What Do You Know about Filing Your Taxes in Spain?
Sponsored by BCN Business Services.
What Is Income Tax?
Personal income tax or impuesto sobre la renta de personas físicas (IRPF) is a tax to be paid by all physical residents in Spain on their income. Income is to be understood as salaries earned as an employee, income generated as a freelance professional, pensions, interest income on accounts, bonds or deposits, rent, profits generated by real estate or stock transactions etc. There are basically four categories of income to be distinguished:
- Rendimientos del trabajo: Income earned as an employee for a company, both primary and secondary benefits.
- Rendimientos del capital mobiliario: Income derived from investments in financial or monetary assets.
- Rendimientos del capital inmobiliario: Income derived from the ownership of tangible assets like real estate.
- Rendimientos de las actividades económicas: Income generated by a freelance business activity.
As a fiscal resident in Spain, your worldwide income has to be declared in Spain, even if you already pay taxes on income you generate in other countries. Generally, double taxation is avoided by tax agreements between nations, but this needs to be checked, verified and reflected in your tax declaration.
The IRPF is a direct, progressive tax, meaning that you pay a higher percentage if you have a higher income. This system is established by a scale system, taxing higher brackets with higher rates, but only that bracket and not the entire income. The current six scales are configured as follows:
- For income up to €12,450 the tax rate is 19%.
- From €12,450 to €20,200 the tax rate is 24%.
- From €20,200 to €35,200 the tax rate is 30%.
- From €35,200 to €60,000 the tax rate is 37%.
- From €60,000 to €300,00 euros the tax rate is 45%.
- Above €300,000 euros the tax rate is 47%.
Apart from these state rates, the Spanish autonomous regions have the right to add an autonomous "state" income tax on top, that may modify the brackets and increase or decrease the rates to be applied. This is why you could pay significantly more or less depending on the region you live in, with the total maximum rate fluctuating between 45,5% in Madrid to 54% in Valencia.
Part of your personal income tax obligations are automatically paid during the year, for example in IRPF retentions in your payslip, retentions in your sales invoices if you are a professional freelancer or through quarterly tax declarations 130 and 131 for autónomos. These "advance payments" will be taken into account when presenting your annual tax declaration.
Who Must Declare Income Tax in Spain?
As mentioned, as a general rule, all residents in Spain must present an income tax declaration, even if you are a non resident from a fiscal point of view or if you benefit from the Beckham or 7p exemptions. However, there are a number of exceptions:
- You have worked for one Spanish company and your gross annual income is less than €22,000 euros and you did not receive an income abroad.
- You have worked for different Spanish employers or you received an income or benefits abroad, but your gross annual income is less than €14,000 euros.
- In the situations above, you must submit a tax return if your income out of savings, investments or insurances is higher than €1,000 euros.
- In special situations or in doubt, we advise you to consult your personal situation with our tax advisors.
When Do You Need to Present Your Income Tax Forms?
The deadline for presenting your income tax declaration is June 30 of the following fiscal year. However, as there is a lot of documentation to be gathered, checked and analyzed, timely submission of information to your accountant is important. In general, you should deliver all required information by the beginning of May in order to be assured of a comprehensive declaration and to avoid erroneous declarations and charges for extra work.
What Documentation Needs to Be Prepared?
A. Copy of Declarations
- Copy draft declaration (borrador) or other tax information, if applicable, obtained from the Spanish tax authorities.
- Copy of previous year’s tax return if this wasn’t done by us.
B. Work, Pension and Benefits
- Annual statement of your employer or benefits agency which states your salary, pension or other benefits, withholdings and deductions.
- In case you paid social contributions abroad, we’ll need an overview.
C. Property
- Ownership: payment receipt of the property tax (IBI) and cadastral information of your home and other real estate in Spain and the purchase price of property abroad.
- Rental: rental income (also for real estate abroad) and the costs incurred. Please specify the use (residential, other).
- Mortgage: an annual statement from your bank with repayment and interest information.
- Sale/purchase/donation: information regarding prices and incurred costs.
- Rent deduction: rental contract in Spain (in some cases a rent deduction is possible, we will examine this possibility), cadastral information of the property and NIF/DNI of the landlord.
D. Savings, Investments, Insurance, Etc.
- Financial overview of your bank accounts in Spain and abroad (interest revenue, also from children living at home without obligation to declare).
- Overview contributions to pension, disability or life insurance. Contributions to foreign insurance are only deductible if the policy complies with the European Directive 2003/41/CE (please provide us with certificates of the bank or insurance company).
- Information about received dividends, interest, income from bonds, etc.
- Information about possession, purchase or sale of stocks, options, etc. (even if they are not listed).
E. Other
- Receipts of cash prices (lotteries and alike).
- Overview of payments made by (Spanish) insurance companies.
- Overview of deposits on special home acquisition or company savings accounts.
- Receipts for donations.
- Overview of possible public benefits for maternity.
F. Personal Information and Documentation
- Identity documents and NIE numbers: copy of your (valid) ID, and those of your spouse and children. And for everyone older than 14 years a residence card with NIE number.
- Children living at home: please specify the number of children under 25 years old, living at home unmarried, with an income less than €8,000.
- Income partner: if your partner has an income, we would like to receive this information. We will study which declaration (individually or joint) is the most favorable. Observation: a joint declaration in Spain is only possible if you are married. In case of cohabitation a joint return is not (yet) possible.
- Bank account. If we do not have your current details and only a wrong (old) bank account number, then this can lead to tedious and delaying consequences. Therefore, we would like to have your current bank details for the payment or refund of taxes.
Can You Do My Taxes for Me?
Certainly, but please take into account the below indications:
- Let us know if you want us to do your income tax declaration as soon as possible. We have a limited capacity and will accept clients in chronological order. Our recurring clients will have priority.
- Method of delivery: Please provide us with copies of all the relevant documents organized as effectively as possible and according to the codification of the items contained listed. All amounts need to be provided in euros.
- Deadline: We need to receive your information before May 1. Given that collecting (and possible translation) of documentation is time consuming, we kindly request to comply with this apparently early deadline.
- Liability: We will prepare your tax declaration based on the information you have provided us with. You are therefore responsible for providing us with correct and complete information. We do not accept any liability due to inaccurate, unclear and incomplete information.
- Responsibility: If we prepare your income and/or wealth tax declaration, this does not imply that we will notify or prepare any other possible tax declarations (for example, the property tax IBI). We will do our best to inform you, but we may not have all the background information required. You are therefore responsible for your tax filings and payments unless you have specifically contracted our services for each.
- Tax correspondence address in Spain: It is of importance that you have a correspondence address in Spain. The Spanish tax authorities may proceed to check the validity of the data of the tax return and failure to provide a timely reply may lead to a unilateral correction of the declaration accompanied with fines or sanctions. We offer the possibility to use our address as a correspondence address in case of need. For more information, please contact us.
- Payment: In June we will inform you about the amount to be paid to the Spanish tax authorities. You will have to make sure that on June 30 the balance of your bank account is sufficient to pay this amount in order to avoid possible fines or sanctions.
- Terms and conditions: General conditions apply, such as payment terms and limitation of liability to the amount covered by our insurance policy.
BCN Business Services is an English-speaking consultancy firm providing complete services to foreign entrepreneurs in Spain. Areas of expertise include immigration, registration, company formation, accounting, taxes, personnel administration, real estate, insurance and related legal issues. You can learn more at bcnbs.com and follow on LinkedIn.
Sponsored by BCN Business Services.
Updated January 17, 2023.
