Tax in Spain
 Overview
 
The Spanish tax office is known as the Hacienda, which is part of the Ministerio de Economia y Hacienda. Each province has a head office or 'delegacion' and smaller local offices called 'administracion'. As mentioned in the NIE reference section, the Numero de Identificacion de Extranjero is the tax reference number for a non-Spaniard. Tax returns need to be presented between 1st May and 20th June, and it is the responsibility of the individual to complete their tax return correctly.
 
It is important to seek professional tax advice as a Spanish tax resident is liable to tax on worldwide income and gains. The Spanish tax office does not back date as far as the UK tax office, where they can back date 20 years, at the time of writing the Spanish tax ofice can only go back 4 years.
 
 
 
Completing a Spanish Tax return
 
Most people who live in Spain are elgible to complete a tax return. There are three types of form; an abbreviated declaration ( declaración abreviada), Form 103, which is used if you need to declare earnings from pensions or investments that have already been subject to withholding tax; a simple declaration ( declaración simplificada), Form 101, which must be used if you have income from letting, certain business and agricultural income or capital gains from the sale of a permanent home where the total gain is to be reinvested in another property in Spain; an ‘ordinary’ declaration ( declaración ordinaria), Form 100, which is for all sources of income other than the above and covers all business and professional activities and capital gains.
 
 

Help is at hand, either from your tax adviser or from the tax office in the form of an innovative computer programme called the Personal Income Tax Return Help Progamme ( Programa de Ayuda a la Declaración del Impuesto sobre la Renta de las Personas Fisicas/PADRE), which is the result of a major effort on the part of the tax authorities to help you declare your tax correctly.

 

To use the PADRE system, you can go to the tax office, where staff will help you to enter your information into the computer programme, which runs on the Windows operating system. Because the tax office is keen to promote the system, if you use it for your declaration, you will be first to receive any refunds that are owing to you. You must phone 901 223 344 and make an appointment to see a specific member of staff. In areas where there are large numbers of foreign residents, there may be a member of staff who speaks English.

 

When you go to the tax office for your appointment, you should take along your bank statements showing interest received and your average balance; any papers relating to stocks, shares, bonds and any property that you own in Spain or abroad; any declarations and receipts for taxes paid in another country; and, of course, those vital documents, your passport, residence permit and NIE certificate.

 

You may also find that your bank has the PADRE programme and can enter your information via their computer, in which case a member of their staff should help you to make your declaration. However, if your tax position is complicated or if you prefer expert and independent help, it’s best to consult a tax adviser. Many of them have access to the PADRE programme and charge around €35 for a simple tax return and around €60 for a more complicated one.

 
You do not have to complete a Spanish tax return (even though you may be tax resident), if your income is from one source and is less than 22,000 Euros, and tax has been deducted at source. This exemption would not cover a pension income from overseas, as no tax has been deducted at source (unless it is less than 8,000 Euros)
 
 
Exchange of Information
 
Details of all interest bearing bank or building society accounts in the UK with a Spanish address, will be sent by the HMRC to the Spanish tax authorities. There is also a similar agreement with the Channel Islands.
 
In addition, the European Savings Tax directive effects all countries that have signed up to it (which includes all EU member states). This effectively enables the sharing of information of banks/building society accounts, or the payment of witholding tax.
 
At the time of writing tax evasion in Spain is not a criminal offence unless it exceeds 120,000 euros in a tax year. If so, the penalty  can be one to four years in prison as well as a fine up to six times the tax evaded. Below 120,000 euros is deemed a less serious offence, and can incur a variety of financial penalties.
 
 
Fiscal Nomad
 
There is no law which states you must be tax resident somewhere. It is possible to be not tax resident anywhere in the world without breaking any laws. This would be a difficult way of life, as it would not be possible to settle in one country.
 
Some people choose to have a short perios of time of not being tax resident anywhere. An example of this is becoming a non-resident of UK, and before becoming a tax resident of Spain, and disposing of assets to reduce liability to capital gains tax. This requires careful planning, and advice from a taxation expert and financial advisor is recommended
 
 

Spanish Succession Tax(SST)



• SST is payable on inheritance between spouses on the death of the first spouse (unlike in the UK, in relation to Inheritance Tax (IHT)).


• SST is charged on each individual beneficiary (unlike in the UK, where IHT is levied on the Estate).


• Individual SST tax-free allowances are not very generous, typically less that 16,000€ per inheritor.


• Unlike UK IHT, which is usually extremely straightforward to calculate, the amount of SST ultimately payable is influenced by a number of criteria.  These include: relationship between deceased and beneficiary; value of inheritance; age of beneficiary; pre-existing wealth of beneficiary; location of assets; class of assets; existence of mortgages; residential status of deceased and beneficiary; and how quickly the SST liability is settled.


• The percentage rate of SST (calculated by reference to the principles above) can range from just under 8% to well over 80% (but the latter is only in the most extreme of cases, specifically in the case of non-related, already wealthy beneficiaries of very large estates).  But still – losing 80% of your inheritance in tax even if you’re wealthy is not pleasant!


• To avoid interest and penalties, SST must be settled in full, prior to the expiry of the period of 6 months from the date of death.


• Generally, it is not possible to use inherited assets (or inherited property as security) in order to pay SST.  In other words, arrangements must be made for SST to be paid before a beneficiary has access to the inherited assets – which can make life very difficult if you do not have the funds to pay, and actually need the inheritance to enable you to pay!


• There is a Unilateral Relief Treaty in place between the UK and Spain.  This means that you should not have to pay tax twice (i.e. in the UK and in Spain) on the same inherited asset.  Thus the total (combined) tax payable is, in effect, equal to the higher of the two.  However unfortunately, this relief is only available as a credit against ‘equivalent’ taxes.  A spouse-to-spouse inheritance, for example, is exempt from UK IHT.  Therefore, relief is not available in the UK for any SST paid by a spouse by reason of inheriting Spanish assets from their deceased spouse.  There is also an argument which undermines the general effect of the Unilateral Relief Treaty, as IHT is chargeable on the Estate, whereas SST is levied on the individual beneficiary - so are they really equivalent taxes in any event?  A clear ruling on the point is awaited.

 
Sources : Information is as accurate as possible at time of publication. No decisions should be made based on the contents of this website, professional advice should be sought in all circumstances
 
 
 
Useful Links
  1. Spanish Taxation Office
  2. Taxation Guides Bookshop
  3. Wincham Spanish Tax Consultants
  4. Spanish Tax payers calendar 2012
  5. HMRC Double Taxation Agreements
 
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2012 Spanish Tax Rates
Income tax at scale rates.

Tax rates have increased across the board in 2012 and 2013, they rise progressively so that higher earners pay a greater percentage of extra tax :

€0 – 17,707: 24.75%

€17,707 – 33,007: 30%

€33,007 – 53,407: 40%

€53,407 - 120,000: 47%

€120,000 – 175,000: 49%

€175,000 – 300,000: 51%

Over €300,000: 52%

The Community rates may vary, for example, the top rates in Andalucía and Cataluña are now 54% and 56% respectively.

Tax on savings income

Progressive additional contributions are also being applied to the fixed rate charged on savings income (interest, capital gains, dividends, income from life assurance contracts and annuities) (up from 18% in 2009) :

Up to €6,000: 21%

€6,000 to €24,000: 25%

Over €24,000: 27%

Non-residents

The flat 24% rate will increase to 24.75% for 2012 and 2013. The 19% withholding tax rate increases to 21%.