Relocation Guide No. 4 – How to Pay Your Taxes #
Affordable Mallorca is here to offer the best advice when it comes to filing your tax returns here in Spain.
‘’Death, taxes and childbirth- there’s never a convenient time for any of them!’’
Margaret Mitchell, Gone With the Wind
Who Has to Pay them? #
The Spanish tax year runs from January 1st to December 31st, and typically, anyone who has resided in Spain for over 183 days during this one-year period is liable to pay tax on their earnings and assets, and will be required to file a tax return, the deadline for submission being between April 1st and June 30th. Whether you’ll pay tax on your worldwide income or Spanish-based income only depends on your residency status.
Residents are expected to pay tax on their worldwide income, which is charged on a progressive scale- meaning that the more you earn, the higher your tax rate will be. Allowances are available under certain circumstances, such as single parent, married couple, disability and child allowance (number of children under 25 living under your roof). Although tax is charged on a progressive scale, all taxpayers under the age of 65 are permitted to earn 5,500€ tax free, between 65-75 this increases to 6,700€, and over 75 you can earn up to 8,100€ tax free!
Current Spanish tax rates are as follows:
- Spanish income tax for incomes up to €12,450: 19%
- Spanish income tax for incomes from €12,451 to €20,200: 24%
- Spanish income tax for incomes from €20,201 to €35,200: 30%
- Spanish income tax for incomes from €35,201 to €60,000: 37%
- Spanish income tax for incomes over €60,000: 45%
Non-residents (anyone who resides in Spain for less than 183 days per annum) are only taxable for any Spanish income they may receive, e.g. for temporary summer work or property rentals. These taxes are charged at a flat rate, meaning that there are no allowances or deductions.
What many might not know: Non-residents who own properties that are, or are not, rented to holidaymakers will be required to file a tax return every year.
Dual Tax Agreements #
Spain has agreements with many countries, the UK and US included, to ensure you are not hit with a double whammy of tax!
Full-time residents of US nationality must file their IRS (income tax) returns each year, and in addition to this may be asked to file a return based on foreign assets in accounts overseas. The US is one of few countries who tax international income of their citizens, however there are several contingencies in place that protect citizens from paying out double; in fact, with the correct planning and organisation you should be able to lower or eliminate your US taxes complete
- Foreign Earned Income Exclusion: This allows citizens to lower their taxable income on US expat taxes by the first 103,900$- due to being resident in another country.
- Foreign Tax Credit: Enabling citizens to offset taxes paid in your host country, with US expat taxes.
- Foreign Housing Exclusion: Allowing certain household expenses to be excluded due to living abroad.
All British citizens residing full time in Spain will be expected to pay income tax in Spain and be taxed on either their worldwide or Spanish income based on their residency status in Spain. The treaty between the UK and Spain ensures you will only make social contributions (national insurance or seguridad social) in your country of residence, and only pay income tax (IRPF) in the country where you earn a salary (employed or self-employed); ensuring nobody is stung with a hefty bill!
Registering to Pay Your Taxes and Filing a Return #
Whether you are resident or non-resident, it is compulsory that you register to pay tax in Spain, and everyone MUST submit a tax return within their first year. It is necessary to obtain your NIE number (available from local police stations or the Oficina de Extranjeros) and will be required to fill out Modelo 30; claiming whether you are a permanent resident or non-permanent resident. One can request non-permanent status for the first 10 years, which has some benefits- but does mean that you are not entitled to any social benefits (healthcare being a key one!).
After the first year it is not obligatory to file a tax return if you earn less than 8,000€ (from all income sources) or have less than 1,600€ of bank interest. This also applies to those with rental income of under 1,000€, and for those who make less than 22,000€ per annum- as your IRPF should have been deducted by your employer.
Gestorias are the life savers when it comes to tax! Especially for those of us who happen to be autónomo (self-employed) and have a slightly trickier job than those who are employed.
- For the people on Autonomo: These wonderful people often charge a quarterly fee to manage your books (between 120-200€ every 3 months) and will expect you to send all invoices to them between 1-5th of each month. Upon doing so the gestoría will work out how much IRPF and IVA you owe, and remove it from your bank account in readiness to pay the relevant people- it’s as easy as pie! Social security payments should have been set up before registering as autónomo, and they will be deducted directly from your bank account at the end of each month.
- For the Employed: Those of you who are employed have it slightly easier. Tax returns must be filed between April and June each year, and a gestoría will charge anywhere between 40-100€ for this service. All they require is your NIE, passport and last three nóminas (payslips); they will then work out what you owe or (even better) how much the government owe you, as occasionally we overpay and get a pleasant little rebate- hoorah!
Although the world of taxes abroad can seem bleak and worrying, gestorías are available all across Spain and are well worth the investment, for a hassle-free tax experience!
Affordable Mallorca offers this information available on the internet and through guidance by our legal team. However, we strongly recommend that you contract with a local gestoría, lawyer and/or financial consultant to determine your special circumstances.
By Zoé Holmes
30 April, 2019