Paying Tax in Spain

1. General information

The Personal Income Tax (Impuesto sobre la renta de las personas f?sicas / IRPF) is a direct tax levied on the income of individuals.

The individual's income may derive either of a dependent work or obtained by means of self-employment: development of a business or professional activities.

The taxable income is determined as the difference between the income earned and the expenses that are deductible according with Spanish Law.

At the moment, only those individuals earning more than ? 21,035.42 a year in Spain, are obliged to file income tax returns. Any amount above that involves a progressive tax structure.

The tax period coincides with the calendar year.

This tax is assessed differently for residents and non-residents in Spain.

2. Non-residents income tax liability

Non-residents are liable for this tax on any income arising in Spain, such as a money deposit with a Spanish bank, a property in Spain, or income derived of any business in Spain.

Property owners are taxed on their property income. The tax base is the property cadastral value (valor catastral), which can be found on any I.B.I receipt. Tax base rate is 25% of a 2% of the cadastral value.

Should you fail to pay this tax, you will be charged and penalized by the Spanish Tax Agency if you try to sell your property.

3. If you are an Spanish resident

If you are an Spanish resident you will be taxed for your worldwide income. You may deduct your income tax paid in your home country.

Double tax treaties are in place to avoid double-taxation. When there is no treaty with your country of origin, you may deduct the foreign tax paid; foreign compensation may also be applied. Your Spanish Lawyer may calculate this amount for you.

Those non-residents living more than 183 days in Spain are also considered as residents for tax purposes, even if they have not obtained their residence permit.

4. Tax base

The income tax base may be determined in two different ways: direct evaluation or objective evaluation.

4.1. Direct evaluation

This method will be applicable to business and professional activities performed by the taxpayer that are not subject to the objective evaluation, either because that method is not applicable or, when applicable, because the taxpayer filed a waiver.

Net income will be computed as the difference between the assessable income and the deductible expenses.

4.1.1. Simplified direct evaluation

This method is applied to some business and professional activities, which are subject to ordinary direct evaluation and which turnover during the previous year did not exceed ? 601,020.21.

The taxpayer may file a waiver in the month of December before he or she wishes its effects arisen; these effects will last for 3 years.

Net income will be computed as the difference between the assessable income and the deductible expenses.

These are only general guideline. The determination of the simplified direct tax has other particularities that your Spanish Lawyer may inform you about.

4.2. Objective evaluation

This method is applicable to any income resulting from those business and professional activities which the the Spanish Tax Ministry appoints.

The taxpayer may file a waiver in the month of December before commencing a new tax period. The waiver effects will last for 3 years.

Net income is computed by applying standard methods that the Spanish Tax Ministry determines.

5. When should you file your income tax return?

Depending on the result of tax return, if the taxpayer must pay, tax declarations shall be filed from the 1st of May to the 20th of June. If the taxpayer is entitled to a tax refund, then this period will be extended up to the 30th of June.

6. Where should you file the income tax return?

Income tax returns must be filed before the Tax Office of the taxpayer's address.

Taxpayers also have the possibility to file their tax return before the Spanish bank where they have an account; provided that they are entitled to tax refund or shall make any payment as a result of their tax declaration.

7. Deductible expenses

Certain deductible expenses, such as medicines, deductions for dependants, amounts paid for the purchase of a home or accounts opened for that purpose ("cuentas vivienda") may be claimed in the annual tax returns.

Employers must provide employees with a certificate of taxes withheld (Certificado de Retenciones) so that employees are able to subtract them in order to calculate their tax obligation. Payments to the Spanish Social Security System can be deducted.

These are only general guidelines. It is suggested that all technical and legal matters pertaining to taxes be referred to a lawyer for advice, guidance and execution.