Spanish tax liability for UK nationals in Spain. Following our article examining how the Spanish tax authorities will determine whether a UK national is resident in Spain for tax purposes, we look at what taxes are payable in Spain by non-residents and those whom the authorities deem Spanish tax residents.
Tax payable in Spain by non-residents
Those not resident in Spain for tax purposes must pay taxes on income and capital gains arising from Spanish sources.
Income tax is also payable on rental income from Spanish property. The tax is payable even if the property is not rented under the Non-Resident Tax rules.
Wealth and solidarity tax is payable on the net value of any Spanish assets as of 31 December each year. The Spanish tax agency ultimately has the authority to decide the value of assets. If the property is owned by a company, Wealth Tax is still payable by the UBO in most circumstances.
Inheritance Tax is always payable on all Spanish assets.
Tax payable in Spain by those deemed to be resident in Spain
For individuals who are classed as Spanish tax residents, income tax is payable on all worldwide income and wealth tax is payable on worldwide assets, subject to some allowances. Similarly, capital gains tax is payable on the disposal of any worldwide assets, and Inheritance Tax is payable worldwide.
The Beckham tax rule
The so-called Beckham tax rule was passed in 2005 to allow foreign nationals to benefit from advantageous tax breaks while living in Spain. Footballer David Beckham was one of the first to use the law when he moved to Spain to play for Real Madrid, becoming an official resident.
The rule (Ley 41/1998, Ley del Impuesto Sobre la Renta de No Residentes) is intended to encourage highly skilled professionals to reside in Spain. Like the UK’s non-domicile regime, the Beckham rule states that where an individual qualifies, their worldwide income will not be taxed in Spain and will be treated as a non-resident taxpayer for up to six years.
The rate of tax payable on their income will be reduced from the general resident tax rate of up to 47% to 24% and is only charged on Spanish-based income.
The Digital Nomad Visa allows applying for the Beckham rule under favourable conditions.
Corporation Tax and PAYE
Where a director of a UK company is resident in Spain, the company may be deemed to be managed and controlled in Spain, meaning corporation tax will be payable in Spain.
A tax resident in Spain will also need to pay tax on their employment income or directorship fees, even where the company paying them does not have a permanent establishment in Spain.
If the company does have a permanent establishment in the country, it will need to register for corporation tax, VAT and PAYE and withhold income tax and social security.
To avoid the creation of a permanent establishment, companies will often use contractors instead of employees; however, there is a risk that the Spanish tax authorities could still class the contractors as employees, even where the relationship would satisfy UK authorities. Where they are classed as employees, the employer and employee must register and pay National Insurance in Spain.
Contact our international tax experts.
Dealing with the Spanish tax rules can be complex, and the authorities can be rigid when dealing with residency and employment issues.
At Del Canto Chambers, we specialise in Spanish tax and can advise you regarding your status and how to minimise the risk of being required to pay Spanish tax on all of your worldwide assets and income.
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