Am I liable to Spanish tax? If you spend more than 183 days in Spain you are automatically considered tax resident here, liable for taxation on total worldwide income.
And as a non-resident? Income arising in Spain will attract a 25% retention and property will also be taxed on its official value (“valor catastral”).
Do I have to submit tax returns? Apart from employees earning below a specified limit and “autónomos” with very low income, if you’re tax resident everyone with income has the obligation to present a tax return.
How does income tax (I.R.P.F.) work? All employees have a retention made from their monthly pay by their employer, and business customers must make a retention from a self-employed person’s invoice. These retentions are a down payment of their annual tax bill and the resulting over- or underpayment will be declared and settled in the annual return. Current rates for the 2007 tax year start at 24%, rising to 43%.
How does IVA work? As in the UK and most European countries, a sales tax is added to the price of almost all goods and services. The final consumer bears this unless it’s a registered business that can offset the tax against the IVA it has invoiced to its own customers. The basic rate on almost everything is 16% though reduced rates of 7% and 4% also apply to certain products, and a few specific services are exempt.
Is it tax advantageous to set up a company? This will depend on each individual’s tax situation. From 2007 a company pays a basic rate of 30% on taxable income, though the first €120K is subject to a reduced rate of 25% (and rates are expected to be reduced progressively over the next few of years). Taxable income is calculated after deducting relevant business expenses and allowances from the company’s income.
Other taxes:
I.A.E (Actividad Económica) – an annual, local business tax levied on all companies and businesses. From 2003 it will only apply to businesses with a turnover in excess of €1m.
Wealth tax (Patrimonio) – low rates ranging from 0.2% to 2.5% applied in bands to the individual’s total wealth in excess of €170,000.
Property taxes (Impuesto sobre Bienes & Inmuebles.) – levied on property owned by non-residents and on second properties belonging to residents. There is also a local tax (Contribución Urbana) levied on the individual’s main residence and based on the official value (“valor catastral”).
Capital Gains – included with the income tax return, it can be complex to calculate, being dependant on the type of asset, length of time held and the individual’s tax status and circumstances.
Inheritance and gift tax (Impuesto de Sucesiones y Donaciones) – tax on the beneficiaries on assets in excess of around €16,000 and even non-resident beneficiaries are liable when the assets or rights are located in Spain. The tax rate starts at 7.65% and rises to 34% on assets in excess of €797,555. Exceptions apply for a spouse, child or parent.
Transfer tax and stamp duty (Impuesto de Transmisiones Patrimoniales) – applies to certain real estate and commercial transactions, such as the incorporation of a limited company. The rate starts at 0.5% (for commercial activities) rising to 6% (for real estate transactions) and is paid by the buyer or the beneficiary of the transaction.