Taxes can be a real headache. Especially in countries like in Spain, where the tax burden is that high. Nevertheless, this article tries to shed some light on this topic.
Because seeing how half of the income you have generated with your sweat and effort vanishes doesn’t feel good. That is why we would like to provide 3 useful tips that will help you save taxes in Spain. Your pocket will really thank you!
Before starting with the actual tips to save money, let’s first analyze the taxation system in the Spanish territory, so you can know which are the taxes you as a foreigner will pay once you start living in the country.
In order to understand the whole picture, we first need to solve some of the most important questions.
Because taxes in Spain can be quite similar to UK or US taxes, but there are slight differences you must be aware of.
Are you a tax resident?
Answering this question will be crucial in order to define strategies to save taxes later on, and to know which are the taxes you are liable to pay in the first place.
Being a tax resident basically means that you spend more than 183 days per year in Spain.
That is the typical situation of foreigners who hold a regular residence permit, as it requires them to stay for more than 6 months in the country in order to renew.
Nevertheless, if your main center of economic activity is the Spanish territory or your spouse/children live here, you may as well be regarded as a tax resident.
Which are the taxes paid in Spain as a resident?
Now that you know which is your exact status in regards to the Spanish tax law, let’s move to see a complete list with all the taxes you will need to pay as a foreigner living in Spain:
1. Income tax. Provided that you are a resident in the country, you will pay income tax for all the incomes you obtain worldwide. Those incomes are taxes at a progressive tax rate that ranges from 19 to 45% in the highest bracket. This is also one of the main taxes freelancers must pay in the country.
2. Non-resident tax. In case that you are a non-resident, you also need to pay taxes on the incomes generated, but just for those in Spain. And this time trough the non-resident tax. We are talking about a flat rate of 24% that is usually applied to the gains you obtain when renting out a property or from the yields that any other asset you have in Spain offer.
3. Capital gains tax. This tax, which goes from 19 to 23%, is applied to the specific gain you get from selling an asset you previously bought at a lower price. So, for example, if you bought a property or a set of company shares at time X and you are selling them at time Y at a higher price, capital gains will be applied to you on that difference.
4. Wealth tax. A 0,2 to 2,5% tax rate that is applied to all those assets you have in Spain which value is above 700.000€. The wealth tax would just be applied to value that exceeds that amount.
5. Inheritance tax. In some Spanish regions, once you accept any asset (for example, through an inheritance), you need to pay a small percentage that varies according to your specific region.
Do you have any doubts? Get in touch with our tax and immigration lawyers and receive personalized legal advice and all your doubts solved:
Non-resident taxes
Non-resident foreigners also pay taxes in Spain, even though at a lower tax rate.
What are those taxes and its rates?
Non-Resident Income Tax (IRNR). It applies to income generated in Spain by non-residents, including rental income, property sales, and business earnings. Generally, the rate is:
- 24% for non-residents from non-EU/EEA countries.
- 19% for residents from EU/EEA countries.
Capital Gains Tax. It is imposed on profits from selling real estate or shares in Spain. The rates are progressive, regardless of residency:
- 19% on gains up to €6,000.
- 21% on gains from €6,000 to €50,000.
- 23% on gains over €50,000.
Wealth Tax (Impuesto sobre el Patrimonio). Applicable to non-residents with assets in Spain over €700,000, excluding a personal allowance for real estate (€300,000). Rates vary by region but typically range from 0.2% to 2.5%.
Inheritance and Gift Tax. Taxed on any assets or gifts inherited or received within Spain. Rates and allowances depend on the relationship between the donor and the region, ranging from 7.65% to 34%.
Property Tax (Impuesto sobre Bienes Inmuebles – IBI). An annual municipal tax on property ownership in Spain. Rates generally range from 0.4% to 1.1% of the property’s cadastral value, depending on the municipality.
Now the question is, how to pay less tax in Spain if your are a non-resident? Here are some quick tips:
- Claim Deductions: For rental income, offset property maintenance, repairs, and certain fees if you’re an EU/EEA resident.
- Consider Regional Differences: Tax rates and deductions can vary by autonomous region, especially for Wealth Tax and Inheritance Tax. Check specific allowances and exemptions.
- Plan asset holdings: Reevaluate where and how assets are held to reduce Wealth Tax liability; consider lower-tax regions within Spain.
- Explore tax treaties: Spain has treaties with various countries to avoid double taxation. Understand the treaties’ implications for your specific country of residence.
Types of taxes in Spain
As we have seen, Spain has several types of taxes that apply to residents and non-residents. Expats should be aware of the key tax obligations to avoid penalties.
Below are the main taxes you may need to pay
1. Income Tax (IRPF – Impuesto sobre la Renta de las Personas Físicas)
Income tax applies to individuals living in Spain.
Residents pay tax on their worldwide income. Non-residents only pay tax on income earned in Spain.
The rates are progressive, ranging from 19% to 47%, depending on income levels.
2. Non-Resident Income Tax (IRNR – Impuesto sobre la Renta de No Residentes)
Expats who live in Spain for less than 183 days per year are considered non-residents.
They must pay tax only on Spanish-sourced income.
The general tax rate is 24%, but for EU/EEA citizens, it is 19%.
3. Wealth Tax (Impuesto sobre el Patrimonio)
This tax applies to individuals with high-value assets in Spain.
It is levied on properties, bank accounts, investments, and other assets. The rates vary by region but generally range from 0.2% to 3.5%. Some regions offer exemptions or reductions.
4. Capital Gains Tax (Impuesto sobre las Ganancias Patrimoniales)
If you sell property, shares, or other assets in Spain, you must pay capital gains tax.
The rates range from 19% to 28%, depending on the profit amount. Some exemptions apply, such as reinvesting in a primary residence
5. Property Tax (IBI – Impuesto sobre Bienes Inmuebles)
Property owners must pay an annual local tax called IBI.
The amount is based on the property’s cadastral value and varies by municipality.
Rates typically range from 0.4% to 1.3%.
6. Inheritance and Gift Tax (Impuesto de Sucesiones y Donaciones)
This tax applies to assets received through inheritance or gifts.
The amount depends on the relationship between the parties and the region where the assets are located.
Some regions offer generous exemptions, especially for close relatives.
7. VAT (IVA – Impuesto sobre el Valor Añadido)
VAT is a consumption tax applied to goods and services.
The standard rate is 21%, with reduced rates of 10% and 4% for essential goods like food, medicine, and books.
8. Business Tax (IAE – Impuesto sobre Actividades Económicas)
Businesses and self-employed individuals may need to pay IAE.
This tax applies to companies with revenues exceeding €1 million per year. It is calculated based on business activity and location.
Tax avoidance and evasion in Spain: consequences
Spain takes tax compliance seriously, and authorities closely monitor individuals and businesses to prevent fraud.
First, it is important to note a crucial distinction: the difference between tax avoidance and tax evasion.
While tax avoidance involves using legal strategies to minimize tax liability, tax evasion is illegal and includes hiding income, underreporting earnings, or failing to declare assets.
Penalties depend on the severity of the offense.
Small infractions can result in fines ranging from 50% to 150% of the unpaid tax. If the amount exceeds €120,000, it is classified as a criminal offense, punishable by 1 to 5 years in prison along with additional fines.
Repeat offenders face harsher consequences, including asset seizures.
On the other hand, bear in mind that Spanish Tax Agency (Agencia Tributaria) conducts regular audits and investigations.
Common red flags include undeclared rental income, large cash transactions, and offshore accounts. Spain collaborates with EU tax authorities and international organizations to track hidden assets.
Expats can avoid legal issues by ensuring full tax compliance.
Filing tax returns on time, declaring worldwide assets when required (Modelo 720), and keeping accurate financial records are key. Spain allows voluntary disclosure, which can significantly reduce penalties if errors are corrected before an audit begins.
Seeking professional tax advice can help expats stay compliant while optimizing their tax situation; as well as fully understanding the tips we explore in the next section.
Useful tips to save expat taxes
With the whole tax system in mind, we can now move to the actual tips that will help you save taxes as an expat.
These strategies can really make a huge difference, so we recommend you to carefully read them.
Apply for the Beckham Law
The Beckham Law is a special tax regime that is applied to foreigners who come to Spain due to work reasons. It offers the possibility to become a non-resident for tax purposes, even though you spend more than 183 days per year in the country.
What does this mean?
Basically that you can avoid paying a progressive income tax that can rise up to 45%, and pay a flat fee of 24% instead.
So, as you can see, this creates important tax savings for you.
And you can benefit from this law up to five years after you arrive in Spain.
The Beckham Law in an example
Let’s take the case of Julia, a computer engineer, who has just received an offer from a Spanish company to start working in Barcelona.
Her salary with that offer will equal 80.000€ per year.
Without the Beckham Law, she will be regarded as a resident in Spain, hence paying income tax. As her income is included in the last bracket percentage, she will pay the maximum rate, 45% on her income. Hence, Julia’s income tax payment be 36.000€ a year.
But imagine that before arriving in Spain she applies to the Beckham regime, hence paying a flat rate of 24%. In that situation, she just needs to pay 19.200€, saving 16.800€ every single year thanks to this law.
Requirements to benefit from the Beckham regime
Which are the requirements you need to fulfill in order to benefit from this special tax regime?
- First of all, and as we have just mentioned, the reason that brings you to Spain is having a job offer. And that job offer must be with a Spanish company.
- You can’t have been a resident in Spain for the past 10 years.
- If you will be obtaining incomes from any other country, they cannot represent more than 15% of your total earnings.
- In order to benefit from this regime, you must inform the Spanish tax Agency by filling out the 149 form.
Paying non-resident taxes if your employer is abroad
Let’s now analyze the second tax optimization strategy.
Even though the Beckham law is the most common used path to save taxes, there is yet another alternative that can help you become a non-resident just for tax purposes.
It may be applicable to you if you don’t meet the Beckham regime requirements.
We are referring to those cases in which your employer is not in Spain, but you are permanently living in the Spanish territory as a foreigner.
Then, you may find it possible not to pay taxes as a fiscal resident, hence enjoying the same benefits as mentioned above.
Getting assistance from an specialized tax lawyer
Finally, the most beneficial tip.
It may seem obvious, but the truth is that many individuals don’t hire a tax lawyer thinking that it’s something expensive. When in fact they are losing more money than what they would with a specialist.
No matter the tax you are liable to pay, deductions and allowances are always possible. But you need to know which ones.
So, according to your situation, there are many expenses you may be able to deduct from your tax payments; or you enjoy some bonificaciones due to your condition.
As each case is different it is really complicate to find by yourself the complete list of allowances, relying on a tax lawyer can really help you out.
Furthermore, many times, depending on how you structure your wealth and assets, you will also encounter positive tax optimization tactics.
So do not make the mistake of managing everything by your own.
A tax lawyer not only will help you stay up to date with all your tax liabilities and returns, she will also help you save taxes trough the available deductions and allowances that exist according to your specific case.
If you need help with your tax situation, do not hesitate to contact us. Our tax lawyers are ready to help you optimize your expat taxes!
Get in touch with our lawyers and let us guide you step by step:
