Tax in Spain

Individuals performing activities in Spain are subject to tax based on residence and source of income. Residents are taxed on worldwide income. Non-residents are taxed on Spanish-source income and on capital gains realised in Spain only. Several tax exemptions may apply to expatriates.

Individuals are considered residents for tax purposes if they spend more than 183 days in a calendar year in Spain or if the center of their vital interests is located in Spain. A presumption of residence arises if an individual’s family lives in Spain. Residence is determined on a full-year basis; Spain recognizes no change of residence during a fiscal year. A Spanish national who gives up Spanish tax residence is nonetheless considered a Spanish tax resident for the next four years if the new tax residence is in a tax haven.

Under the Spanish regulation, an employee assigned to Spain who meets the criteria for being considered a Spanish tax resident may elect to be subject to tax under the non-resident taxpayer rules.

This election is subject to certain conditions, the most important of which are the following:

• The individual must not have been a Spanish tax resident in the 5 years preceding their arrival in Spain
• The assignment in Spain must be based on one of the following circumstances:
  
  - The assignment is under a labor contract (local contract or assignment letter) with the exception of a contract for a professional athlete. The condition is deemed to be met if the employer and employee agree on a remote working contract
  - An appointment as a director of a Spanish entity
  - For execution of activities by a highly qualified professional who provides services to emerging companies or research, innovation and development activities
• The individual cannot receive compensation that is deemed to be obtained by a permanent establishment in Spain (with the exception of income from the activities above)

Under this special tax regime, employment income up to €600,000 is taxed at a rate of 24%, and employment income exceeding this amount is taxed at a rate of 47%.The election is effective for the first year of residence in Spain and the following five consecutive years.

Employment income - Taxable employment income includes all compensation received for personal services: salaries and wages, payments for certain business-related expenses, pensions, housing allowances and other allowances paid in cash or in kind.

Spanish residents with overseas duties may apply a foreign earned income exemption of up to €60,100 if certain conditions are met.

Irregular employment income (earned over a period that is longer than two years) may be eligible for a limited 30% reduction if certain conditions are met.

Self-employment and business income - Taxable self-employment and business income includes income from all industrial, commercial, professional and artistic activities carried on by a taxpayer.

Residents are subject to tax on self-employment and business income at the applicable rates.

Relief for losses may be available, subject to the limits and conditions established by law.

Directors’ fees - Directors’ fees are considered ordinary income and are taxable to residents at the applicable rates.

Non-residents are subject to tax on directors’ fees at a flat rate of 24% (19% for residents of other EU member states).

Investment income - Resident individuals are subject to tax on rental income and other consideration derived from the lease of rural or urban real estate at the applicable rates. For tax residents of Spain, net income from the rental of property may be reduced by 50% if the property is destined for living. For rental agreements to be signed as from 1 January 2024, increased rates have been approved if certain circumstances are met.

Non-resident individuals are subject to tax on such income at a flat rate of 24% (19% for residents of other EU member states and EEA member states).

For urban real estate used by the owner as a permanent residence, deemed income does not apply. However, for urban real estate used as a residence or not leased, the law presumes an income of 2% of the cadastral value (1.1% if the cadastral value of the real estate was increased in the last 10 years). If the cadastral value is not determined, then presumed income is calculated by applying 1.1% to half of the value assessed in accordance with the principles of valuation for purposes of the net worth tax.

Income from movable property includes dividends, interest, profits from copyrights and industrial property, and the return in cash or in kind on capitalisation transactions and life insurance policies. Certain expenses may be claimed for tax purposes depending on the type of income.

Spanish tax residents are subject to tax on dividends, interest and capital gains (regardless of the holding period) at progressive rates from 19% to 28% depending on the level of income.

Interest income and capital gains derived from bonds and securities issued by resident entities or individuals are not taxable if the taxpayer is a resident of an EU member state.

If members of a family unit elect to file separate tax returns, the income derived from joint assets must be attributed to the members who own the assets. For spouses under the community property regime, 50% of the income must be attributed to each spouse.

Taxation of employer-provided stock options - Employer-provided stock options are taxed at the time of exercise on the difference between the exercise price and the fair market value of the stock at the time of exercise. This income is also subject to social security contributions.

Income derived from employer-provided share options up to an annual limit of €12,000 may be exempt from tax if certain conditions are met.

Capital gains are calculated as the difference between the transfer price of an asset and its acquisition price.

Capital gains are taxed at a rate progressive rates from 19% to 28% depending on the level of income. For Spanish tax residents only, capital losses incurred on sales of assets may be offset against capital gains. Any excess losses may be carried forward for four years.

For Spanish tax residents only, capital losses incurred on sales of assets may be offset against capital gains. Any excess losses may be carried forward for four years.

For filers of individual returns, capital gains and losses must be imputed to the individual owner of the property. If the spouses are under the community property regime, capital gains and losses are imputed 50% to each spouse.

An individual resident in Spain for fiscal purposes is taxed on assets and rights acquired by inheritance or gift, regardless of where the assets or rights are located. If the recipient is not resident in Spain, estate and gift tax applies only to assets located in Spain or to rights that may be executed in Spain.

Estate tax must be paid by the legal heir, and gift tax must be paid by the beneficiary. To determine the taxable amount for estate tax purposes, certain amounts are deducted, based on the beneficiary’s age and on the relationship between the deceased and beneficiary. Tax payable is calculated by applying factors based on the taxpayer’s net worth, age, relationship with the deceased or beneficiary and type of asset.

Estate and gift tax rates vary depending on the autonomous region.

Under Spanish domestic law, an individual must join the Spanish social insurance system if work and residence permits are received. The rate of social insurance contributions is 6.45% of salary for employees, and the rate for employer contributions is generally 30.4% of salary. For 2023, the maximum contribution per employee is €53,946.

The Spanish tax system operates through self-assessment.

Under certain circumstances, family members may file one tax return that includes the income of the entire family. On a family tax return, the family members are jointly and severally liable for the payment of tax. If one spouse has a tax liability and the other spouse has a refund, the spouses may offset each other’s amounts.

For tax returns filed by residents, any tax due is payable with the return, and interest accrues on any unpaid balance. However, 60% of the tax may be paid in June, and the remaining 40% paid by early November, without interest accruing. The tax due is the balance remaining after subtracting amounts withheld during the year. If excess tax is withheld, the excess is refunded to the taxpayer.

Non-residents with taxable income must file an income tax return for each type of income and the deadlines vary depending on the type of income.

An individual resident in Spain may claim a foreign tax credit to avoid double taxation with respect to foreign income tax paid on foreign income, subject to the conditions of relevant double tax treaties.

Spain has entered into double tax treaties with 92 countries.