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Personal Income Tax in Spain

Personal income tax in Spain

Personal income tax (Impuesto sobre la renta de las personas físicas / IRPF) is a mandatory, direct tax levied on individuals’ incomes at a progressive rate (in the case of a tax residence in Spain). On a very basic level, Spanish tax residents are bound to pay personal income tax/IRPF on all income, regardless of the place of the income’s origin. Nevertheless, non-residents must pay this tax only on the revenues obtained in the territory of Spain (levied at a fixed rate).

Before learning about the tax base calculation and interest rates and clarifying the payment procedure of IRPF in Spain, it might be more appropriate to discuss certain factors that will enhance one’s understanding of the system of individual income taxation in Spain:

  • Withholding tax in Spain was officially introduced in 1900;
  • Currently, tax levies in the IRPF category constitute almost 38% of all the country’s revenues; Since 2007, the governments of 17 Spanish provinces have had the authority to levy tax withholding in Spain. Thus, the system of withdrawing tax collection was decentralized (today the provinces are responsible for collection of half of tax revenues);
  • The withholding tax rate in Spain consists of 2 parts: uniform national tariff (with fixed interest) and regional tariff (for which interests vary depending on the autonomy);
  • The lowest IRPF regional tariff is in Madrid and the highest is in Catalonia;
  • IRPF is paid both by residents and non-residents of Spain (the common name, IRPF for non-residents, is Impuesto Sobre la Renta de No Residentes, or IRNR in Spanish);
  • If a taxpayer is employed on Spanish territory, withholding tax in Spain is charged by the employer from the salary on behalf of the tax authority.
  • The Spanish fiscal year coincides with the calendar year and lasts from January 1 to December 31. The reporting period is from May to June. The payment of compensations (if any takes place) is carried out from May to July.
  • When recalculating the tax burden during a reporting period, it might occur that a taxpayer must introduce the missing amount or, on the contrary, receive surplus funds.
  • For the last two years, the interest rate of withholding tax in Spain has demonstrated a decreasing tendency due to the high rates of the Spanish economy’s growth.

Who must pay a withholding tax in Spain?

withholding tax in Spain

Both residents and non-residents must pay a withholding tax in Spain.

The Spanish Fiscal Code envisages payments for non-residents only if they have an income source on Spanish territory. The tax in question is imposed in the following cases:

  • The fact of ownership of and operations on a real estate in Spain (important: this is in effect regardless of whether or not the property brings an actual income to the owner. The presence of the property is considered sufficient grounds for the tax to be levied).
  • The fact of ownership and all operations with the shares of a Spanish company or state bonds. Revenues from temporary jobs obtained on Spanish territory.

The differences in the tax rate of a withholding tax Spain for non-residents looks as follows:

  • If an intended taxpayer is a resident of any E.U. country, Iceland, or Norway, the tax rate will be 19%.
  • For others (non-E.U. residents), it will be 24%.

The category of Spanish residents who must pay IRPF in Spain includes individuals who, for 183 days of a fiscal year, have stayed consistently in Spain, whose main economic interests are concentrated in Spain (main income), or whose close relative is a Spanish resident.

IRPF rates in Spain as of 2016:

Income size

General rate

National tax

Regional tax

Up to €12450

19%

9.5%

9.5%

from €12451 to €20200

24%

12%

12%

from €20201 to €35200

30%

15%

15%

from €35201 to €60000

37%

18.5%

18.5%

over €60000

45%

22.5%

22.5%

Other important facts about withholding tax in Spain one should take into account:

  • The Spanish tax system is rather flexible and is characterized by a high level of tax individualization. Hence, the tax authorities take into account the personal and family circumstances of a taxpayer, which may provide a reason for the tax base to be reduced, resulting in the further decrease of the tax burden. IRPF in Spain will be considerably lower in the case of large families, individuals who support dependents (personal and family minimums), and elderly citizens.
  • Also, the Spanish Fiscal Code envisages various types of reductions (basically, these are the same as the reduction of the tax base), including deductions for those who invest their funds in property, deductions for the parents of children younger than 3 years old, and deductions for some charity types.

Declaring withholding tax in Spain

IRPF rates in Spain

The following categories of non-residents of the country are mandatory taxpayers of withholding tax in Spain (and must submit a declaration):

  • Individuals whose total annual income constitutes at least € 22,000 per year before paying the tax (if the revenues are regularly obtained from several sources, the threshold is lowered to € 12,000);
  • Individuals who have changed jobs and are employed in a new place within the same year, provided that the last employer paid this individual over €1500 for the time left until the end of the fiscal year.

In case the salary represents the taxed income, as a rule, a taxpayer does not need to submit a declaration and pay a withholding tax in Spain, since the employer can do this for him or her. Modern technologies have simplified significantly the procedure for declaration and payment of IRPF in Spain. Thus, it is now possible to fill in the declaration online without leaving your home.

Also, a special service is offered on Spanish territory that enables one to receive a draft of the declaration form at the taxpayer’s address; the only requirement is then to confirm the correctness of all the submitted data. All family members of a Spanish resident automatically become residents and also are considered taxpayers; that is, individual declarations must be submitted on their behalf. The same rule is applied when it comes to a married couple (in which both spouses are non-residents) that owns a property on Spanish territory (in shares). In order to pay withholding tax in Spain, non-residents need to complete Form 210 and submit it to one of the offices of the State Fiscal Agency of Spain.

Contact the specialists of INEEDSpain service center if you need to clarify any questions related to IRPF in Spain or in order to schedule a consultation on other legal issues. The high expertise of our specialists will help you to be informed on the latest innovations in the world of tax legislation, as well as to meet all the terms and conditions for tax payment in Spain.

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