The Spanish tax system is complicated. For that reason, this section contains basic information on the main taxes that affect natural persons, with a special focus on people from other countries who come to live in our city.
For fiscal or legal advice, or for solutions to specific questions, we recommend that you contact a specialist.
Income tax
In Spain, the income obtained by natural persons are subject to the payment of the following taxes:
IRPF for tax residents in Spain.
IRNR for non-residents who obtain an income in Spain.
Furthermore, if you are a worker who has transferred to Spain, you will also find what is popularly known as the Beckham Act to be of interest.
Income tax (IRPF)
The IRPF is a direct personal tax on the income of natural persons who are residents in Spain, according to their nature and their personal and family circumstances.
As a general rule, those who pay IRPF are natural persons who habitually reside in Spanish territory.
When is a taxpayer considered to habitually reside in Spain?
a) The taxpayer stays in Spanish territory for more than 183 days in a natural year (from 1 January to 31 December).
b) The main centre or base of their economic activities or interests is located in Spain.
c) Unless there is evidence to the contrary, when their non-separated legal spouse and their dependent children under the age of 18 are habitual residents in Spain.
What does the IRPF tax levy?
The IRPF targets the taxpayer's income and their capital gains and losses, regardless of the place where these have occurred and whatever the residence of the taxpayer may be.
Certain income allocations established by taxation law are also subject to taxation. Income allocations are presumed items of income which the Tax Office estimates if certain requirements are met.
These are the items of income subject to IRPF taxation:
Occupational income, such as the salary that an employee receives.
Earnings from economic activities, such as the income obtained by a self-employed individual who runs a business.
Capital gains from investment income, which include the interest from bank accounts or loans, dividends from shares, etc.
Capital gains from property income, such as income received for renting a property that you own.
Imputed income, such as the income that the Tax Office allocates to you according to the rateable value of a property you own but have not rented out.
Capital gains and losses, such as the gain or loss obtained from the sale of shares or a property you own.
How much do you pay?
IRPF is a progressive tax, which means that the amount deducted increases in proportion to the income, gains or income allocation that the taxpayer obtains.
In order to determine how much IRPF each taxpayer should pay, briefly and without going into detail, the amount known as the base liquidable, or net tax base, must be calculated. This is the taxpayer's net income with corresponding fiscal adjustments according to personal and family circumstances.
IRPF tax rates or percentages are applied to the net tax base on a progressive scale. The aim is for people who earn more to pay more, as a percentage (and not just in terms of the absolute amount).
The IRPF tax rates are the same throughout Spain, but the autonomous communities can apply variations.
The marginal rate is the highest that a taxpayer can pay, i.e. the highest percentage band that is applied to your net tax base.
However, you should know that, in general, the income from investments and properties are subject to taxation rates of between 19 and 23%.
When is the IRPF tax return presented?
Normally, the IRPF tax return is handed in between 1 April and 30 June (including both days), in the year after the financial year in question. But it is a good idea to check the fiscal calendar every year.
Can you present a joint IRPF tax return?
The IRPF tax return is normally presented individually. However, people who are part of a family unit can present it jointly.
Broadly speaking, a joint tax return can be presented by:
A married couple, whether they have children or not (minors or adults who are legally designated as having disabilities).
Legally separated people and civil partnerships with dependent children (minors or adults who are legally designated as having disabilities). In this case, only one of the parents can present a joint tax return with their children.
It is important to emphasise that there is a reduction in the net tax base for joint tax returns for families consisting of both spouses, who are not legally separated, and where applicable, by the children under the age of 18 who live with them.
Non-resident income tax (IRNR)
Income tax for non-residents (IRNR) directly taxes the income obtained in Spanish territory by non-resident natural people and entities in Spain.
Who is considered to be a non-resident?
Natural persons are considered to be non-residents in Spain if they do not have their habitual residence in Spanish territory, in accordance with the requirements established above in the section on IRPF.
When is an income understood to have been obtained in Spain?
The traditional criteria for determining whether an income has been obtained in Spain is of a territorial nature. For example, income from work carried out in Spanish territory or the interest or dividends obtained from entities residing in Spain would be subject to IRNR taxation.
What IRNR tax rates are applicable?
In general, the applicable tax rates on income obtained by natural persons who pay the IRNR tax are:
A flat rate of 19% for residents in the European Union, Iceland and Norway.
A flat rate of 24% for all other taxpayers.
However, capital gains, interest and dividends will always be taxed at the flat rate of 19%.
Special tax system applicable to foreigners coming to work in Spain on an employment contract (Beckham Act)
There is a special tax system for foreigners coming to work in Spanish territory, which was created in order to attract highly-qualified people for the purpose of improving the internationalisation and competitiveness of local companies.
The system is popularly known as the Beckham Act, because some football clubs used it to sign players and the English football player David Beckham was one of the first to benefit from it. However, having undergone various amendments, the Act now excludes professional athletes.
Natural persons who acquire tax residency in Spain, as a consequence of transferring to Spanish territory on an employment contract, may opt to pay IRNR tax with the application of some special rules and maintaining their condition as IRPF taxpayers.
How long can the Beckham Act be applied for?
The Beckham Act is applicable during the tax period in which the change of residence was carried out and for the five following financial years (1+5).
For example, if a worker moves to Spain in September 2020, requests and is then granted the application of this tax system, the Act will be applied in 2021 (first year of changing residency to Spain) and the 5 following years, i.e. from 2022 to 2026.
What are the requirements for filing under the Beckham Act?
In order to qualify for this special tax system, the following conditions must be met:
a) Not having been a resident in Spain in the ten financial years preceding the year in which the change of residency is carried out.
b) That the change of residency occurs as a consequence of one of the following circumstances:
An employment contract (except for professional sportspeople) with a Spanish company, or when the move is organised by the employer and there is a signed Employee Relocation Agreement.
The acquisition of the status of administrator in a non-affiliated Spanish company (share participation of less than 25%).
c) Not obtaining income that could be classified as being gained through permanent establishment in Spain.
It is very important to stress that there is a time limit on opting for this special tax system. If you wish to use this system, you must inform the Tax Authority within a maximum of six months after registering with Spanish Social Security or signing the documents making it possible to retain the Social Security legislation of your country of origin (where applicable). If you fail to do this within that time period, you will lose this advantageous opportunity.
What are the main incentives for filing under the Beckham Act?
Under the Beckham Act, the taxpayer is taxed exclusively on the income obtained in Spanish territory, except for employment-related income, which is subject to taxation in its totality, wherever the income is produced and whatever the residency of the taxpayer may be.
Furthermore, the applicable tax rate is 24% up to an income of €600,000 and 47% for anything over that. However, dividends, interests and capital gains are taxed at a rate of between 19 and 23%.
Lastly, it is interesting to note that, under the Beckham Act, the taxpayer will be subject to ‘limited taxation’ for Property Tax. In other words, this person would pay tax in Spain exclusively on the assets or rights they own and are located, may be carried out or must be complied with inside Spanish territory.