If you live in Spain you will be assigned a tax identification number, which must appear on all tax returns and in all communications with the tax authorities. If you are not a Spanish national, but are liable for tax in the country, you will need a Personal Tax ID, known as a NIF. This number will be your foreign national ID (NIE) if you have one.
Knowing how and what to pay, as well obtaining a NIF, can be a difficult task if you do not speak Spanish. Seeking independent legal advice will be essential in ensuring that you meet your tax liabilities without delay.
Tax implications of owning a property in Spain
If you are not a Spanish resident but you do own urban real estate in the country, you will be obliged to pay non-resident income tax on the property, even if you do not earn any income from it. You will also have to pay an annual local property tax, similar to a council tax, based on the value of the property.
If the property belongs to a married couple or to more than one person, each person is considered as an independent taxpayer and must file an individual tax return. The amount you pay will depend on whether you rent or reside in the property.
If you own a property in Spain and are intending to sell it, you should be aware that you will be liable to pay capital gains tax on any gain made. The capital gain is the difference between the acquisition value of the property and its transfer value, supposing that the latter is greater than the former.
Whether you are a resident in Spain or not, if you are intending to buy a property in Spain from someone who is not resident in Spain, you will be required to withhold an amount equal to 3% of the property purchase price and deposit it with the Spanish tax authority in the name of the seller on account of any tax that the seller might owe, whether capital gains tax, or income tax. If the amount retained is higher than the seller’s tax liability, the seller can apply for a refund of the difference.
Local property tax
Local property tax is managed by local town halls. The properties within each municipality are listed on a tax register and are given a particular tax value (rateable value), known in Spanish as a “valor catastral”. The local property tax is calculated annually by applying to the rateable value a multiplier set by the tax authority. The payment deadline depends on each town hall, but it is traditionally between May and July each year.
Tax and other financial implications of retiring or moving to Spain
If you are not a Spanish national there are a number of important issues that you ought to take into consideration before you decide to retire or move there. Although the cost of living can be considerably cheaper than say the UK, there are still certain tax obligations that you must comply with.
If you are moving to a development of apartments or town houses, as opposed to a detached house, you will be expected to contribute to a service charge to maintain communal areas. The amount of service charge you pay will depend on each particular development. Failure to pay the charge could lead to court proceedings being issued against you, possibly resulting in your losing your home.
If you are not a Spanish national and intend to retire to Spain, you may have to submit an annual tax return to the Spanish tax authorities, depending on the amount of pension income you receive and the number of sources from which it is received. It will be necessary for you to seek specific expert advice in relation to this point.
Please see our note on Capital Gains Tax liability in Spain if you are expecting to sell your property in the UK once you are resident in Spain.
Tax implications of running a business in Spain
If you run a business in Spain you will be expected to pay tax on your profits, just as you would in the UK and in many other countries. Spanish corporation tax is known in Spain as Impuesto de Sociedades. In addition to corporation tax, companies have to make quarterly or monthly VAT returns.
Corporate income tax is a national tax which is set at a rate of 15% for new companies for the years 2015 and 2016. Companies that are not new but have a profit of less than €5,000,000 (five million Euros) will be charged corporation tax at a rate of 25% for 2015 and 2016. Companies that have profits of more than €5,000,000 (five million Euros) will be charged corporation tax at a rate of 28% for 2015 and 25% 2016.
As in the UK, VAT in Spain is payable by the end-customer of goods and services. Companies registered for VAT are entitled to deduct their input VAT against output VAT – that is VAT charged by them. The current rate of VAT in Spain is 21%. It should also be noted that if you are buying a new apartment directly from a developer you will be charged VAT on the purchase at a rate of 10%.
Businesses which have a profit of over €1,000,000 (one million Euros) will also be expected to pay an annual local tax, in addition to the taxes already mentioned above. The rate at which tax is payable depends on the size, location, number of employees and purpose of the business.
Failure to pay your business tax liabilities can have serious consequences for you and your company. To ensure that you are aware of all your tax liabilities it will be essential for you to seek independent legal and financial advice.
Inheritance Tax and Gift Tax
As in the UK, you may be expected to pay inheritance tax on any asset that you inherit in Spain. The amount that you will be expected to pay depends on whether the deceased and/or the beneficiaries of the estate were or were not resident in the European Union, or the European Economic Area.
If you have already paid inheritance tax in Spain and you are not resident there, you could be eligible for a rebate from the Spanish tax authority if it is found that you have paid too much. Spain’s inheritance tax rules were brought into line with European law on 1 January 2015. Prior to that, non-Spanish residents were paying at a higher rate than Spanish residents, notwithstanding that they were EU or EEA residents. At E&G Solicitors in Spain we can help you establish whether you are eligible for a rebate of inheritance tax and recover any overpayment on your behalf.
Any non-payment or late payment of inheritance tax can result in penalties being levied against you, so it is vital that you seek independent legal advice to ensure you have met all your obligations as a beneficiary.
If you are a beneficiary of an estate because you are named as such in a will, or believe that you are entitled to a share of the deceased’s estate, then E&G Solicitors in Spain can also help you realise your interest and guide you through the process of Spanish inheritance, while also advising you on minimising your tax liability.
In terms of gift tax, this is calculated at the same rate as inheritance tax but there is no nil-rate band.
Inheritance tax payments should be made within six months of the death of the deceased. Failure to pay the correct amount of inheritance tax, or late payment, could lead to financial penalties being levied against you. It is important to seek independent legal advice to determine what your tax liabilities may be as a beneficiary of an estate.
The wealth tax has been temporarily re-established for the financial years 2011, 2012, 2013, 2014 and 2015. It only applies to resident and non-resident individuals who are the owners of assets and rights in Spain with a net value of €700,000 (seven-hundred thousand Euros) and over. Any amount below this threshold is tax-free. If you are a non-resident and own assets and rights in Spain valued at over €2,000,000 (two million Euros) you are under an obligation to submit a declarative statement for information purposes.
How we can assist you
E&G Solicitors in Spain know how difficult it can be to deal with tax matters in a foreign jurisdiction. Our experienced solicitors in the UK and Spain can help guide you through the Spanish tax rules and advise you as to your liability to tax whatever your situation.