The first thing we must define is the concept of tax or fiscal residency, a concept that has nothing to do with residency in Spain when it comes to immigration purposes or related to your residence permit.
Fiscal residency is the condition that a foreigner or Spanish national acquires in the eyes of the Tax Agency when living for a prolonged period of time during the year in Spain and/or when having economic interests in the country, a fact that will create the obligation to pay a series of taxes and paying them at certain percentages.
As we will see below, being classified as a tax resident or as a non-resident has important consequences; since in many cases you will pay fewer taxes and lower percentages provided that you are a non-resident, hence becoming a very interesting alternative for many foreigners.
Then, when is a person considered a tax resident in Spain? According to article 9 of law 35/2006, the Spanish Tax Agency considers anyone to be a tax resident if she meets any of the following three conditions:
- She stays more than 183 days a year in Spain.
- She has the core of her economic interests directly or indirectly in Spain.
- Her spouse or child habitually lives in Spain.
Let’s look at these three points in detail to understand exactly what they mean.
Staying more than 183 days a year in Spain.
This is the most commonly applied rule and the most important one. If at the end of the year (counting from January to December), you add up all the days you have been in Spain and those are more than 183, you are a resident for tax purposes, a fiscal resident. In addition, it is not necessary that those days are consecutive, the computation works independently of that fact.
Keep in mind that temporary absences do not count and can’t be excluded. That is to say, if for example you leave the country for a weekend or go on vacation for half a month, those days are still counted as a period of time lived in Spain, with the same weight for the total of 183 days.
Having the core of your interests in Spain.
This point is key, as you may end up spending less than 183 days a year in Spain but still be considered a resident for tax purposes. When will this happen? Let’s take, for example, the situation of an employee who, due to working reasons, travels a lot all over the world, and it is quite difficult to count how long he has actually been in Spain, reaching less than 183 per year.
However, as the reason behind his frequent trips have to do with the Spanish company he is working for, with headquarters and all its offices in Spain, this employee has the core of his interests in the Spanish territory. Therefore, he is a fiscal resident in Spain.
Spouse and children in Spain.
Finally, we find the case in which both your spouse (not legally separated) and/or your children under 18 years old (if you have them) live habitually in Spain and depend on us.
It is the typical situation in which the father or mother is living in Spain while taking care of the child (a child attending a Spanish), while the other member of the couple spends the year traveling for work. This situation will make the Tax Agency consider us as tax residents, and although evidence against this is admitted (which is many times taken into consideration and accepted) it will be very difficult to prove otherwise. However, there is one exception that will make it much easier to prove that you are not a fiscal resident in Spain, which we will explore below: the tax residency certificate.
Obtaining a tax residency certificate from a third country.
There is a specific type of proof that allows you to justify yourself before the Tax Agency and avoid being considered as a resident for tax purposes, thus avoiding the payment of many taxes in the Spanish territory. A proof issued by your country of origin or country in which you have your main economic interest that has the aim to justify that you are really a resident there, and therefore you should not be taxed as a fiscal resident in Spain.
In the case in which an individual can obtain the so-called tax residence certificate in his country, then the Tax Agency will not consider that person as a tax resident, even if she is in Spain 183 days a year. This certificate works according to the regulations of the agreement between Spain and that third country, generated through a double taxation agreement.
In addition, it is valid only and exclusively for one year. This means that it is valid just for the year in which you request it, and you will need to solicit it year after year to continue participating in this exception (if you wish to do it and your situation applies). However, most European countries have the same tax criteria as Spain, so if you live in the Spanish territory for more than 183 days per year you will most likely not be granted the certificate.
Certificates from EU countries or the United States are always accepted by the Spanish Tax Agency, although those from Asian or Middle Eastern countries usually generate more difficulties.
Tax implications according to your fiscal residency status.
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, 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 as 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, 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.
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 that 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