Whichever country you live in permanently, that is the country where you have to pay your taxes, regardless of where the income comes from, is paid or has tax deducted from. If you are a Spanish resident then you have to look at doing a tax return in Spain.
Resident Taxes
Death and taxes, the only things you can't avoid
The Spanish tax year runs from 1st January to the 31st December and all tax returns must be filed by 30th June for the previous tax year.
As a resident you are liable for tax on your worldwide income, under Spanish tax rules, your income is split into two main categories: income from general activities and income from savings. The total income from each category is classed as the base, after which deductions and allowances can be made, the following activities are defined as income:
- Interest from savings
- Dividend payments
- Income from life assurance policies
- Income from annuities
- Gains made from the disposal or transfer of assets
Income which is not counted as savings income:
- Salary payments
- Pension
- Rental income
Spanish income tax is made up of two parts, a national tax and a regional tax. Typically each figure is the same, however there are regional variations.
You will receive a personal allowance but unlike the UK where personal allowance is rising year on year, in Spain the allowance has been reduced in recent years. There are also a number of other allowances available, as in the UK including married couple allowance, child allowance (dependent on the number of children under 25 you have living with you) and disability allowance.
Fiscal Certificates
- The Spanish government does not rely on the residencia certificate alone to decide if someone is a resident in Spain or not. The problem is that people obtain residency and then sometimes return to their home country without cancelling it. This makes them an unreliable means of determining who is a resident.
- Fiscal residency, on the other hand, requires more ongoing proof that you are living in Spain. In order to prove fiscal residency in Spain you need a certificate of fiscal residency which is obtained from the Agencia Tributaria (Spanish Tax Office).
- They can be requested online or in person at the tax office and you need to ensure you have proof of residence in the form of water and electric bills and tax declarations for the last three years.
- Proof of fiscal residency is particularly important when it comes to selling a house or bequeathing it. There are concessions for those who are resident in Spain which include lower Spanish inheritance tax and avoiding the 3% retention of the sale price that applies to non-residents.
Foreign Asset Declaration
- Since March 2013, if you live in Spain and own assets in excess of €50,000 outside of Spain you are required by law to declare those assets. The declarations must be submitted by the 31st March each year via a modelo 720.
- Failure to correctly declare any offshore assets could incur severe penalties or even a criminal charge (if the tax avoidance is in excess of €120,000).
- The purpose of the law is to reduce the amount of tax avoidance.
- You only have to prepare the declaration once, unless your circumstances change and there are three groups referring to assets held outside of Spain, which are:
– Bank accounts (group 1)
– Pension plans and investments (group 2)
– Property (group 3)
- Changed circumstances include:
– You have purchased or sold property
– Investments have matured
– You have changed account numbers
– You have cancelled, closed or sold previously declared assets
You will also need to complete a new form if one of these applies:
–Any of the assets have increased by 20,000€ or more
–You declared but you now have a new asset worth more than 50,000€ in a previously undeclared category
You will receive a personal allowance but unlike the UK where personal allowance is rising year on year, in Spain the allowance has been reduced in recent years. There are also a number of other allowances available, as in the UK including married couple allowance, child allowance (dependent on the number of children under 25 you have living with you) and disability allowance.
As a general rule you can only be treated as a tax resident in one country, however, it is possible to fulfil the criteria of two countries, in which case your tax residence status is determined under the double tax treaty. Under this treaty you do not pay tax on the same source of income in two European countries, therefore, if you have paid tax in the UK then this can be deducted from Spanish tax due as long as you can provide a P60 showing the amount of tax deducted.
Special Note
- As a resident, any rental income arising in Spain should be declared in your annual income tax declaration.
- Recent government legislation requires tenants who make income tax declarations in Spain to list their landlord’s name and tax identification number on their income tax form. So if you don’t declare you need to keep one eye open for the tax man!
What about a DT-Individual Form (previously known as an FD9)?
- If you are happy to pay all your tax in Spain and have no government pensions you can opt out of the UK tax system altogether by completing a DT-Individual Form (previously known as an FD9). The form is obtained online from HMRC and once completed has to be sent to the UK along with a fiscal residency certificate.
- You can use the form to apply for relief at source from UK Income Tax and claim repayment of UK Income Tax under the terms of the UK/Spain Double Taxation convention. This form applies to residents of Spain receiving pensions, purchased annuities, interest or royalties arising in the UK.
- Once registered you will receive notification from the UK tax office that you are not liable for tax and have a revised NT tax code.
Fiscal Certificates
- The Spanish government does not rely on the residencia certificate alone to decide if someone is a resident in Spain or not. The problem is that people obtain residency and then sometimes return to their home country without cancelling it. This makes them an unreliable means of determining who is a resident.
- Fiscal residency, on the other hand, requires more ongoing proof that you are living in Spain. In order to prove fiscal residency in Spain you need a certificate of fiscal residency which is obtained from the Agencia Tributaria (Spanish Tax Office).
- They can be requested online or in person at the tax office and you need to ensure you have proof of residence in the form of water and electric bills and tax declarations for the last three years.
- Proof of fiscal residency is particularly important when it comes to selling a house or bequeathing it. There are concessions for those who are resident in Spain which include lower Spanish inheritance tax and avoiding the 3% retention of the sale price that applies to non-residents.
Foreign Asset Declaration
- Since March 2013, if you live in Spain and own assets in excess of €50,000 outside of Spain you are required by law to declare those assets. The declarations must be submitted by the 31st March each year via a modelo 720.
- Failure to correctly declare any offshore assets could incur severe penalties or even a criminal charge (if the tax avoidance is in excess of €120,000).
- The purpose of the law is to reduce the amount of tax avoidance.
- You only have to prepare the declaration once, unless your circumstances change and there are three groups referring to assets held outside of Spain, which are:
– Bank accounts (group 1)
– Pension plans and investments (group 2)
– Property (group 3)
- Changed circumstances include:
– You have purchased or sold property
– Investments have matured
– You have changed account numbers
– You have cancelled, closed or sold previously declared assets
You will also need to complete a new form if one of these applies:
–Any of the assets have increased by 20,000€ or more
–You declared but you now have a new asset worth more than 50,000€ in a previously undeclared category