At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and permanent residents living in Spain for over 13 years. We have been checked by the State Department and are listed on the list of approved Tax Preparers by the US Consulate in Barcelona. Our clients hail from all parts of Spain - Madrid, Barcelona, Granada, Seville, San Sebastian and Valencia. We were vetted and are recommended by the Barcelona consulate as a tax preparer for American expatriates living in Spain.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country. The expatriate Foreign Earned Income Exclusion ($92,900 for 2011 and $95,100 for 2012) can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Spain and know how to integrate your U.S. taxes into the local income taxes you pay. Any Spainese income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Spain for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Unfortunately, unlike most countries in the world, you must also file your taxes on worldwide income so long as you are a U.S. citizen or green card holder. You always have the option to give up your U.S. citizenship - by following proper IRS and State Department procedures you can surrender your U.S. Citizenship and therefore cut off your obligation to file U.S. taxes in the future. You must surrender the Citizenship for non-tax avoidance reasons and then can usually only return to the U.S. for no more than 30 days per year for the subsequent ten years. This is another service that we have provided many clients in the past.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax and legal concerns; we look forward to working with you.
Below we include information on the Spanish Tax System for American expatriates.
Spain’s tax year is the natural calendar year. Income taxes in Spain should be paid between May 1 and June 30 for the previous year’s income. With a DNI or NIE, you can apply for a Número de Identidad Fiscal (NIF) in order to pay your taxes in Spain.
Tax residents will need to pay income taxes in Spain and are generally defined as those who reside in Spain over 183 days in each calendar year and/or have their main financial interests in Spain. However, in many cases you only need to file a tax return in Spain when you make more than €22,000 per year, receive a rental income of more than €1,000 and/or receive a capital gains and savings income of more than €1,600.
Personal allowances for Spanish income tax purposes are €5,151, which increases to €6,069 for persons over age 65 and €6,273 for persons over age 75.
Child allowances for Spanish income tax purposes are: €1,836 for the first child, €2,040 for the second child, €3,672 for the third child and €4,182 for additional children. In addition, Spain has a maternity allowance of €2,244 for each child under three years old.
Earned income above these allowances is taxed at the following rates:
| Income (above allowances) | Spain’s national tax rate | Provincial tax rate | Total tax rate |
| €0 - €17,707 | 15.66% | 8.34% | 24% |
| €17,707 - €33,007 | 18.27% | 9.73% | 28% |
| €33,007 - €53,407 | 24.14% | 12.86% | 37% |
| €53,407 and above | 27.13% | 15.87% | 43% |
Special Expat Income Tax Regime in Spain
As of 10 June 2005, the Spanish government approved a new tax regime for expatriates working in Spain. This was Royal Decree 687/2005. This tax rate for expats could be advantageous to avoid paying the upper levels of the rate table outlined above. In order to qualify, the expatriate must meet following:
- Expats must not have been a resident in Spain at any previous time during the 10 years before their current work or position in Spain.
- Their position must be under a legal employment contract with a Spanish company or through secondment employment, or with a non-resident company holiding a permanent establishment (i.e. a branch) in Spain.
- The work must be performed in Spain, although some flexibility is allowed. Work may be partially performed outside Spain if the salary for work abroad does not exceed 15% of the total salary for the year. If the working contract provides that the individual performs functions in another group company, this limit goes up to 30%.
- The expat’s income must be subject to Spanish NRIT (Non-Resident Income Tax).
If you qualify, this means you’ll be subject to a special flat tax rate for expatriates at 25% for all Spanish income sources, and you will be taxed as a non-resident regarding all income, capital gains and wealth taxes.
Note: You’ll have to make the decision within six months from the start date of your social security registration. The period of time you can claim this expat tax rate starts from the first year when the expat has spent more than 183 days in Spain and continues for a total of five years or more.
Further note: Due to the special nature of this tax, you’ll very likely need a tax advisor to ensure proper adherence to the decree.
Taxes for Property Owners in Spain
Article adapted from the Agencia Tributaria's site for non-residents. The tax requirements are as follows:
- If you are a resident, you are subject to personal income tax (including capital gains tax) and property tax (IBI).
- If you are non-resident, you are subject to personal income tax (including capital gains tax), property tax, plus an additional non-resident property tax. Personal income tax for non-residents only represents income from the property; income from salary is declared where you are a resident. If the property is for your own use, you must pay a certain percentage of your property; if the property is rented, you declare the amount you have received in rent.
If the property is owned by a married couple or by various individuals, each person is treated as a separate taxpayer and must file returns separately.
Depending on what the property is used for, the income subject to taxation is as follows:
- Property for own use
- Form 210
- Filing period: January 1 - June 20 of the following year.
- (Form 214 is the single form for declaring both property tax and income tax, with the filing period any time during the following year.)
- The income to be declared is a percentage of the cadastral value of the property, as indicated on your property tax receipt. It is 2%, or 1.1% if the property's cadastral value was revised after January 1, 1994. The tax rate is then 25% of this "income". If you didn't own the property for the entire year or if it was rented for part of the year, then you would prorate the amount accordingly. Note that the rules regarding this tax were modified significantly on March 1, 2004.
- A non-resident whose only taxable property in Spain is a dwelling fundamentally for own use may elect to use a single form for declaring both property tax and personal income tax on the estimated income from the use of that dwelling.
- Property used for rental
- Form 210 for ordinary return, using general section 210-A and indicating income type 01.
- Filing period for Form 210: one month after the date on which the rent is due.
- Form 215 for collective return. Also indicate income type 01.
- Filing period for Form 215 (filed for each quarter): In the first 20 days of the month following the end of the quarter.
- The income to be declared in this case is the total amount collected from the tenant, without deducting any expenses. The tax rate is 25% of this income.
- This income is chargeable when it is claimable from the tenant or when it is collected (if earlier). Each rent due is taxed separately and, consequently, a return must be filed for each rent due. Or, collective returns may be filed which may include various chargeable income of one or more taxpayers falling within a calendar quarter.
- A tax form must be sent after the termination of every rental agreement, in addition to the yearly declaration of income.
Form 212. When the property being transferred is owned jointly by a married couple in which both spouses are non-residents, a single return may be filed.
Filing period: three months from the end of the period in which the purchaser of the property must pay the withholding tax (which is one month from the date of the sale).
Capital gains on the sale of property are taxable income that must appear on your income tax form for both residents and non-residents. This income is chargeable when the capital gain takes place. The gain is generally the difference between the sale and purchase values. The purchase value is the purchase amount plus the expenses and taxes paid that were involved in the purchase. The sale value is the sale amount minus the expenses and taxes that were paid.
If the property has been rented, the purchase amount must be reduced by the amount of depreciation corresponding to the rental period. The depreciation is also updated on the basis of the year in question.
However, if the property being sold was acquired before December 31, 1994, this capital gain gets reduced by 11.11% per year for each year (above two) during which the asset was held. This holding period is calculated by taking the number of years between the date of acquisition and December 31, 1996 and rounding up.
Withholding tax: If the seller is non-resident, then the buyer must withhold 5% of the agreed price (regardless of whether the buyer is resident or not), using Form 211 to pay this 5% to the tax office. The buyer then provides the non-resident seller with a copy of the form, so that the seller may deduct this withholding from the tax payable in the return declaring the capital gain. If the amount withheld exceeds tax payable, the excess is refundable. If the tax withheld is not paid, the liability for the tax is attached to the property.
Sample non-resident tax owed for a property sold
| Purchase price | 83,000€ |
| Purchase costs | 7000€ |
| Purchase value | 90,000€ |
| Adjustment rate for inflation (sample for 2002) | 1.0612 |
| Purchase value adjusted | 95,508€ |
| Sales price | 150,000€ |
| Sales costs | 1000€ |
| Sales value | 151,000€ |
| Capital gain | 55,492€ |
| Non-resident tax rate | 35% |
| Tax on capital gain | 19,422€ |
| Withholding tax (5% of sales price) (Form 211) | 7500€ |
| Tax payment (Form 212) | 11,922€ |
Non-residents: Additional property tax
Form 714, the same as for resident taxpayers
Filing period: May 1 - June 20 of the following year.
Non-residents must file this tax form if they own property in Spain on December 31 of each year, regardless of the value of the property. The tax is calculated based on the highest of the following three values:
- The cadastral value, as reflected in the property tax receipt for the year to which the return refers.
- The value assessed by the Spanish Tax Office for purposes of other taxes.
- The purchase price.
Each individual must file a separate return; if a property is owned by a married couple or by various persons, each one of them must file a single return for the portion of the house owned (usually 50%).
How do I determine if I'm a non-resident for tax purposes?
Assuming you don't have Spanish citizenship, you're a resident if either:
- You're physically present in Spain for more than 183 days (including sporadic absences).
- The main base of your professional activities or economic interests are in Spain.
- Your spouse and children reside in Spain.
To avoid double taxation, how can I prove that I'm tax-resident in a country?
Tax resident status can be accredited by presenting a residence certificate issued by the tax authorities from that country. The validity of such certificates is one year.
If I'm non-resident and have earnings in Spain, should I file taxes in Spain?
In this situation, it's usually better to file taxes in Spain. Assuming there is a double taxation treaty between Spain and your country of residence, you can then choose in which country you want to declare these earnings. In most cases, your earnings won't be taxable in Spain because you are non-resident.
What happens if I'm a resident of both Spain and another country, according to the tax rules of both countries?
In these cases the international agreements, if any, will apply. These agreements describe the tax rules that apply to avoid an individual to be considered resident in both countries.
My company is assigning to UK nationals to Spain to work there for 18 months. Will they liable for taxes in Spain?
Yes, the employees will need to file resident income tax forms in Spain, and report their earnings. Whether they pay taxes in Spain or the UK based on these earnings depends on their situation. Note that the purpose of the double taxation agreement is to avoid paying twice. It does not mean you can avoid paying at all, nor are you totally free to decide which country is the better choice. That may be considered fraud.
As a Spanish resident, do I have to declare income earned outside Spain?
Yes, though it may be difficult for the Spanish tax authorities to find out about such income. Note that most countries have agreements with Spain to avoid double taxation.
Why is Spain a good country for tax planning?
Spain has always had regulations for the creation of holding companies useful in international tax planning. In 2002, however, the government created regulations that have now made Spain one of the most competitive countries in the world for tax planning. Spain is even more advantageous now that the traditional tax havens of the world are being carefully watched in the aftermath of September 11th. The two best options are the Entidad de tenencia de valores extranjeros and Sociedades no residentes, sin establecimiento permanente.
Main Features of the Tax System in Spain
Article reprinted from Eurostat and the European Commission Taxation and Customs Union (2009)
Personal income tax
The personal income tax system was already simplified in 1999 and 2003. A new reform took effect from 2007. The tax scale applicable to the general component of taxable income has been reduced from five brackets to four (24%, 28%, 37% and 43%). Savings, including capital gains, are now taxed at a single flat tax rate of 18%, regardless of how long the assets have been held. As for dividends, under certain conditions the first 1500€ are exempt; any excess is taxed at an 18% rate. Personal and family allowances have been increased and since 2007 are included, as a general rule, in the first income bracket, which is taxed at a zero rate. Until 2007, they were deducted from the tax base, which decreased the progressivity of the tax. In the context of measures taken to alleviate the consequences of the global financial crisis, Spain has increased tax credits, social security rebates and deadlines of payments to specific categories of workers. In addition, an additional tax credit of 400€ has been granted to working and self-employed taxpayers to support household purchasing power.
Corporate taxation
The tax rate has been reduced from 35% to 32.5% in 2007 and to 30% in 2008 (from 40% to 37.5% and 35% for 2007 and 2008, respectively, for entities engaging in oil exploration, research, and exploitation). For small and medium companies (those with a turnover less than 8 million euros), a 25% tax rate (applicable to the first 120,202€) applies. Some tax credits, including those for exports, are to be gradually phased out by 2011, 2012 or 2014. The rules regarding tax credits for reinvestment have also been revised, in particular with reference to the kind of assets involved. Capital gains on the sale of certain assets are now effectively taxed at 18% (the same tax rate as the PIT). Finally, the R&D tax credit has been expanded to companies with more than 25% of their research activity in another EU Member State or member of the EEA.
Wealth and transaction taxes
Inheritance and gift taxes are levied on behalf of the 17 autonomous regions, which set their own tax rates within certain limits. If they do not, national limits apply. A tax on wealth transfers applies to rights and assets located in Spain. For the transfer of real estate, this tax is levied at different rates depending on the Autonomous Community where the land is located. If no specific rate is set, a 7% rate is levied on the value of real estate. A 100% tax rebate has been introduced in the wealth tax in 2008.
Local taxes
Regional governments receive a significant share of total tax revenue (33% of personal income tax; 35% of VAT; 40% of excise duties on hydrocarbons, tobacco, beer and alcohol; 100% of excise duties on electricity and car registration). Indirect tax revenues are transferred according to a territorial consumption index. Statutory personal income tax rates can be modified by the regional governments provided the structure retains progression and the number of tax brackets is unchanged. Taxes on inheritance and gift tax, registration duties and fees on lotteries and gambling are wholly assigned to territorial governments with almost complete jurisdictional powers. If the estimated expenditure exceeds potential revenues, the regional government receives a compensatory transfer from the central government. Two out of the 17 Comunidades Autónomas (Basque Country and Navarra) have a special tax regime and apply, in particular, their own personal income and corporate income taxes. For the others, fiscal revenue sharing forms the object of multi-annual agreements. The financing system of the autonomous communities (accepted only by 11) of 1997–2001 was extended to the 2002–2007 period; during 2008–2009 the system has been provisionally applied until conclusion of a new financing agreement in the Consejo de Política Fiscal y Financiera (a high-level body in charge of the decision-making process regarding financing issues and representing all the Autonomous Regions). Afterwards, the LOFCA (Ley Orgánica de Financiación de las Comunidades Autónomas) will also be reformed.
Social Contribution
Each professional category has minimum and maximum contribution bases. For 2009 the maximum monthly base is 3166€; the minimum monthly base varies depending on the type of work. The total rate for the general regime (including general risk, unemployment insurance and professional education training) is 6.4% for the employees and 29.9% for employers.
Taxation Trends in Spain
Article adapted from Eurostat and the European Commission Taxation and Customs Union (2009)
Structure and development of tax revenues
The total tax-to-GDP ratio was 37.1% in 2007, 0.4 percentage points lower than the EU-27 arithmetic average; this ratio is in the low range for the euro area. Spain collects revenues almost equally from direct taxes, social contributions and indirect taxes (respectively 13.4, 12.2 and 12.0% GDP). Spain has the third-lowest indirect taxes collection in percentage of GDP in the EU (roughly 2.3 percentage points lower than the EU-27 average). This can partly be attributed to a standard VAT rate (18%), which is low by EU standards and to two reduced rates (4% and 7%) that apply to a sizeable share of the tax base. Direct taxes and social contributions are respectively 1.0 and 1.2 percentage point higher than the EU-27 average. Spain's buoyant economic activity in the last years has boosted tax revenues. Personal income taxes have soared to 7.7 % of GDP after a trough in 2004 at 6.4%. However, the most noticeable change has been the increase in corporate income tax receipts which reached 4.8% of GDP in 2007 (up from 2.9% in 2001 and 1.9% in 1995). This is the fifth highest ratio in the EU. Social security contributions have remained stable on average over the period, with the lion's share of the burden resting on employers.
Spain has a quasi-federal tax system, with three levels of government. The central government and the social security funds collect the majority of the revenues (respectively 38.3% and 32.1% of total taxes). However the financing system of the regions (Comunidades Autónomas) was reformed in 1997, leading to a marked increase in regional taxes as a percentage of GDP. The effect, visible already from 1997 appears more clearly starting from 2002 as the State government share more than doubled to reach the current level of 8.0% of the GDP.
Spain used to be a low-tax country, but the overall tax burden perceptibly increased between 2000 and 2007 (+ 3.2 percentage points) to come closer to the EU-27 average. Substantial fiscal consolidation was achieved since the mid-1990s, with a budget deficit declining particularly rapidly. Until 2007, tax revenues were boosted by increased VAT and CIT receipts, thanks to buoyant economic growth.
Taxation of consumption, labour and capital; environmental taxation
The ratio of consumption taxes in proportion to GDP (9.5%) is the lowest in the EU-27, 2.9% lower than the EU-27 average. After an increasing trend throughout the 2001–2006 period, the implicit tax rate on consumption is back to 15.9% and remains the second-lowest in the Union after Greece as of 2007. This development mimics the one of VAT collection in percentage of GDP.
The ratio of taxes on labour income to GDP stood at 16.9% in 2007, just 0.3 percentage points below the EU-27 average (17.2%). However, throughout the years 2000–2007, Spain has displayed an average implicit tax rate (ITR) on labour below the EU-27 and especially the euro area average, although this difference has decreased from slightly more than seven percentage points in 2000 to 2.8% in 2007. The lowest level of the ITR was recorded in 1999 (28.3%) as a consequence of the personal income tax reform. Subsequent increases in the ITR on labour, as seen from 2000 to 2007, could be attributed to a noticeable increase in taxable wages and salaries as a result of the strong job creation process observed in the last few years. The ITR on labour has risen again by 0.8% in 2007 to 31.6%.
The ratio of capital taxes on GDP has increased substantially during recent years (+ 2.5% in the 2003–2007 period). Revenue from capital taxation is well above the EU-27 average (11.2% GDP vs. 8.0%) and the implicit tax rate on capital shows an even more dramatic trend. This can be attributed to the strong increase in tax revenues raised on capital income of corporations (+ 1.7% of GDP in the period, an increase of more than 50%), partly owing to strong growth, and is also reflected in the implicit tax rate on corporate income, which soared over the recent period. Similarly, the implicit tax rate on capital income of households and self-employed has been rising since 2003 to reach 14.7%. Environmental taxation is the lowest in the EU-27 (1.8% of GDP). As in the majority of Member States, it is mostly concentrated on energy (1.4% of GDP).
Current topics and prospects; policy orientation
In 2007 and 2008, the personal income and corporate income tax systems have undergone new significant reforms. The reforms were aimed at simplifying and increasing the neutrality of the tax system, and strengthening incentives for work, saving, risk-taking and investment. Throughout 2008 and 2009, several measures have been taken in relation with the global financial and economic crisis.