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Spanish taxation

A guide on the impact of taxation in Spain.
Transcript: 

Hi. I'm Jonathan Eshkeri, a director of E&G Solicitors in Spain. We've been acting for non-Spanish nationals in Spain since 2004. We advise and assist people in relation to a range of issues, from the purchase and sale of Spanish property, to inheriting and gifting Spanish property, recovering assets in Spain, securing debt against Spanish property, foreclosing on charges securing loans against Spanish property, and much more.

The common denominator of all the work that we do is the impact of taxation on the steps that we are taking for our clients. In fact, the impact of tax often leads the way in which our clients decide to proceed. People are often concerned that there are so many taxes in Spain. In fact, the tax regime is not so different to the UK, although it does have its peculiarities.

Spanish tax - Non-resident income tax

Anyone who owns property in Spain is liable to Spanish tax on an ongoing basis. Even if you don't let your property at all and so don't receive any income from your Spanish property, you'll need to pay what's called non-resident income tax. The non-resident income tax is calculated based on what's called the "valor catastral" of the property, similar to its rateable value, or its value for the purposes of the equivalent of council tax. Currently, the percentage tax payable by EU residents is 19%. The amount on which the 19% tax is payable is usually 1.1% of the "valor catastral", but can be 2% in certain circumstances. That means on a property with a "valor catastral" of 100,000 Euros, which may be a property with a significantly higher market value, the annual non-resident income tax payable could be 209 Euros. Non EU residents, such as UK residents after the end of the Brexit transition period, pay the same tax at the rate of 24%, producing a liability to tax of 264 Euros on the same net income. So, this is a good example of a tax that's not payable in the UK, as it's an income tax payable without there being any income earned at all.

Spanish tax - Gift tax

Another peculiarity of the Spanish tax regime is gift tax. In the UK we have what are called Potentially Exempt Transfers, or PETs for short. The effect of a PET is that if you receive a gift you don't need to pay tax on that gift at all, subject to the amount of value the person has made the gift to you has already given away and also subject to the number of years that that person has lived since she made the gifts. It may be that you will need to pay tax on the gift in due course, when the donor of the gift dies, or perhaps the gift will turn out to be tax exempt, but there's nothing to pay now. In contrast, in Spain, whenever you receive a gift from anyone, you must consider whether there's any gift tax to pay. Spain is comprised of 17 autonomous communities. In some of those autonomous communities you can already gift up to 1 million Euros to very close relatives without creating any liability to tax. However, in other autonomous communities that's not possible at all and gift tax must be paid within a month of receiving the gift. Yet another important peculiarity of Spanish tax.

Spanish tax - Municipal tax

A third tax which is not payable in many countries is what in Spain is called the "plusvalia municipal", or municipal tax. It is payable to the local town hall and is levied on the notional increase in value of the land on which the property is built from the date of acquisition to the date of disposal, or until the date of death in the event that the owner dies before selling the property. Largely as a result of Spanish nationals hiding assets outside of Spain during the boom years of the nineties and part of the noughties, Spain requires all Spanish residents, whether Spanish nationals or not, to declare all of their assets held outside of Spain if the value of each group of assets is more than 50,000 Euros, or once declared, if the value of the assets in that group increase by at least 20,000 Euros. That is a strict declaratory requirement and the sanctions for failing to comply are very severe. 

At E&G Solicitors we can advise you in relation to your liability to tax in respect of whatever it is you are doing in Spain, whether as a tourist, a resident, an entrepreneur, or an employee, whether inheriting assets, receiving gifts, taking security over property, or foreclosing on a charge securing a loan, whether buying property or selling it, we will ensure that you understand your liability to Spanish tax and that you are well informed as to any Double Taxation Convention between Spain and your own country of tax residence, so that you can ensure that you don't pay more tax than you need to pay and can structure whatever you're doing in Spain so that you minimise your tax liability here, within the rules.

Please be in touch with me directly for more information, or if I can help you at all. Thanks for watching.

Testimonials

E&G Solicitors in Spain were excellent and very professional, and made the process very easy. The communication was very good. We were notified all the way throughout the process.

Susan, Coventry