employment, business ventures or through investments. To determine the place of professional activity, the tax agency looks at the country where the individual conducts most of their professional activity (the principal activity) and spends most of their time.
There are other elements being used by the Spanish tax agency to determine the residence, such as:
- The location of the family home: this is the place where the individual and his/her family live on a habitual basis. If the spouse (whom they cannot be separated from for these purposes) and children live in Spain, then there is a presumption of residence in Spain.
- Residence in territories considered ‘tax havens’ by the Spanish Government: There are more stringent rules when it comes to probing the residence that the Spanish tax agency considers to be in a tax haven. These include Gibraltar, Isle of Man, Channel Island, British Virgin Islands, Malta and several other offshore jurisdictions, as determined by the Spanish Royal Decree 1080/1991.
If there is any conflict in determining the residence according to the above criteria, the tax authorities would determine where the individual’s investments are located and where their income derived from – again, whether the source is employment, business income, or investment income in Spain.
In the event of residence disputes with other countries, the international tax treaties take precedence over domestic rules of residence.
The spanish non-resident tax regime
There are currently more than one million non-resident property owners in Spain, and to tackle this booming market the Spanish Parliament passed the Non-Residents Income Tax Act (Ley 41/1998, Ley del Impuesto Sobre la Renta de No Residentes).
According to this Act and the Self-Assessment regime, non-residents who receive any income or own any assets in Spain must file a return each year and must include all Spanish taxable income calculated according to certain rules.
There is a possibility for European Union residents, while maintaining their non-resident status, to pay taxes according to the rules of the Spanish Resident Income Tax Act (Ley 40/1998, Impuesto sobre la Renta de las Personals Físicas), which may be more beneficial in some cases. The application of this regime should be always discussed with our team.
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Del Canto Chambers offers a turnkey project management approach with a full-service support solution, including decision-making protocols and timelines. We have worked with a variety of international clients moving to Spain from Europe, Middle East and Latin America. Our team is able to offer turn key solutions managing the whole project in Spain.
A turnkey project management approach allows us to incorporate different professionals to ensure a successful landing in Spain. Our firm will help you navigate through the process coordinating the different professionals involved. View major cases
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