Contrary to popular belief, it is not all bad news on becoming resident in Spain. Lawyer Raymundo Larraín sheds some light on the matter, casting away some widely held prejudices.
The following article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. The advice given is of a general nature and should not be construed as tailored tax advice. Seek professional legal advice on your matter – see disclaimer below.
Article copyrighted © 2018. Plagiarism will be criminally prosecuted.
By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of March 2018
‘Fake’ non-residents in Spain will have already started to feel the heat from their lenders as from early January in the shape of letters, emails and phone calls requesting clients confirm their tax details that will be relayed over to the Spanish Tax Office. Moreover, some Spanish banks have even contacted some of my clients threatening them with freezing their bank accounts in Spain unless they could prove their alleged ‘non-resident’ status. This is quite the change from what we were used to in Spain in previous years where it was ‘no pasa nada’.
The Spanish Tax Office receives information from 47 different sources (!). So, going forward, ‘fake’ non-residents are playing a cat and mouse game with the tax office that will likely end (very) badly for them. Not to mention they could also get into trouble with their home country’s tax office as well. I already made it clear in previous taxation articles that you have to come out clean in 2018; or you are resident, or you are non-resident in Spain for tax purposes. You can no longer sit on the fence gaming the system to your advantage.
The purpose of this article is to give some pointers on why becoming (tax) resident in Spain is not as bad as some people would have us believe. Mind you, if you do become tax resident in Spain, you will be taxed on your worldwide income unless you are lucky enough to attain from Spain’s Tax Office a coveted Non-Domiciled tax status (only affluent taxpayers need apply, thank you very much) which basically legally exempts you from paying tax on your worldwide assets/income. So much for equality.
Advantages on becoming resident in Spain
The below list is open-ended, there are many more I do not mention (regional variations).
- Holiday home rentals: Landlords can benefit from lenient tax relief which on average reduces your tax bill by 70%, or more. Ideal for those with tourist rentals.
- Residents and EU-residents pay a much lower percentage as opposed to non-residents (approximately 21% less tax).
- Residents in Spain do not have to pay every year Non-Resident Income Tax.
- You do not need to file an income tax return for earnings below €22,000 from one employer (not as self-employed)*.
- Take advantage of lenient tax allowances (at a three-tier level: national, regional and local) which make a vast majority of foreign inheritors not having to pay ANY inheritance tax whatsoever in Spain. For example, in Andalusia inheritances under one million euros are untaxed (per beneficiary). Post-Brexit inheritance taxes in Spain will be punitive for most British residents. If you are concerned on this, you can commission from us a Spanish Inheritance Tax Assessment Report (SITAR) which lays out clearly how much inheritance tax your heirs stand to pay in Spain. You can of course apply for unilateral tax relief from the HRMC (on the inheritance tax bill paid in Spain) despite their being no double-taxation treaty on inheritance matters.
- 95% of tax reduction on a heir’s taxable base on his main home (up to 99.99% in some regions in Spain i.e. Andalusia). **
- Multiple regions in Spain offer generous tax allowances between next-of-kin i.e. Valencia offers €156,000 tax-free for cash gifts to under 21-year-olds. €100,000 euros tax-free for over 21-year-olds.
Capital gains tax (on selling your property in Spain)
- No 3% of the sales proceeds withheld by the Spanish Tax Office on selling your property in Spain.
- Rollover relief: investing the sales proceeds in a new main home in Spain (or in the European Union) will negate completely your cgt liability.
- Absolute relief: pay no capital gains tax on selling your property in Spain. Over 65-year-olds are not liable for cgt on selling their main home. ***
- More details on this in our in-depth taxation article: Capital gains tax mitigation on selling (or gifting) property in Spain – 8th May 2019
Plusvalia tax (on selling, on inheriting)
- Town halls offer significant discounts to residents. Up to 95% in some cases.
IBI tax (Spain’s council tax)
- Significant discounts available to residents.
- Wealth tax: huge reductions available for residents (€300,000 on main home, per partner) besides a personal tax-free allowance of €700,000. A resident couple may apply for a combined €600,000 tax reduction on their main home (in addition to their own personal tax-free allowance of €700,000 each).
- Spain’s Non-Dom Tax Scheme (for affluent expats).
- Access to free state healthcare: more information in my article How to apply for healthcare in Spain.
- Voting rights in local elections: enrolling on your local town hall census (Padron) allows your town hall to receive more funds which in turn are used to improve public services (more ambulances, increased medical attention, discounts on public services etc.). This also allows you the right to vote in local elections.
- Mortgage loan applications: Non-residents are limited to 60 – 70% LTV. Whereas Spanish residents are handed out more lenient terms, generally being able to borrow 80% LTV, or even more. When you are starting out your own business in Spain, this can make a key difference on the money you can raise.
- Lease agreements: Non-residents, perceived as a greater financial risk because they have no ties to Spain, are required additional financial assurances from their landlords (read increased deposits i.e. 6-months in advance). Whereas Spanish residents are left off the hook and only need to comply with the bare minimum.
* Subject to terms.
** Subject to a cap.
*** Subject to terms.
Do you still think that becoming tax resident in Spain offers no real advantages? Think again.
Our team of native English-speaking lawyers and economists have a long track record (over 15 years’ experience) successfully assisting expats on their tax matters in Spain. If you pay more taxes than you should, it is only because you want to.
Come and speak to qualified professionals, we will mitigate your tax exposure with efficient tax-planning and avoid non-optimal taxation scenarios.
Larraín Nesbitt Lawyers, small on fees, big on service.
“Está el hoy abierto al mañana.
Mañana al infinito.
Hombres de España: ni el pasado ha muerto,
ni está el mañana ni el ayer escrito” – Antonio Machado.
Antonio Cipriano José María y Francisco de Santa Ana Machado y Ruiz (1875 – 1939). Brilliant Spanish poet and one of the leading figures of the Spanish literary movement known as the Generation of ’98. Died in exile during the Spanish Civil War. He is credited as being one of Spain’s most popular poets. Amongst his timeless classics, Campos de Castilla stands head and shoulders above the rest.
Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at firstname.lastname@example.org, by telephone on 951 894 675 or by completing our contact form.
Article originally published at Larrain Nesbitt Abogados: Tax advantages on becoming resident in Spain.
Legal services Larraín Nesbitt Lawyers can offer you
- IRPF (Spanish Resident Income Tax) from €150
- Conveyancing – Buying from €995
- Conveyancing – Selling from €795
- Non-Resident Income Tax (Fiscal Representation) from €90
- Holiday Lettings Accounting Service (HRAS) from €100
Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
Buying Property in Spain from a Developer (Off-Plan Property) – 8th March 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
Selling Property in Spain – 10 Reasons to Hire a Lawyer – 8th December 2016
Non-Resident Taxes in Spain – 8th December 2015
Non-Resident Income Tax – 8th December 2017
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.
2.018 © Raymundo Larraín Nesbitt. All rights reserved.