Individuals, Expatriates in Spain, who become Spanish tax residents as a result of being posted to Spain. Or also the acquisition of a position of director in an unrelated entity. As long as certain requirements are met, they may choose to pay tax as Spanish tax residents. According to the scale of progressive personal income tax rates, which varies according to the autonomous community in which they reside. Or as non-residents according to the IRPF regulations for the same, with fixed rates depending on the type of income.
The latter option is effective from the period in which the change of residence takes place and the following five years, and is commonly known as the Special Tax Regime.
This special condition applies to Personal Income Tax and Wealth Tax.
Expatriates in Spain. Special Tax Regime Requirements.
The main requirements that must be met in order to apply for the regime and the applicable rules have been modified from 1 January 2015. They are summarised below.
These requirements must be met throughout the period of application of the scheme.
- The taxpayer has not been resident in Spain during the 10 fiscal years prior to the assignment to Spain.
- The assignment to Spain is derived from an employment contract (excluding professional sportsmen and women). Or from acquiring a board of director position in an entity in which the expatriate does not have a stake in its capital. Or has a stake in a percentage that does not imply being a related party.
- The taxpayer does not obtain income that can be obtained through a permanent establishment located in Spain.
- Within the framework of the special tax regime for foreign taxes paid, there is a tax relief to avoid double taxation. It is limited to 30 per cent of the tax payable on the total labour income received in the tax year.
Special tax treatment of each tax for Expatriates in Spain
Personal Income Tax (IRPF)
- All of the employment income obtained by the taxpayer during the period of applicability of the regime will be deemed to correspond to work performed in Spain and, therefore, will be fully taxed in Spain. Salaries obtained in Spain and abroad.
The tax rates for income obtained under the Special Regime shall be as follows:- 24% for income up to 600,000€.
- 45% for income over 600,000€.
- Investment income and capital gains of tax residents will be taxed in Spain only if they are obtained in Spain. For example, interest earned on Spanish bank accounts, dividends paid by Spanish companies directly to shareholders, etc..
The tax rates for this income will be as follows:- 19% for income up to 6,000€.
- 21% for income between 6,000 and 50,000€.
- 23% for income over 50,000€.
Wealth Tax
- Spanish tax residents pay the world net worth tax which is maintained on 31st of December each year. While non-residents are only subject to net worth tax in Spain.
- Kind of goods subject to this tax: real estate, bank accounts, insurance and temporary sources of income, luxury goods (such as yachts, airplanes, etc), works of art and antiques, business assets (such as listed and unlisted shares, investment funds, bonds and coupons, etc), real rights, administrative concessions and intellectual property rights, contractual options and other economic rights, etc.
- Taxpayers will have an individual exemption of 700,000€ (in Catalonia the exemption is 500,000€).
In Madrid, at least for the year 2019, the tax is suspended. Therefore, tax residents in Madrid do not have to pay the tax and do not have to file a tax return if the value of their assets does not exceed 2,000,000€. - As previously announced, in the case of taxpayers under the Special Regime, during the validity of the regime, the treatment in this tax will be to consider them as non-resident taxpayers.
Therefore, in Madrid, taxpayers under the Special Taxation Regime only have to file a tax return if their assets in Spain at the end of the year exceed 2,000,000€ and the tax return has no tax liability to pay.
If you are an Expatriate in Spain and need more information, do not hesitate to contact us.
Arrabe Integra
Tax Consulting Dept.