Taxes for Expats in Spain

Living in Spain offers a complete change in the pace of life compared to many other countries. However, before you relocate and enjoy the lifestyle on offer, it is important that you understand how taxes for expats work, and how they will impact your income, assets, savings, and overall wealth.

The subject of taxes may not be glamorous, but they can enormously affect your income and standard of living. Conducting thorough research and seeking professional advice will ensure you adhere to the taxation rules while taking advantage of the efficiencies and allowances available.

Budgeting correctly for your tax obligations ensures that you can enjoy your new home for years to come, without any stress or worry about the financial implications, and with the assurance that you are fully compliant 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 can help you avoid any unnecessary problems.

An Overview of the Spanish Taxation System

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 in their country of origin and their new location, provided they claim the appropriate double tax treaties correctly.

However, in some cases, you may need to file returns in both jurisdictions, claiming a tax credit for the taxable event or income in the location with the lower obligation and offsetting this against your tax liabilities in the other.

If you are relocating from the UK, it is wise to remember that regulations may change, and advice on any anticipated or announced reforms, including those related to changes to tax rates in each new tax period may be beneficial prior to your move.

Your taxes depend on your residency status, so if you are considering options for applying for Spanish residency or citizenship, you must understand how this will impact you financially. A ‘tax resident’ is somebody considered a Spanish resident for taxation purposes – this normally applies to expats living, working or studying in Spain for most of the year.

The tax residency tests can be complex, so if you are unsure about where you are categorised as a tax resident, or where you are expected to file tax returns, our local Spanish teams are on hand to advise.

Spanish Taxation for Residents and Non-Residents

If you are living in Spain as a non-resident, you should only need to pay tax on any income you generate within the country. Income tax is applied at a progressive rate without any deductions or personal allowances.

Foreign national tax residents must pay income tax on all of their worldwide income, regardless of where it was generated. Personal allowances are taken into consideration.

Income is divided between general income and savings income. Understanding how 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 professional can provide tailored advice and clarify where it may be beneficial to pay your taxes – and how to structure your finances around this.

Some tax rates are inconsistent across Spanish regions, and different municipalities will have alternative thresholds. Considering the areas that provide the most efficient taxation rates for your circumstances may result in large cost savings.

Declaring Overseas Property as an Expat in Spain

Many expats fund their relocation by letting out real estate in their country of origin. You should note that according to the Modelo 720 requirements if you are a tax resident and own assets that exceed €50,000 in value outside of Spain, you will be required to declare those foreign assets annually.

Applicable assets include property, shares, savings and insurance policies.

Several tax-efficient products may provide an opportunity to offset taxation requirements, so if you own offshore assets, you might wish to seek advice to avoid paying unnecessary tax liabilities.

The Benefits of Spanish Taxation for Foreign National Expats

If you live in Spain for part of the year, typically under six months, you may be permitted to ‘split’ your income tax liability between the two 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.

There are specific rules and requirements for claiming ‘split year’ tax treatment, and it is well worth verifying that your residency, income, and other activities qualify for tax residency status in your preferred location for the requisite period.

However, as a non-resident, you remain obligated to submit an annual return against any Spanish property you own and pay the associated taxes.

Other factors to consider include capital gains tax, investment interest, dividends, royalties and pensions.

Wealth Management for Expats Living in Spain

Planning carefully for your future is paramount 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 due to the autonomy municipalities have over some tax allowances and rates.

The best structure for you in terms of financial assets, residency status and income will very much depend on your individual circumstances.

Support from an expat wealth management professional or tax specialist can ensure you fully understand the tax liabilities that will impact you and can optimise your tax position and future income.

Protecting your assets and wealth is key to a comfortable future, and with assistance and customised planning, you can alleviate any concerns, safe in the knowledge that you have the optimal tax structures in place.

Choosing a Wealth Management Expert as a Spanish Expat Resident

The following factors are important when sourcing  the most suitable and experienced tax adviser to provide guidance and support:

• Where is the tax adviser or wealth manager based?

An established wealth manager in the relevant Spanish region will have a comprehensive understanding of the tax regulations and available structures to organise your income efficiently – combining on-the-ground knowledge of the Spanish tax regulations and those applicable in the UK.

• How experienced is the provider in bespoke expat wealth management?

With variances between tax requirements, filing obligations and liabilities depending on your residency status, selecting a tax specialist with expertise working with expats is advisable. Accomplished wealth managers can provide long-term, bespoke guidance to ensure your finances and affairs are well-managed before, during and after your relocation.

• What is their regulatory status?

With any personal service, particularly one that will impact your wealth and future income, always work with an adviser who is happy to provide details of their regulations and experience. You can verify that your chosen adviser is fully qualified to give you advice and has appropriate regulatory authority and accreditations to provide reliable support.

Chase Buchanan is a highly regulated wealth management company specialising in providing global finance solutions for those with a global lifestyle.

Our Spanish teams in Marbella and Javea, in mainland Spain, and in Tenerife are on hand to provide additional information, schedule a private call, or meet you virtually or in person to discuss how we can support you.

*  Updated September 2024