Implications according to Tax Residency status

Implications according to Tax Residency status

Implications according to Tax Residency status 650 488 Vortex Coworking
Now that we can perfectly understand in which cases you will be considered a tax resident in Spain and in which cases you won’t – and if you don’t understand the difference, please read our previous blog Tips for Vortex Members: what is tax resident in Spain – let’s explore what the implications are in both situations. Basically, those implications have to do with the taxes you will end up paying in the country and the exact rates.

Taxes for non-residents

Foreigners and Spanish nationals considered non-residents in Spain must pay, basically, two different taxes:

  • The non-resident income tax
  • Wealth tax

Non-resident income tax

Thanks to double taxation agreements, the most usual situation for fiscal non-residents in Spain is just paying non-resident income tax on real estate properties (without taking into account shares, money in the bank, etc.).

Hence, if you have a property in Spain, you will have to pay this tax. And there are two different situations that determine the exact amount to be paid:

  • If you rent the apartment you have in Spain throughout the year. In this case, you must declare all the income you generate on that rent quarterly, and you will pay 19% on that income if you are an EU citizen, and 24% otherwise.
  • If the apartment or house is not rented and you use it when you come to Spain (i.e. it is usually empty), then you will not declare anything on a quarterly basis. The only tax liability you will have happens annually, and you will need to pay an imputation of the income you would have generated if the property were rented out. How does this work? You will pay 19 or 24% depending on your country of origin, the percentage applied to the cadastral value of the property, and then you must multiply that amount by 1.1% or 2% depending on whether the cadastral value was revised in the last 10 years or not.

In both cases, you must declare your taxes by using form 210.

The need to pay income tax as a non-resident on a property in Spain is the most typical case for those foreigners who have a golden visa.

Wealth tax

On the other hand, if you are a non-resident you will also have to pay wealth tax on those properties you own in Spain as long as their purchasing value is over € 700.000 (although depending on your region in Spain this number may change).

Keep in mind that you will only be taxed or need to pay the applicable percentage of the value above this limit; that is, from the euro 700,001.

On the other hand, in case the total value of all your properties in Spain added together is less than 700.000€, you will not have to pay this tax.

It is a personal and progressive tax, ranging from 0.2% to 2.5% depending on the specific value of the property. What happens if you have a mortgage? If you have mortgaged the property for the purpose of buying it (not for any other reason) you will be able to subtract the outstanding amount of the mortgage from the total value, hence reducing the taxable amount. It is paid on an annual basis using form 714.

Taxes for Spanish residents

Finally, in the case of tax residents in Spain, the situation becomes a little less favorable when it comes to taxes to be paid.

First of all, residents have to pay income tax in Spain on all income and revenues generated worldwide. This makes their total taxation in the Spanish territory much higher, as this tax is levied on most of the activities, yields, and profits obtained by the individual. The exact percentage will depend on each particular case and it is not possible to apply generalizations, although we can say that it is a progressive tax ranging from 17 to 47%.

However, there is an exception that many foreigners can apply for: the so-called Beckham Law. Under this law, if you have not resided in Spain for the last 10 years, you can just pay a fixed percentage of 24% on your income even if you are a tax resident.

In addition, the wealth tax still exists for residents, although in this case the minimum limit to start paying it drops to €500,000 in the case of Catalonia (depending on the Autonomous Community this limit may differ).

Remember that if you have any doubt about your taxes or you need personalized tax advice to know when, how, and what taxes you should pay according to your particular case, as well as the possible deductions and bonuses that will allow you to save money, do not hesitate to contact our partners Gestion Valenciana, a group of expert lawyers and accountants in Valencia