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?
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.
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, trough an inheritance), you need to pay a small percentage that varies according to your specific region.
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!