INCOME TAX FOR INDIVIDUALS IN SPAIN – SPECIAL ATTENTION TO PENSIONS AND UK INCOMES
1.- TAXABLE EVENT – INCOMES AND RENTS
The taxable event is made up of all the incomes received during the NATURAL YEAR (in Spain a “Natural Year” is from 01.01 to 31.12):
– Individuals or particulars, with tax residence in Spain.
What types of incomes?: Salaries, pensions, rental income, income from economic or professional activities, gambling profits, donations, sales, inheritances, shares, interests, etc.
2.- WHO IS LIABLE?
All those natural persons who have their habitual residence in Spanish territory.
When is it considered that an individual or individual has their habitual residence in Spain?
There are several criteria to determine when a person is a tax resident in Spain:
- General criteria – Stay in Spain for more than 6 months
A person is considered a resident of Spain when he or she remains in Spanish territory for more than 183 days during a calendar year.
In order to count the time, temporary trips or stays abroad that do not imply a change of residence are not taken into account. In other words, only those stays abroad that involve a real change of residence will be considered as «absences» for this purpose.
In this way, a round trip abroad, whether on vacation, health, visiting relatives, leisure, etc., will not count as «absence», and the time involved in the trip will be counted as «stay in Spain».
Case of Tax Havens: For these purposes, a certificate of residence issued by a Tax Haven will not be valid.
However, if there is a «real» change of residence of the taxpayer to a Tax Haven, once this change is verified for more than 6 months and one day, for FOUR YEARS it will continue to be taxed in Spain as a tax resident.
For Spain, a “Tax Paradise/Haven” ceases to be so when Agreements have been signed to avoid double taxation, with the exchange of information obligations between the two countries.
As an example, Spain has been signing this type of agreement with the following countries:
– United Arab Emirates
– Trinidad and Tobago
- Criterion of MAIN economic activity
By means of this criterion, a tax resident in Spain is considered to be anyone who has activities or economic interests with the main nucleus or base in Spain.
In the event that the taxpayer does not wish to be considered as a resident in Spain based on this criterion, he will have to prove that he has the base or main nucleus of his activity outside of Spain.
- Family Nucleus Criterion
A person is considered resident in Spain in the event that the non-separated spouse or minor children of the natural person reside in Spain.
- Immigrant regime
Those workers who remain in Spain only and exclusively for work reasons, will be exempt and will not be taxed by the Income Tax of Individuals, but by the Income Tax of NON-RESIDENTS (which is lower than the Tax of Residents).
For this exemption to be fulfilled, these people must prove:
– That they have an employment contract that requires them to stay in Spain
– Who have not been a resident in Spain during the previous 10 years
The objective of this regime is to welcome qualified labor in Spain, since, since income is not subject to personal income tax, which reaches rates close to 50%, it allows these income to be taxed to IRNR (Non-Resident Income Tax ), with a fixed rate of 19% for nationals of the European Union, and 24% for the rest.
- Income allocation regime
In addition to «natural persons» or «individuals», there are several cases that are also subject to the tax:
– Civil societies
– Communities of owners
– Reclining inheritances
In these cases, the income obtained by these entities is attributed to the members that make them up, so that the entity itself is not taxed either by personal income tax or by corporation tax.
The way to attribute the income obtained by these entities to their members or participants is done as follows:
– In the event that the members of the entity are taxable persons of the Corporation Tax, they will pay for this tax.
– In the event that the members are individuals or individuals, they will pay personal income tax.
3.- INCOME TAX EXEMPTIONS
There is a long list of income that is not taxed by personal income tax, such as compensation in the event of dismissal (the first 180,000 euros are exempt, the rest must be taxed as work performance); scholarships for studies, income from work abroad (the limit for exemption is 60,100 euros per year), or payments for maternity or paternity.
Below we present a list of income exempt from taxation in personal income tax, as collected by the Tax Agency for fiscal year 2021:
-Benefits and pensions granted for acts of terrorism.
-Indemnities for personal injuries that are as a result of civil liability and those derived from accident insurance contracts.
-Compensation for dismissal or termination of the worker.
– Benefits for absolute permanent disability or great disability received from Social Security or by the entities that replace it.
-Pensions for uselessness or permanent disability of the passive class regime.
-Remuneration for maternity or paternity and similar and non-contributory family members.
-Public benefits for fostering people with disabilities, over 65 or under.
– Annuities for food in favor of the sons and daughters.
-Relevant literary, artistic or scientific awards declared exempt by the Treasury and Princess of Asturias Awards.
-Help for high-level athletes, with a limit of 60,100 euros.
-Unemployment benefits received in the single payment method.
-Long-term Savings Plans.
-Gratifications for participation in international peace or humanitarian missions to the members of said missions and compensation for international peace and security operations.
-Indemnities paid by Public Administrations for personal injuries.
– Benefits received for burial or burial.
-Indemnities from the State and the Autonomous Communities to compensate for the deprivation of liberty.
-Individual savings plans.
-Income from work derived from the benefits obtained in the form of income by people with disabilities corresponding to contributions to social security systems and contributions to protected assets.
-Public economic benefits linked to the service, for care in the family environment and personalized assistance.
-Minimum insertion income and aid for victims of violent crimes and gender violence.
-Family benefits and aid received from any of the public administrations, whether related to birth, adoption, foster care or care of minor children.
Exempted capital gains
In addition, there are income obtained through Capital Gains that are exempt from the tax, such as: Donations of goods with the right to a deduction in the quota or the transfer of the habitual residence by people over 65 years of age or in situations of great dependency.
Among them, we list the following:
-Delivery of Historical Heritage assets in payment of personal income tax.
-Dation in payment of the habitual residence.
-Equity gains from the transfer of certain properties.
-Exemption for shares or participations of newly or recently created entities acquired before September 29, 2013.
-Income obtained by the debtor in bankruptcy proceedings.
-Aid to offset the costs in buildings affected by the release of the digital dividend.
-Earnings exempt from reinvestment in habitual residence.
Earnings or income from work abroad
We want to make special mention of income from work abroad.
In these cases, those income obtained from work income received as a result of work actually carried out abroad for a company or entity not resident in Spain, or a permanent establishment located abroad, are considered exempt.
For this exemption to apply, the following are required:
– That in the country where the work was carried out there is a tax of an identical or analogous nature to the Spanish personal income tax
– That the territory or country has not been classified as a tax haven
– Proof that there has been a «real» displacement
– That the beneficiary of the works is a non-resident entity or permanent establishment in Spain. The maximum limit of the exemption will be € 60,100 per year.
4.- TAX BASE
The taxable base of the tax will be those income from:
– Income: Salaries, capital income, activities, and allowances, pensions, payments in kind, etc.
– Income from Capital Gains, and imputed income.
To begin with, income must be classified and quantified according to its origin, thus distinguishing between income from income, income from capital gains and losses, and imputed income.
5.- DEDUCTIBLE EXPENSES
The following concepts can be deduced:
- Contributions to Social Security or to mandatory general mutual societies for civil servants.
- Withdrawals for passive rights (employee contributions for their retirement).
- Contributions to orphan or similar schools.
- Fees paid to unions
- Mandatory contributions to Professional Associations for the mandatory fee with a limit of 500 euros per year.
- Legal defense expenses for litigation by the taxpayer against the person from whom he receives the income up to 300.00 euros / year.
Tax base reductions
A series of reductions will be applied to the amount resulting from subtracting income and yields – deductible expenses, which are established each year by the Spanish administration.
6.- TAX RATE
TAX RATE FOR REGULAR INCOMES
|Up to 12.450 €||19 %|
|12.450 – 20.200 €||24 %|
|20.200 – 35.200 €||30 %|
|35.200 – 60.000 €||37 %|
|60.000 – 300.000 €||45 %|
|+ 300.000 €||47 %|
TAX RATE FOR SAVING INCOMES
|Up to 6000 €||19 %|
|6000 – 50.000 €||21 %|
|50.000 – 200.000 €||23 %|
|+ 200.000 €||26 %|
HOW ARE PENSIONS TAXED?
In relation to Spanish personal income tax, pensions are considered as income from work and, as such, are subject to withholding before the Treasury, the pensioner receiving their net amount in their checking account. In this way, the withholding is a “payment on account” of the final personal income tax.
What is the retention percentage?
This percentage depends on two conditions:
– The total amount of the pension: The higher the pension, the higher retention.
– The personal and family circumstances of the pensioner: When there are circumstances such as disability, the retention is lower.
Minimum exempt from pensions
All pensions that do not exceed 22,000 euros in annual income are exempt from declaring personal income tax, as long as they come from ONE SINGLE PAYER (usually Social Security).
However, in the event that the pensioner obtains other income derived from work income, or other public or private pensions, that is, that he has TWO PAYERS, and that this income is greater than 1,500 euros per year, the exempt minimum will be of 14,000 euros.
Withholdings for pension tranches
They are as follows:
– Pensions that do not exceed 12,000 euros annually: Less than 1%
– Pensions of more than 12,000 euros per year:
– 2.61% for pensions from 12,001 to 18,000 euros per year
– 8.69% for pensions from 18,001 to 24,000 euros per year
– 11.83% for pensions from 24,001 to 30,000 euros per year
– 15.59% for pensions greater than 30,000 euros per year
Once the final personal income tax declaration has been made, the pensioner will be in one of two situations:
– In the event that the amounts paid as withholdings have been HIGHER than the amount that should be paid for personal income tax, the statement will be «TO RETURN».
– In the event that such withholdings are LESS than the amount to be paid for personal income tax, the statement will be “TO PAY”.
PENSIONISTS RESIDENT IN SPAIN OF BRITISH NATIONALITY
DOUBLE TAX CONVENTION SPAIN- UK of March 14, 2013 (BOE of May 15, 2014)
In a simplified way, taking into account the provisions of the Agreement between Spain and the United Kingdom (CDI), the taxation for TAX RESIDENTS in Spain of the income of BRITISH ORIGIN most commonly obtained would be:
– Pensions: understood as remunerations that have their cause in a previously exercised job, they have different treatment depending on whether they are public or private.
- Public pension (article 18.2 CDI): a public pension is understood to be that which is received by reason of a previous public employment; that is, that which is received by reason of services rendered to a State, to one of its political subdivisions or to a local entity, for example, the pension received by an official.
Its treatment is:
- In general, public pensions will only be taxed in the UK. In Spain they would be exempt, with exemption progressively. This means that if the taxpayer is obliged to file a tax return for obtaining other income, the amount of the exempt pension is taken into account in Spain to calculate the tax applicable to the remaining income.
- However, if the beneficiary of the public pension resident in Spain had Spanish nationality, the aforementioned pensions would only be taxed in Spain.
- Private pension (article 17 CDI): by private pension is understood any other type of pension received by reason of a previous private job, as opposed to what has been identified as public employment, for example, the pension received from social security by a private sector worker.
Private pensions will only be taxed in Spain.
– Income derived from real estate (article 6 CDI): income from real estate located in the United Kingdom can be taxed in both Spain and the United Kingdom.
The resident taxpayer would have the right to apply the deduction for international double taxation in Spain in personal income tax.
– Dividends (article 10 CDI): British source dividends may be taxed in Spain in accordance with its internal legislation. These dividends, in general, can also be taxed in the United Kingdom, if this is the State in which the company that pays the dividends resides and according to its internal legislation, but if the recipient of the dividends is the beneficial owner residing in Spain, the The tax thus required in the United Kingdom will have a maximum limit of 10% or 15% of the gross amount of the dividends. The resident taxpayer would have the right to apply the deduction for international double taxation in Spain in personal income tax up to that limit.
– Interests (article 11 CDI): Interests from the United Kingdom and whose beneficial owner is a resident of Spain, can only be taxed in Spain.
– Remuneration of members of the boards of directors of companies resident in the United Kingdom (article 15 CDI): They can be taxed both in the United Kingdom and in Spain. The taxpayer would have the right in Spain to apply the deduction for international double taxation in personal income tax.
– Capital gains:
- Derivatives of real estate (article 13.1 CDI): the gains obtained from the sale of real estate located in the United Kingdom, can be subject to taxation in both Spain and the United Kingdom. The taxpayer has the right to apply the deduction for international double taxation in Spain in personal income tax.
- Derivatives of movable property that belong to a permanent establishment (article 13.2 CDI): the gains obtained by the disposal of movable property that belong to a permanent establishment that a resident in Spain owns in the United Kingdom to carry out business activities, including Gains derived from the disposal of the permanent establishment may be taxed both in the United Kingdom and in Spain. The taxpayer has the right to apply the deduction for international double taxation in Spain in personal income tax.
- Derived from the sale of shares, other than those that are considerably and regularly traded on a Stock Exchange, participations, or similar rights, whose value comes from more than 50 percent, directly or indirectly, from real estate located in the United Kingdom (article 13.4 CDI): can be taxed in both the United Kingdom and Spain. The taxpayer has the right to apply the deduction for international double taxation in Spain in personal income tax.
- Derived from the sale of shares or participations or other rights that, directly or indirectly, grant the owner of said shares, participations or rights, the right to enjoy real estate located in the United Kingdom (article 13.5 CDI): they may be taxed both in the UK and in Spain. The taxpayer has the right to apply the deduction for international double taxation in Spain in personal income tax.
- Derived from the sale of any other asset other than those mentioned in sections 1, 2, 3, 4 and 5 of article 13 (article 13.6 CDI): they can only be taxed in Spain. In addition to those mentioned above, the Agreement lists other types of income (business benefits, remuneration for work, artists and athletes, public functions, other income…), the treatment of which can be consulted in the text thereof.
-OBLIGATION OF INFORMATION ON ASSETS ABROAD
People residing in Spain must inform the Spanish Tax Administration about three different categories of assets and rights located abroad:
- accounts in financial institutions located abroad
- securities, rights, insurance and income deposited, managed or obtained abroad
- real estate and rights to real estate located abroad
This obligation must be fulfilled, through form 720, between January 1 and March 31 of the year following that to which the information to be supplied refers.
There will be no obligation to report on each of the categories of goods when the value of the set of goods corresponding to each category does not exceed 50,000 euros.
Once the informative return has been submitted for one or more of the categories of goods and rights, the presentation of the statement in subsequent years will be mandatory when the value has experienced an increase of more than 20,000 euros compared to that determined by the presentation of the last statement .
The Personal Income Tax Law and the General Tax Law establish specific consequences for the case of non-compliance with this information obligation.