Barcelona Local Reference INFOrmation
Information which answers the questions: Who is considered liable - residents, non-residents - for income tax in Spain? When and where should income tax be paid? What are the penalties for non-payment? What Spanish tax allowances and credits are there?
A person becomes liable for tax as a resident of Spain if:
In Spain, an individual is either resident or not resident for the whole tax year. A resident of Spain is liable for tax on their worldwide income at scale rates after any available allowances and deductions. A non-resident of Spain is liable for Spanish income tax only on Spanish income, generally at fixed rates and with no allowances or deductions. Disclaimer The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice. How Income is TaxedIncome (including capital gains) is split into general income (renta general) and savings income (renta del ahorro). After being calculated according to the rules for each particular type of income within each category, the total of "general" and "savings" is termed the base imponible (or taxable base). After any deductions and allowances it is then known as the base liquidable (net taxable base). Savings incomeResidents are taxed on their worldwide savings income and non-residents on their Spanish savings income at a fixed rate. The rates for 2012 are:
Savings income includes interest income, dividends, income from life assurance contracts, purchased annuity income and income from capital gains on the sale/transfer of assets. General incomeSpanish residents are taxed on their worldwide "general" income at progressive scale rates from 24% to 45%. Anything not categorised as "savings income" is included here, including all earned income (that is, salary, self-employment and pension income), rental income, income from royalties, any imputed income and gains not made on the sale/transfer of assets such as from gambling, for example. Additional contributions of between 0.75% and 7% are added for 2012 and 2013 income. Income tax rates for 2012 (including the additional contribution)
Differences in the Community Tax Rate may apply depending on the Autonomous Region. In particular the top rate of tax is 56% in Cataluña and 54% in Andalucía in 2012. Deductions and allowancesDeductions and allowances are available. The "Minimo Personal y Familiar" is the tax-free allowance. Any allowance not used against the general income can be set against the savings income. The basic personal allowance for 2012 is €5,151 per person. For joint returns the allowance given to the first spouse is €5,151 plus €3,400 for the second spouse. A single parent gets €5,661. The basic allowance is increased by €918 for someone aged 65 or more (so €6,069 in total) and by a further €1,122 for someone aged 75 or more (€6,273 in total). The personal allowance (including additions for age, dependants and incapacity) is not deducted from taxable income but is given as a tax credit against the total tax payable. Note that the allowances are not given as a deduction against income (as in the UK), but instead are given as a tax credit against the total tax payable. The amount of credit is calculated by taking the total personal allowance and multiplying this by the scale rates of tax, starting with the lowest rate first. It is then deducted from the taxpayer’s total tax payable for the year. This has the effect of relieving tax not at the taxpayer’s marginal rate, but first at the lowest rate of 24.75% rate, and then at the higher rates where applicable. Rental incomeFrom 1 January 2011, a reduction of 60% is available against net rental income for residents of Spain before tax is payable, and includes any lettings income from outside Spain but not short-term holiday lets. The net rental income is the amount of rent due after deducting usual day-to-day running costs for the period in question, including local municipal taxes such as IBI (Impuesto sobre Bienes Inmuebles), repairs and maintenance, managing agents' fees and commissions, interest on loans for purchase or improvement, and depreciation of 3% per year of the cost of the property (excluding the land value). Spanish mortgage interest is allowable provided the mortgage was used to acquire or improve the let property. The tenant is generally required to retain 15% of the rents on account of tax and pay this over to the authorities. A non-resident is taxed on rental income from Spanish property at the rate of 24.75% on gross income without any deductions for expenses or interest costs. Again, the tenant is required to retain 24.75% of the rent and pay it to the tax authority. In the case of short-term holiday lets the agent or landlord should do this. Where property is owned in Spain but is not the main home, a purely notional or theoretical rental income is deemed to arise for periods where the property is not actually let, based (normally) on 2% of the official value (valor catastral) of the property as shown in the IBI notice for the year (whether being a Spanish resident or not). Where such a property is empty for part of the year and rented for part of the year, calculate the notional income for the part of the year the property is empty. Employment incomeA 40% deduction is available for non-regular income generated over a period of more than two years, but the deduction is not available where the non-regular income is over €300,000. If, for example, someone lives in Spain and works in the UK, then the income is taxed in Spain. If all or some of the employment is carried out in Spain they are subject to tax in Spain on the proportion of the employment income relating to the work performed in Spain. So a resident of Spain working for and paid by a UK employer will usually be taxed in the UK on employment income relating to duties performed in the UK. If no duties are performed in the UK, then the earnings cannot be subject to UK tax. If all duties are performed in Spain, the earnings will be subject to tax in Spain. Social security contributions will also be payable on employment income. These are usually paid to one country only, based on total earnings. The country where they are payable will depend on various factors, including where the work is performed and where the individual is habitually resident. Self-employmentSelf-employment income is subject to tax at the progressive scale rates of tax in Spain. The amount taken into account for tax is the net profit - the gross income less the expenses of the business. All self-employed traders and businesses must register for VAT (IVA) in Spain regardless of turnover. The standard rate of Spanish IVA is 18%, although letting of residential private property is normally exempt, as are healthcare, educational and certain other services. Social security contributions are also payable, and these are tax deductible in Spain. A minimum contribution of around €225 per month is payable, regardless of profits. Useful Links
Disclaimer The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice. Taxing UK Pensions in SpainUK occupational and state pensions are taxed only in Spain. The state retirement pension is always paid gross but any other taxable pension will be taxed in the UK until the tax payer confirms that they are registered and paying tax in Spain. Pensions are taxed in Spain at the progressive scale rates under general income. There is an abatement of between €2,652 and €4,080 available against such income when calculating the taxable income. In order to notify the UK tax authority that a tax payer is registered for and paying tax in Spain they should obtain a certificado de residencia fiscal NEN - España Convenio from the local tax office. This certificate should then be sent to:
The Spanish authorities will generally want the tax due on the UK pension to actually be paid for the first time (in May/June of the following year) before they will issue a certificado de residencia. This might not be until almost 18 months after have taken up Spanish residence. If this is the case, any PAYE tax deducted at source in the UK while actually resident in Spain is ultimately repaid. Government service pensions (for example, civil service, local authority, fire service, police, most teachers, but not NHS pensions) remain liable only to UK tax and are not taxable in Spain at all. EC nationals may claim UK personal allowances to set against this income. If a government service pension is transferred to a private scheme, the pension will be taxable in Spain. It may be possible to transfer out before reaching the age of 59 or commencing receipt of the pension. AnnuitiesAnnuities are taxed favourably in Spain as a proportion of the income is treated as non-taxable capital, and only the balance is subject to income tax. The taxable income element of the annuity is determined by applying a fixed percentage (between 40% and 8%) to the amount received, depending on the age of the beneficiary at the time the annuity vests. For example, a man under 40 years of age would have 40% of his annuity income taxed leaving the remaining 60% tax-free. For a man aged 70 or over 8% of his annuity income is taxable with the remaining 92% tax-free. Annuity income is taxed as savings income at 21% on the first €6,000 and 25% on income between €6,000 and €24,000 and then 27% on anything over €24,000. The above tax treatment normally applies to annuities which have not been acquired as a result of inheritance, legacy or other means of succession, and where an employer has not contributed to fund. For temporary annuities (an annuity over a set period of time) the relevant percentage applied to the income depends on the duration of the annuity; that is, for an annuity up to five years 12% is liable to Spanish tax leaving 88% exempt; for an annuity over 15 years 25% is taxed and 75% exempt. The tax treatment of an annuity from a UK private pension is currently a grey area in Spain. This is because often in a private scheme the trustees have purchased an annuity on your behalf. If the pension is recorded on the self-assessment tax return in Spain as an annuity, it can be accepted as such, even though it was not purchased directly. If no claim is made for the annuity treatment, or the claim is not successful, the pension income will be taxed as general income at the progressive scale rates. Lump sumsPension lump sums are taxed in Spain if received while being a Spanish tax resident. A lump sum could be taken before becoming a tax resident of Spain or, if you believe you will qualify for the much reduced annuity taxation system, an option could be to commute the lump sum into higher pension income as this may be a better option. The taxable amount is calculated as the difference between the capital received and the contributions made and this will be taxed at 21% on the first €6,000 and 25% on income between €6,000 and €24,000 and then 27% on anything over €24,000. Lottery Winnings and Premium BondsWinnings from the UK National Lottery or from UK premium bonds are taxed in Spain as general income. Useful Links
Disclaimer The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice. Information by Blevins Franks Tax Limited
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