Becoming a Tax Resident in Spain: Key Facts for Expats (By our Tax Lawyer)
Relocating to Spain offers wonderful lifestyle benefits, but it also comes with new tax obligations. Many expats are surprised by the differences in taxation and the rules that determine if you’re considered a Spanish tax resident. In this article, our tax lawyer explains the essential facts about tax residency in Spain, what it means for your income and assets, and how to stay compliant while optimising your finances.
What Determines Tax Residency?
Under Spanish law, you are generally deemed a tax resident if any of the following conditions are met:
- You spend 183 days or more in Spain during the calendar year (January 1st to December 31st). Temporary absences count as days in Spain unless you can prove you were a tax resident elsewhere.
- Spain is the centre of your economic interests – for example, your main business or professional activities are based in Spain.
- Spain is the centre of your vital interests – for instance, your spouse (not legally separated) and minor children reside in Spain.
If you meet these criteria, the Spanish Tax Agency (Hacienda) will treat you as a resident for tax purposes. As a result, you become liable for taxes on your worldwide income and assets.
Note: If you don’t meet any of the above, you are a non-resident for tax purposes, and you only pay Spanish taxes on Spanish-sourced income (like income from a property in Spain or work done in Spain).
Tax Implications for Residents vs. Non-Residents
Being a tax resident in Spain carries significantly different obligations compared to non-residents:
- Income Tax (IRPF): Tax residents must file an annual Spanish income tax return declaring all income earned worldwide – salaries, pensions, investment income, rental income, etc. Spain’s income tax is progressive, with rates ranging roughly from 19% up to around 47%, depending on your income level and the autonomous region. Non-residents, however, pay a flat tax (generally 24%) on Spanish-source income (for example, rental income from a Spanish property) and typically do not report non-Spanish income to Spain.
- Wealth Tax: Some regions of Spain impose an annual wealth tax on residents if your net assets exceed a certain threshold (nationally around €700,000, though regions like Valencia have different allowances and rates). Non-residents are only taxed on assets located in Spain.
- Capital Gains and Investments: Residents declare capital gains from worldwide asset sales (e.g., selling stock or property abroad). Non-residents only pay Spanish capital gains tax when selling Spanish assets (like a Spanish house).
- Foreign Asset Reporting (Modelo 720): Tax residents must file the Modelo 720 informational form if they hold assets abroad totaling over €50,000 in certain categories (bank accounts, investments, or real estate). This form doesn’t impose tax directly but carries penalties for non-compliance.
- Double Taxation Treaties: Spain has treaties with many countries to prevent being taxed twice on the same income. If you’re a resident, you may receive credits or exemptions for taxes paid abroad on income you declare in Spain. Proper planning with a tax advisor ensures you benefit from these treaties.
Planning Tips for New Expats
- Timing Your Move: If possible, plan the timing of your relocation. For example, arriving in Spain mid-year might keep you under the 183-day limit for that calendar year, giving you more time before becoming tax resident. This can be useful to reorganise finances or simply to avoid an unexpected tax residency in the first year due to a late-summer move.
- Consider the Beckham Law: Some expats moving to Spain for work may qualify for the special Beckham Law regime (regímen especial para trabajadores desplazados). If you haven’t been tax resident in Spain for the past 10 years and you come for a work contract or to conduct certain business activities, you could opt to be taxed as a non-resident (flat 24% on Spanish employment income up to €600k) for up to 5 years, even while living in Spain. This can be advantageous in high-income situations.
- Joint Filing vs Individual: Spain allows married couples to file jointly, but this isn’t always beneficial. Our tax lawyer can calculate the best approach for your situation.
- Local Variations: Remember that some taxes (like wealth tax, inheritance tax, etc.) have regional variations. As an expat in Valencia, you’ll be subject to the Valencian Community’s tax rules where applicable, which might differ from those in Madrid or Catalonia, for example.
Staying Compliant and Seeking Advice
Adjusting to a new tax system can be complicated. To avoid pitfalls:
- Register with Authorities: If you become resident, register on the padrón (municipal register) and with the tax authorities by obtaining a tax identification number (NIF/NIE). Ensure your tax status is correctly recorded.
- Keep Records: Maintain documentation of days spent in and out of Spain, as well as income records and foreign asset statements. These will be important in preparing tax returns or in case of any queries from the tax office.
- Professional Guidance: Consult a tax professional to file your annual returns and ensure you claim all applicable deductions (like for contributions to Spanish social security, pension plans, property renovations, etc.). Spain’s tax forms are detailed, and it’s easy to miss benefits or compliance requirements without expert help.
Conclusion
Understanding Spanish tax residency is crucial for any expat to avoid unpleasant surprises and penalties. If you are unsure about your residency status or need help planning your finances under Spanish law, reach out to our tax lawyer at Expat & Legal Spain. We provide personalised advice on managing tax obligations while making the most of the benefits of living in Spain. With careful planning and the right guidance, you can enjoy your life in Spain knowing your tax affairs are in order.
Sandra Márquez
CEO & Lawyer, Expat & Legal Spain