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Taxes in Spain for expats: What do you need to know?
We explain everything about taxes in Spain for expats: for residents, non-residents, companies and investors, as well as the tax benefits!
Spain offers a great quality of life, beautiful weather, and countless interesting places to explore. It’s no wonder it’s such an appealing destination for many. However, before considering a permanent move or deciding to invest, do you know what taxes expats have to pay in Spain? Are there any tax benefits for those who engage in economic activities in the country?
In this article, we’ll walk you through the taxes foreigners need to pay when moving to cities like Madrid or Mallorca. We’ll also explore the tax rules around owning property, investing, starting a business, and the benefits and exemptions that both residents and non-residents can take advantage of. Let’s get started.
Types of foreigners in Spain
Before diving into taxes, it’s important to know what category you fall into as a foreigner in Spain. Understanding this is key to calculating your taxes and determining your financial obligations. Knowing the difference between the various categories of foreigners will give you a clearer picture of your situation and help you plan your finances more effectively.
Persons
From a tax perspective, foreigners in Spain are divided into two groups: tax residents and non-residents. Understanding the differences between them is essential to know how taxes apply to their income and property. Each group has specific rights and responsibilities that you need to be aware of to avoid any surprises later on.
- Tax resident. If you spend more than 183 days a year in Spain, you’ll be considered a tax resident. You can also be classified as a resident if your primary economic activity is based in Spain, even if you don’t live there full-time. Spain will require you to pay taxes on your global income, no matter where you earn it. This means that you must also declare any income you have from other countries in Spain.
- Non tax resident. If you live outside Spain for more than six months a year and your main economic activities aren’t in the country, you’ll be considered a non-resident for tax purposes. In this case, you’ll only pay taxes on income earned in Spain, such as rental income or profits from local activities. Non-residents are taxed under the Non-Residents Income Tax (IRNR), which generally has a rate of 24%, though this can be lowered to 19% for EU citizens. We’ll cover this in more detail later.
Companies or properties
On the other hand, businesses or foreigners who own property in Spain have different tax obligations than individuals. The rules vary depending on the type of business or property in question.
- Companies. If you own or are a partner in a business in Spain, it will be subject to Corporate Tax. The government applies this tax to the profits generated by the business, with a standard rate of 25%. Small businesses may qualify for a reduced rate of 15% during their first two years of operation, provided they meet certain criteria.
- Properties. Foreigners who own property in Spain must pay the Property Tax (IBI), which is a local tax paid yearly and based on the property’s cadastral value. Furthermore, if your total assets in Spain (including property and other assets) exceed 700,000 euros ($757,855), you’ll be liable for the Wealth Tax, with rates ranging from 0.2% to 2.5%, depending on the overall value.
Taxes for expats living in Spain
Now that we’ve covered the different types of foreigners in Spain, let’s get into the specifics. As an individual looking to stay on top of your tax responsibilities in Spain, there are several taxes you should be familiar with. The two main factors that will influence your taxes are whether you’re a tax resident or a non-resident and the type of income you receive. We’ll go through the taxes in detail and provide examples to help make everything clearer.
Personal Income Tax (IRPF)
For tax residents in Spain, the most important tax is the IRPF. This tax is applied to your worldwide income, meaning you’ll need to declare earnings from both Spain and other countries. The IRPF is progressive, so the rate you pay increases as your income grows. The current rates range from 19% to 47%, depending on your income brackets.
Example. A person with an annual income of 40,000 euros ($43,306) would fall into a 30% tax bracket, meaning that a portion of their income would be taxed at that rate.
Non-Resident Income Tax (IRNR)
If you are a non-resident you will only be taxed on income earned within Spain under the Non-Resident Income Tax (IRNR). This applies to earnings from sources like rental properties, temporary work, or investments in the country. The standard tax rate is 24%, but EU citizens can benefit from a reduced rate of 19%.
Example. If you rent out a property in Spain and earn 10,000 euros ($10,826) per year, you would need to pay 2,400 euros ($2,598) in Non-Resident Income Tax (IRNR) at the standard 24% rate. However, if you’re from the EU, they would reduce the tax to 19%, meaning you’d pay 1,900 euros ($2,057).
Wealth Tax
This tax applies to individuals with a net worth in Spain exceeding 700,000 euros ($757,855). If your assets—including real estate, investments, and other holdings—surpass this threshold, you’ll be taxed on the amount above it. The rates range from 0.2% to 2.5%, depending on the total value of your assets.
Example. If someone has a net worth of 1,000,000 euros ($1,082,650), they would be taxed on the 300,000 euros ($324,795) exceeding the 700,000 euros ($757,855) exemption. At a 0.2% rate, this would amount to 600 euros ($650) in Wealth Tax.
Inheritance and Gift Tax
If you receive an inheritance or a gift in Spain, the authorities will require you to pay taxes on it. The final amount varies based on factors such as the asset’s value and your relationship to the person giving it. Immediate family members usually get substantial deductions, whereas more distant beneficiaries face higher tax rates.
Fiscal or tax benefits for expats in Spain
Spain provides various tax incentives to attract foreign individuals looking to work or invest in the country. Let’s take a look at some of the key benefits available to expats.
Special Regime for Impatriates (Beckham Act)
This special tax regime enables Spain to tax foreign professionals relocating to the country only on income earned within Spain, rather than taxing their worldwide income like regular tax residents. It offers a flat tax rate of 24% on the first 600,000 euros ($649,590) of annual earnings, making it particularly attractive for high earners. Spain taxes any income above this threshold at 47%. This benefit applies for the first six years of residency. However, there are specific requirements: you must not have been a tax resident in Spain for the past ten years and must be employed by a Spanish company or have a qualifying contract.
Example. If you move to Spain for work and earn an annual salary of 200,000 euros ($216,530), you’ll be taxed at a flat rate of 24%. This is far more beneficial than the standard income tax brackets, which would result in a much higher tax rate.
Double taxation deductions
If you’re paying taxes in both Spain and another country, you may be eligible for deductions to prevent double taxation. This helps you avoid paying taxes twice on the same income. Spain has tax treaties with many countries to help prevent these situations, which can be a significant relief for those earning income abroad.
Exemptions for work performed abroad
If you’re a tax resident in Spain and work temporarily abroad, you might be eligible for tax exemptions in some cases. According to the rules, income earned from work outside Spain isn’t subject to Spanish taxes, as long as you don’t spend more than 183 days working abroad and the country where you’re working isn’t considered a tax haven.
Tax incentives for foreign investors
If you decide to invest in Spain, you may be able to take advantage of tax breaks in key areas like innovation, research, and technology development. There are also tax incentives for buying properties in areas undergoing development or urban renewal, which can help lower the total investment cost.
Taxes for properties or foreign companies in Spain
Do you own a property in Spain or are you thinking of buying one? Are you considering starting a business in Barcelona, Andalucía, or the Balearic Islands? If so, it’s important to know that the taxes you’ll face are quite different from those for individuals. Spain has a specific tax framework for property owners and foreign businesses operating in the country. Let’s look at a few examples to better understand the details.
Real Estate Tax (IBI)
Spain applies the IBI as a local tax to property ownership, whether the property is used as a residence, an office, or is rented out. This tax is required from all property owners, whether they are residents or not. The amount you pay depends on the cadastral value of the property, which is influenced by factors like location and the property’s features.
Example. Let’s say you own a property worth 500,000 euros ($541,325) in Madrid. You could pay a rate ranging from 0.4% to 1.1% of the cadastral value. If the cadastral value is 200,000 euros ($216,530), your annual IBI could be anywhere between 800 and 2,200 euros ($866-2,381).
Tax on the Increase in Value of Urban Land (Municipal Capital Gains Tax)
If you sell a property in Spain, you’ll be subject to the Municipal Capital Gains Tax. This tax is applied to the increase in land value from the time you acquired the property to when you sell it. The amount you need to pay depends on the cadastral value of the land and how long you’ve owned the property.
Example. If you sell a property that you bought 10 years ago and its cadastral value has significantly increased, you may have to pay a notable percentage on that increase in value. For example, if the value has risen by 50,000 euros ($54,132) over that time, the Capital Gains Tax could be around 20%, meaning you’d pay about 10,000 euros ($10,826).
Corporate Income Tax
Foreign companies operating in Spain are subject to the Corporate Tax. The standard rate for this tax is 25%, but there are incentives and reductions available for small and medium-sized enterprises (SMEs) and startups.
Example. Let’s say your company generates a profit of 100,000 euros ($108,265) in Spain. You would need to pay 25,000 euros ($27,066) in Corporate Tax. However, if your company is new or small, you could benefit from a reduced rate of 15% for the first two years, meaning you would only pay 15,000 euros ($16,239) in taxes.
Tax on Economic Activities (IAE)
The IAE is another tax that applies to foreign companies operating in Spain. Businesses pay this tax annually, and the amount depends on the type of business activity and the location of the company.
Example. If you run a tech company in Barcelona, the amount you’ll pay in IAE will depend on the size of your business, but it could range from 600 to 2,000 euros ($649 to $2,165) per year.
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Tax benefits for foreign companies in Spain
If you’re considering starting a business, you’ll be happy to know that, similar to individuals, Spain provides various tax incentives for foreign companies aiming to invest or set up operations in the country. These incentives aim to attract foreign investment and support business development in important areas of the economy.
Deductions for investment in R&D&I
Foreign companies investing in research, development, and technological innovation (R&D&I) in Spain can take advantage of tax deductions. These deductions can be as high as 42% of the spending on innovation projects, which represents a significant reduction in the tax burden for tech or industrial companies focusing on innovation.
Example. Let’s say you invest 100,000 euros ($108,265) in an R&D project in Spain. In that case, you could deduct up to 42,000 euros ($45,471) from your tax return, significantly reducing the corporate tax you owe.
Free Trade Zone Tax Regime
Companies operating in Spain’s free trade zones can benefit from reduced VAT rates and customs exemptions. Authorities designate these zones as areas where businesses can store, manufacture, and export goods without having to pay duties until the products leave the zone.
Example. If your company imports machinery to a free trade zone in Cádiz and then exports it to another country, you won’t have to pay duties or VAT, which simplifies logistics and reduces operating costs.
Incentives for startups and SMEs
Spain provides a favorable tax environment for foreign startups and SMEs looking to set up in the country. Notable benefits include a reduced corporate tax rate of 15% during the first two years of operation. There are also opportunities for public funding and grants aimed at companies prioritizing digital transformation and sustainable growth.
Example. Let’s say you’re the founder of a startup in Madrid. During the first two years of operation, you would only pay 15% on the profits, allowing you to reinvest more into the company’s growth.
Taxation of foreign investments in the Spanish stock market
Investing in the Spanish stock market as a foreigner also comes with certain tax obligations. Here are the main taxes to consider if you decide to invest in stocks, bonds, or any other financial products in Spain.
Capital Gains Tax
If you make a profit from selling stocks or other financial assets in Spain, those earnings are taxable. The tax is based on the difference between what you paid for the asset and what you sold it for. The tax rates range from 19% to 26%, depending on how much profit you made.
Example. Let’s say you buy shares of a Spanish company for 10,000 euros ($10,826) and sell them for 15,000 euros ($16,239). That gives you a profit of 5,000 euros ($5,413). In this case, you would pay 19% tax on the first 6,000 euros ($6,495) of profit, which means you’d owe 950 euros ($1,028) in taxes.
Income Tax on Capital Gains
This tax applies to dividends, interest, and other income earned from financial investments in Spain. The tax rate varies depending on the amount of income generated, ranging from 19% to 26%.
Example. If you invest in Spanish government bonds and receive 2,000 euros ($2,165) in annual interest, you would pay 19% on that income, totaling to 380 euros ($411) in taxes.
Double Taxation Treaties
Spain signed tax agreements with several countries to ensure that they don’t tax foreigners twice on the same income. If you’re a resident of a country that has such an agreement with Spain, you may be able to take advantage of tax deductions and avoid paying the same tax both in Spain and in your home country. For instance, if you lived in France and invested in Spanish stocks, you could use the tax treaty between the two countries to offset some of the taxes paid in Spain on your French tax return.
Frequently asked questions about taxes for expats in Spain
In Spain, the authorities consider you a tax resident if you spend over 183 days a year in the country or if your main economic interests are located there—that is, if most of your income comes from Spanish-based activities. To get a clearer picture of your specific tax situation, we recommend speaking with a tax advisor or visiting the relevant authorities. And if you’re already in Spain, remember to get your Holafly eSIM so you stay connected and receive notifications.
Yes, tax residents in Spain can deduct certain housing-related expenses, such as mortgage interest or rent, as long as the property is their primary residence. Non-residents generally cannot apply these deductions because Spain only taxes them on income generated within the country.
If you’re a non-resident foreigner renting out a property in Spain, you’ll need to pay the Non-Residents Income Tax (IRNR). The tax rate is 24% for non-EU residents, while EU residents benefit from a reduced rate of 19%. Additionally, non-EU residents cannot deduct expenses related to the rental, which increases their tax burden.
When buying a property in Spain, both residents and non-residents face the same transfer taxes, such as the Property Transfer Tax (ITP), which ranges from 6% to 10%, depending on the region. However, non-residents are subject to different rules when it comes to the Wealth Tax and cannot deduct certain expenses that residents can.
Spain has tax treaties with over 90 countries, including major trading partners like the United States, the United Kingdom, Germany, and France. These agreements help avoid double taxation, meaning you won’t have to pay taxes twice on the same income. It’s important to check the specific treaty that applies to your situation before making investments or earning income in Spain.
If you choose to work as a freelancer in Spain, you’ll need to sign up for Spanish Social Security and pay a fixed monthly fee, which in 2024 is about 80 euros ($86.61) for new freelancers (with a reduced rate for the first few months; after that, the minimum is 230 euros or $249). Also, if you’re a tax resident, you’ll need to pay income tax on your worldwide earnings, as well as VAT if you’re billing clients in Spain or the EU.
