Thinking beyond borders
A person’s liability for Spanish tax is determined by residence status for taxation purposes and the source of income derived by the individual. Income tax is levied at either progressive tax rates for residents (with flat rates for investment income and capital gains) or flat tax rates for nonresidents. In the case of residents, the individual’s taxable income for the year is calculated by subtracting allowable deductions from the total assessable income. Nonresidents do not have any allowable deductions or credits, except for certain expenses for those individuals who are tax residents in another EU country/jurisdiction. A special tax regime for inbound assignees might be available for those individuals who become Spanish tax residents as a consequence of their assignment to Spain or of acquiring a board of director position in an entity, provided certain requirements are met.
A person’s liability for Spanish tax is determined by their residence status. A person can be a resident or nonresident for Spanish tax purposes. Resident/Non-resident status is held for the whole of the tax year.
A resident of Spain generally refers to an individual who remains in Spain for more than 183 days in any given calendar year or has the individual’s business or economic interests located in Spain. Temporary absences from Spain are disregarded in order to calculate the number of days spent in Spanish territory, unless the individual can prove tax residency in another country/jurisdiction. Tax residents are taxed according to a progressive scale of rates.
In general, nonresident taxpayers are taxed at the rate of 24 percent on income obtained in Spanish territory or which arises from Spanish sources (19 percent for investment income and capital gains).
General rate of 19 percent applies to non-resident individuals who are tax resident in a country/jurisdiction of the European Union (EU) or of the European Economic Area (EEA) with which and effective exchange of tax information exists.
Specific Personal Income Tax regulations and scales of rates apply in the three Historic Territories of the Basque Country (Vizcaya, Guipuzcoa and Alava) and also in Navarra.
Individuals who become Spanish tax residents as a consequence of their assignment to Spain may choose between being taxed as a Spanish tax resident (according to the personal income tax progressive rates scale with a general 45 percent top marginal rate) which could vary depending on the Autonomous Community where the individual is tax resident) or as a nonresident (according to the nonresident income tax rules, with flat rates for Spanish-sourced income, 24 percent for work income). This option is effective for the period in which the change of residence takes place and the following 5 years.
The main requirements that must be met to be able to apply for the regime and the applicable rules have been amended as of 1 January 2015, and are summarized below. These requirements must be met throughout the period during which the regime is applicable.
Specific regulations and relevant differences apply in the three Historic Territories of the Basque Country (Vizcaya, Guipuzcoa and Alava) and in Navarra with regard to the content and practicalities of the special tax regime for inbound assignees.
Technically, there is no threshold/minimum number of days that exempts the employee from the requirements to file and pay tax in Spain. To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there will be no tax liability. The treaty exemption might not apply if the Spanish entity is the individual’s economic employer.
For extended business travelers, the types of income that are generally taxed are employment income, Czech-sourced income, and gains from taxable For extended business travelers, the types of income that are generally taxed are employment income (both cash and in-kind remuneration are considered), Spanish-sourced income, and gains from the sale of taxable Spanish assets (such as real estate).
For residents, tax is assessed on taxable income using graduated tax rate tables (combining general tables and autonomous community tables) ranging from 19 percent to a general 45 percent, which could vary depending on the Autonomous Community where the individual is tax resident.
The Spanish Government has announced that there will be increases in the tax rates for 2020 (in 2% for net general taxable income exceeding EUR130,000 and in 4% for net general taxable income exceeding EUR300,000
Non-residents are taxed at a general flat rate of 24 percent (19 percent for individuals who are tax resident in a country/jurisdiction of the EU or of the EEA with an effective exchange of tax information) on gross Spanish source income; no deductions or credits are allowed, except for certain expenses for those individuals who are tax residents in another EU country/jurisdiction.
Investment income and capital gains for tax residents are taxed at a flat rate of 19 percent for annual amounts up to EUR6,000, 21 percent for income in an amount between EUR6,000 and EUR50,000, and 23 percent for amounts exceeding EUR50,000.
The Spanish Government has announced that there will be increases in the tax rates applicable to investment income and capital gains for 2020 (27% would apply for investment income and capital gains exceeding EUR140,000
Investment income and capital gains for nonresidents are taxed at a flat rate of 19 percent.
In principle, all employees working in Spain, regardless of their nationality, must be registered with the Spanish social security administration, and the employer must make the corresponding contribution for both employer and employee. The contributions depend on the category of each employee and cannot exceed certain limits.
The rate for employers (plus a professional contingency rate depending on the company activities) is 29.9 percent plus a percentage to cover labor accidents and illness; the percentage depends on the activities. The employee rate (indefinite contracts) is 6.35 percent.
The minimum and maximum social security bases vary depending on an employee’s category of employment and educational background. Please note that expatriates, according to international social security agreements and EU applicable regulations, may continue with home-country/jurisdiction social security contributions and regimes. The current maximum monthly social security base is EUR4,070.10.
The due date for tax residents and individuals taxed under the special regime for individual assignees for filing the tax return and making payments is 30 June following the tax year-end, which is 31 December. Specific deadlines for filing tax returns apply to nonresidents, and Spain does not allow time extensions to the deadlines; if the return is not filed on time, penalties will be imposed. These penalties will vary depending on whether the tax return is filed after the deadline on a voluntary basis or whether it is filed as a result of a tax audit.
For residents, withholdings are calculated according to a progressive scale based on the amount of taxable income that is expected to be paid during the tax year (both cash and in-kind remuneration are considered) and the family status of the employee.
For nonresidents, a general flat 24 percent withholding is applied on employment income (19 percent for non-resident individuals who are tax resident in a country/jurisdiction of the EU or of the EEA with which and effective exchange of tax information exists).
These withholdings are paid to the Spanish tax authorities on a monthly or quarterly basis and will be deducted from the final tax due on the Spanish tax return.
A citizen of any EU member country/jurisdiction or a citizen of any of the members of the EEA or the Swiss Confederations may enter, leave, move, and/or remain freely in Spanish territory but all those EU citizens, EEA nationals and Swiss nationals who are going to reside in Spain for more than 3 months must obtain the “Central Registry for Foreigners Certificate” at the corresponding Police Station within the first 3 months after their entry in Spain.
For any other citizens, a work visa must be applied for before the individual enters Spain. The type of visa required will depend on the purpose of the individual’s entry into Spain.
Relevant communications within the scope of the EU’s Posting of Workers Directive should also have to be carried out.
Spain has entered into double taxation treaties with almost 90 countries/jurisdictions to prevent double taxation and allow cooperation between Spain and foreign tax authorities in enforcing their respective tax laws.
There is the potential that a permanent establishment could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.
There are two main indirect taxes in Spain that could tax sales operations carried out within Spanish territory depending on the status of the individual/entity that performs said operations.
Spain has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed. Spanish companies are required to have transfer pricing documents on file and available should the Spanish tax authorities request them. Failure to do so may result in penalties.
Spain has data privacy laws.
There are no limits on the amount that an individual can bring into or take out of Spain; however, there are certain reporting requirements.
The deductibility of expenses might depend on whether the assignee is taxed as a resident or a nonresident.
Nonresidents do not have any allowable deductible expenses, except for certain expenses for those individuals who are tax residents in another EU country/jurisdiction. For tax residents, deductible expenses are rather limited, one of the main ones derived from employment income being compulsory social security contributions.
All information contained in this publication is summarized by KPMG Abogados, S.L.P., the Spanish member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Spanish Personal Income Tax Law ( Ley 35/2006, de 28 de noviembre, del Impuesto sobre la Renta de las Personas Físicas), Personal Income Tax Regulations (Real Decreto 439/2007, de 30 de marzo, por el que se aprueba el Reglamento del Impuesto sobre la Renta de las Personas Físicas), Non-Resident Income Tax Law (Real Decreto Legislativo 5/2004, de 5 de marzo, por el que se aprueba el texto refundido de la Ley del Impuesto sobre la Renta de no Residentes), Social Security Law (Real Decreto Legislativo 8/2015, de 30 de octubre, por el que se aprueba el texto refundido de la Ley General de la Seguridad Social) and subsequent amendments.