Living in Spain offers a complete change in the pace of life from many other countries. However, once you have relocated and are enjoying the lifestyle on offer, you will need to understand how taxes for expats work, and how they impact your income.
Taxes may not be glamorous but can have an enormous impact on your income and standard of living. It is essential to conduct thorough research and seek professional advice on the best way for you to adhere to the taxation rules. Understanding your taxes ensures that you can enjoy your new home for years to come, without any stress or worry about the financial implications and how to comply with local tax regulations.
Failing to file your tax returns, or not paying the correct tax in Spain can carry severe fines and penalties, so knowing where you stand means you can avoid any unnecessary problems.
In Spain, the tax year runs alongside the calendar year from January to December. Expats living in Spain are not required to pay income tax both at their country of origin and at their new location, so you should only be paying tax in one country.
If you are relocating from the UK, remember that regulations may change, and it is crucial to seek expert advice on any changes anticipated or announced following the UK’s departure from the EU.
Your taxes depend on your residency status, so if you are considering options for applying for residency or citizenship, make sure you understand how this will impact you financially. A ‘tax resident’ is somebody considered a Spanish resident for taxation purposes and will apply to expats in Spain who are living, working or studying in the country for the majority of the year.
Taxation for Residents and Non-Residents
Should you be considered a non-resident, you only need to pay tax on any income you generate in Spain. This income tax is applied at a fixed rate, without any deductions or personal allowances available.
If you are a tax resident, then you must pay income tax on all of your income, regardless of where in the world it was generated. Personal allowances are taken into consideration.
Income is divided between general income and savings income, and so understanding how best to classify your income will ensure you comply with the tax regulations correctly.
Since the amount of tax you pay varies considerably depending on your residency status, this may influence how you proceed. A wealth management expert can provide tailored advice, and let you know where it is most beneficial to pay your taxes and how to structure your finances around this.
It is worth considering that tax rates are not consistent across all parts of Spain, and different regions will have different rates and systems. Depending on your plans and property assets, it may provide a large cost saving to consider which areas provide the most efficient taxation rates for your circumstances.
Declaring Overseas Property
Many expats fund their relocation by letting out real estate property in their country of origin but note that if you own assets exceeding €50,000 in value outside of Spain, you will be required to declare those assets annually.
Applicable assets include property, shares, savings and insurance policies.
There are several tax-efficient vehicles against which taxation requirements can be off-set, so should you own offshore assets make sure to seek expert advice to avoid paying unnecessary tax liabilities.
Benefits of Spanish Taxation
If you live in Spain for part of the year, and this is under six months, then you may benefit from splitting your income tax liability between countries. For example, if you are classed as a non-resident in Spain you must pay income tax only on the income you generate during your time there.
Should the majority of your income be generated abroad in the other six months of the year, and the income tax rate in your home country be preferable, it may be that you can pay your taxes more efficiently.
However, as a non-resident, you are required to submit an annual return against any Spanish property you own and pay the associated property taxes.
Other factors to consider include capital gains tax, investment interest, dividends, royalties and pensions.
Wealth Management for Expats
Planning carefully for your future is critical to enjoying the expat lifestyle and making the most of the quality of life on offer in Spain. Tax rules can vary between areas and regions, and the best structure for you in terms of financial assets, residency status and income will be very much dependant on your individual circumstances.
It is essential to seek expert advice from an expat wealth management professional or tax specialist to ensure you fully understand the tax liabilities that will impact you and can seek guidance to optimise your tax position and guarantee your future income.
Protecting your income is essential for the future, and with advice and support with planning you can alleviate any concerns safe in the knowledge that you have the optimal tax structures for you.
Choosing a Wealth Management Expert
To help in finding the best tax specialist to advise you, here are some important factors to consider:
- Where are they based?
To secure local, relevant and up to date advice, it is best to select a specialist in the local area who therefore has a comprehensive understanding of the tax regulations and available structures to organise your income efficiently.
- How experienced are they in expat wealth management?
With variances between tax requirements, filing obligations and liabilities dependant on your residency status, make sure to select a tax specialist with an expertise in working with expats who will understand all the options available.
- What are their regulations?
With any personal service, and particularly one that will have an impact on your wealth and future income, always work with an expert who is happy to provide details of their regulations and experience. Check with the regulator to verify that your expert is fully qualified to give you the best advice.