Tax and accounting in Spain need not be overly complicated. Get your head around tax in Spain for expats by following these simple tips.
Get an NIE number
It’s not essential for non-residents who simply stay in Spain a few weeks a year, but if you want to live in Spain for a longer period of time, find work or join the social security scheme, it will be obligatory.
For EU nationals, getting a NIE number is easy, but non-EU nationals will likely need to find a local gestor to get the necessary papers and forms together to make the application.
The NIE number can be applied for at a Spanish embassy or consulate in your country of residence and, in all cases, it will take some weeks to be issued – so if you need one, don’t leave it to the last minute.
Seek advice before starting a business
If you want to start a business in Spain, it helps to get advice on tax implications and associated costs and obligations, but choose your specialist carefully.
The usual options for setting up a typical business are limited and not complicated, but local professionals can confuse foreigners (due in part to the language barrier) and at times sell a service that is unsuitable to the business’s requirements.
In some cases, they’ll also over-charge for their services, so shop around.
Get to grips with filing your taxes
Most business will have to file quarterly IVA (Spanish VAT), annual summaries and an annual tax return (Impuesto Sociedades for companies, Renta for individuals).
Other returns such as employee/sub-contractor income tax, rent payments or EU operations will be applicable depending on individual circumstances.
The penalties for non-filing, or even late submission, can be heavy and may lead to a tax inspection.
Filing US taxes from Spain
Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from Spain, contact Taxes for Expats and see our guide to taxes for American expats.
Find out if you need to file an annual income tax return
Most income from a job in Spain is taxed at source (IRPF) and, for low incomes, filing your annual income tax (Renta) may not be obligatory.
Broadly, if you earn less than €23,000 in a calendar year from one employer, there is no obligation to file, though to claim a rebate you will have to do so, as the Spanish tax authority does not make automatic refunds.
If you earn more than the limit or have several sources of income, filing is obligatory in June of the following year.
Understand tax rules for non-residents
If you own a property in Spain and are considered a non-resident for tax purposes, the property is always deemed to generate income and so an annual tax return is obligatory. Note that this is true even if the property is not let to tenants.
The tax payable will be based on any rental income received, but if the property does not earn real income the tax will still be applied to the property’s notional income received, which is based on its tax value (the valor catastral).
In addition, all other income arising in Spain is taxed as well (e.g., interest earned in a Spanish bank account).
See if you can get a tax break as a non-resident
A special tax regime (24.75%) is applicable to most non-resident expats, such as executives working for multinational firms, researchers or any other salaried employee who moves to Spain to work for a national companies.
To get this, you’ll need to earn less than €600,000 for each of the next five years, cannot have lived in Spain for 10 years before taking your job and must have applied to be treated as a non-resident for tax purposes.
While the overall rate of 24.75% is very attractive and significantly lower than the higher rates currently applicable, it’s not the best move for everyone, and may only be of interest to high-income employees.
To make the correct decision about claiming the tax status or not, it’s best to speak to a tax advisor who can compare the two regimes and take your specific circumstances into account.
David Cook is Expatica's tax expert. He runs Spain Accounting, offering personalised accounting, tax and advisory services to foreigners living, working or wanting to start a business in Spain. David, a British qualified accountant, has lived near Barcelona for nearly 30 years, where he set up Spain Accounting in 1999. It specialises in helping foreigners cope with their Spanish taxes and offers practical advice and solutions to starting a business.Spain Accounting