The Spanish tax system has some similarities with other European countries. However, when you want to settle in Spain, a basic knowledge of the country’s tax system can be useful. In this article we will present the different types of taxes in Spain.
It is important to keep in mind that this article details the Spanish tax system as a whole, but each autonomous community may have its own peculiarities. For example, in the Canary Islands, the IVA is replaced by the IGIC (Impuesto General Indirecto Canario), a similar tax.
Who should pay the taxes?
Not all citizens are taxpayers. Indeed, under certain minimum income conditions, one can be exempt from taxes. In addition, in order to be taxable, one must have the status of a resident. This is granted to any natural person who lives in Spain for more than 183 days a year, or who concentrates the bulk of their economic activities in the country. It should be noted that bilateral agreements exist between Spain and other countries with the aim of avoiding double taxation.
It is also important to clarify that the Agencia Tributaria deals with all taxation in Spain, and it is with this body that the tax return is made.
Spanish taxes fall into two categories:
Direct taxes: A tax is said to be direct when it is paid and borne by the same person.
Personal income tax (IRPF)
This tax is the most important in all companies. It is levied on income received by citizens in a tax year. As it measures the economic capacity of taxpayers, it is also a progressive tax, since the people who have generated the most money are the ones who pay the most. It applies to all natural people resident in Spain and the retention rate is progressive and varies between 19% and 45%, depending on income.
It applies to three types of income: rents, salaried work and invoices (for self-employed and self-employed).
The peculiarity of the Spanish income tax is that it is levied at source, directly from wages. Nevertheless, it is necessary to fill out an online tax return once a year, the purpose of which is to regularize the amount received by the State with the actual amount due. If the taxpayer has overpaid, he can fill out an application for a refund, or otherwise pay the state the difference.
Non-resident income tax (NRI)
This is a tax on income generated in Spain by people who do not live in Spain.
This is one of the direct taxes levied on companies for the purpose of taxing their wealth.
Companies are subject to corporation tax if they have their registered office on Spanish territory and it applies to the profits of the enterprise. Although the general tax rate has been 25% since 2016, specific rates of 20%, 15% and 1% may apply in certain cases.
This is a tax to be paid when transferring assets free of charge. The donation is made during their lifetime by a person who wants to pass on some of their property. Succession or inheritance is made after death.
It is important to take into account that this is a tax ceded to the autonomous communities, so there are differences between communities.
This tax is levied on the wealth of individuals. It is also a tax ceded to the autonomous communities and it is complementary to the IRPF. It is calculated based on the value of all of an individual’s property, starting from 700,000 euros and with an exemption for real estate assets of 300,000 euros.
Indirect taxes: are levied on economic transactions (for example, VAT), taxing services or consumer goods.
Value added tax is the most important indirect tax. It is levied on the consumption of goods and services by individuals and enterprises. There are 3 VAT rates: 21%, 10% and 4%.
The default is 21%, however different rates apply to certain goods and services. Food in general, glasses and lenses, and the hotel sector are subject to 10%. The basic necessities of food, books, newspapers, medicines, and vehicles for disabled people are subject to 4%.
Transfer tax and stamp duty (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados)
This is a tax that falls into 3 categories. Transfer duties are levied on all transfers for consideration (no donation or inheritance) that are not subject to VAT. Stamp duty is levied on the formalization of certain notarial, commercial and administrative documents. Partnership tax is levied when companies are incorporated. It is also a tax devolved to the autonomous communities.
So here is a brief summary of all taxes applicable in Spain. However, if you have the slightest doubt, do not hesitate to contact Delaguía & Luzón. Entrust the management of your taxation to our professionals! Our English-speaking lawyers will be happy to help you.