Spain - Income Tax

Spain - Income Tax

A survey of income tax, social security tax rates and tax legislation shows the impact on expatriate employees working in Spain (taxation of international executives).

Related content

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

The due date for filing the tax return and making a payment for tax residents and individuals taxed under the special expatriate regime is normally from 6 April to 30 June of each year for the income obtained in the previous year.

Specific filing deadlines apply to non-residents and, as a general rule, non-residents must report income and pay taxes on a quarterly basis (First 20 days of April, July, October and January for that income the accrual date of which is the previous quarter). Non-Resident returns related to deemed-income from the holding of real estate must be submitted until 31 December of the following year.

There is no possibility of claiming for filing extensions, hence, if the tax 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 as a result of a tax inspection.

What is the tax year-end?

31 December. Unless the taxpayer dies on a day other than 31 December.

What are the compliance requirements for tax returns in Spain?  

Residents

Spanish resident employers and permanent establishments of non-residents are obliged to make withholdings of taxable income paid to their employees. The withholdings are made in accordance with a previous estimation of the final tax due. If the employees work for a Spanish related company or permanent establishment in Spain of the non-resident company, the withholdings on account must be made by the Spanish entity or permanent establishment for which the employee works.

The withholdings on employment income 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 kind remuneration must be considered) and the family status of the employee. If said circumstances were modified during the tax year, a new calculation shall be made.

These withholdings are paid to the Spanish tax authorities on a monthly or quarterly basis and will be deducted from the employee’s final tax due. If the total amount of withholdings were to exceed the tax due, the tax authorities would have to refund the difference. After deducting withholdings, the tax due is paid on the filing of the tax return. However, the taxpayer can choose to pay 60 percent of the tax due when the return is filed and the remaining balance in November.

Withholding obligations in the case of non-resident entities have to be checked on a case-by-case basis.

Those individuals engaged in independent or business activities must make certain prepayments of the final tax throughout the year.

Tax resident individuals are obliged to report (720 Form) the following assets and rights located outside of Spain to the Tax Authorities:

  • Accounts in which the individual is the titleholder, or in which he is representative, authorized person or beneficiary, or in which he has disposal powers. 
  • Securities, rights, insurance and life or temporary annuities.
  • Real estate or rights on real estate.

There will be no reporting obligation for those assets or rights which value (considered in aggregate for each group of assets listed above) is lower than Euros 50,000.The deadline for filing the 720 Form is from 1 January to 31 March of the year following that for which the information must be reported. 

Non-residents

In general, non-resident taxpayers are taxed at flat rate on income obtained in Spanish territory or which arises from Spanish sources, at the general rate of 24 percent for work income and at the rate of 19 percent for 2016 () on capital gains and financial investment income arising from Spanish sources. Specific rates apply to certain other type of income.

Withholdings on work-income to non-residents are applied at a general rate of 24 percent (see paragraph below for residents in an EU or EEA country)

General rate of 19 percent applies for 2016 () to non-resident individuals who are tax resident in a country of the European Union (EU) or of the European Economic Area (EEA) with which and effective exchange of tax information exists.

Non-residents must always file their returns on a separate basis (i.e., there is no joint filing possibility for them).

Payers of Spanish-source income are usually required to withhold the tax at source on each payment made.

Tax rates

What are the current income tax rates for residents and non-residents in Spain?

Residents

For resident taxpayers other than in the Basque Country and Navarra, PIT is applied according to two progressive scales. Said scales correspond to the general (state's) scale and the complementary (autonomous community’s) scale. The tax rate applicable is the result from adding the rates of both of them.

2015 and 2016 PIT rates

For simplicity purposes, below we are indicating the withholding scale of rates applicable to employment income. The actual tax rates would depend on the autonomous community where the tax payer resides, being the result of adding the general scale (state’s) and the complementary (autonomous community one).

Employment income withholding table for 2015, applicable as of 12 July 2015

Taxable base (up to EUR) Gross tax payable (EUR) Rest of taxable base (up to EUR) Applicable rate (%)
0 0 12,450.00 19,50
12,450.00 2.427,75
7,750.00 24,50
20,200.00 4.326,50
13,800.00 30,50
34,000.00 8.535,50
26,000.00 38,00
60,000.00 18.415,50
Onwards 46,00

Employment income withholding table for 2016

Taxable base (up to EUR) Gross tax payable (EUR) Rest of taxable base (up to EUR) Applicable rate (%)
0 0 12,450.00 19.00
12,450.00 2,365.50 7,750.00 24.00
20,200.00 4,225.50 15,000.00 30.00
35,200.00 8,725.50 24,800.00 37.00
60,000.00 17,901.50 Onwards 45.00

 

Autonomous community tax rate table

Note: Each Autonomous Community has to approve its own scale of rates. 

As of 2016, investment income and capital gains are taxed at a rate of 19 percent  for amounts up to EUR 6,000, 21 percent ( for income in an amount between EUR 6,000 and EUR 50,000 and 23 percent ( for amounts exceeding EUR 50,000.

Non-residents

In general, as of 2016,  non-resident taxpayers are taxed at the rate of 24 percent on income obtained in Spanish territory or which arises from Spanish sources, and at the rate of 19 percent ( on capital gains and financial investment income arising from Spanish sources. Specific rates apply to certain other type of income.

General rate of 19 percent applies as of 2016) to non-resident individuals who are tax resident in a country of the European Union (EU) or of the European Economic Area (EEA) with which and effective exchange of tax information exists.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Spain?

An individual is considered a Spanish resident for tax purposes under the following considerations and if he/she meets either of the following requirements:

  • He/she remains in Spain for more than 183 days in a given calendar year. Sporadic absences are considered days of presence in Spain unless the individual can prove his/her tax residence status in another country (if a tax haven, the individual can be requested to have spent at least 183 days during the calendar year in that country).
  • His/her business or economic interests are directly or indirectly located within Spanish territory.

It is presumed, unless the contrary is proved, that an individual is a tax resident in Spain if his/her spouse and under age dependent children are Spanish tax residents.

Spanish regulations do not contemplate partial-year residence status, meaning that if an individual is classified as a Spanish tax resident or non-resident, he/she will be regarded as such for the full tax year.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

With regard to the 183-days rule, any day of physical presence in Spanish territory within the calendar year will have to be considered, regardless of whether those days are spent within the formal period of assignment or prior or after that period.

What if the assignee enters the country before their assignment begins?

Any day spent in Spain before the assignment begins during the calendar year considered will have to be taken into account to compute the 183-days rule.

Termination of residence

Are there any tax compliance requirements when leaving Spain?

A voluntary form can be filed to communicate to the Spanish Tax Authorities the new fiscal address.

An additional specific form (Form 247) can be filed to communicate to the Tax Authorities the departure for withholding tax purposes, so that the employer can apply a non-resident treatment from a withholding tax perspective and is usually used when the home employer continues paying the employee’s salary.

There might be a potential exit tax triggered on the unrealized gains arising on shares held or holdings in collective investment undertakings for certain long-term tax resident individuals upon departure from Spain, provided that the total valuation of the shares held by the individual is above EUR 4,000,000, or EUR 1,000,000 if the holding represents more than 25 percent, and certain requirements are met.

What if the assignee comes back for a trip after residency has terminated?

Any day spent in Spain after the assignment has terminated during the calendar year will have to be taken into account to compute the 183-days rule.

If the absences deemed temporary, the period stayed outside of Spain will be also computed as period of residence, unless the individual could prove that he has been regarded as tax resident in a third country during those temporary absences.

Communication between immigration and taxation authorities

Do the immigration authorities in Spain provide information to the local taxation authorities regarding when a person enters or leaves Spain?

The tax authorities could request information to the immigration authorities in this regard.

 

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

If the assignee continued obtaining Spanish-source income or had any trailing income or any investment/asset located in Spain he/she could be subject to filling requirements depending on the income obtained.

Under a non-resident status, if the payer of the Spanish source income has applied relevant withholdings equivalent to the final non-resident tax due, the taxpayer might not have an additional tax filing obligation. Tax Treaty provisions would also have to be checked as, in certain occasions, refunds might be claimed if the Spanish withholdings applied exceeded the maximum rates foreseen in the applicable Tax Treaty.

Economic employer approach

Do the taxation authorities in Spain adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Spain considering the adoption of this interpretation of economic employer in the future?

The Spanish Tax Authorities have not established a clear defined position in this regard OECD criteria might however have to be taken into consideration.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

There is no de minimus number of days.

Types of taxable compensation

What categories are subject to income tax in general situations?

As a general rule, all types of remuneration and benefits received by an employee for services rendered constitute taxable income. The items listed below will be regarded as taxable unless otherwise stated.

  • Base salary.
  • Benefits-in-kind are taxable, although there are cases in which a tax saving might be obtained by providing an employee with a benefit-in-kind rather than the cash equivalent.
  • The payment of local or personal income taxes by the employer on the employee’s behalf is considered taxable income.
  • School tuition reimbursements are taxable.
  • Taxation of an expatriate premium varies. If it is paid before the individual is considered a resident in Spain, it could be exempt if it is not related to Spain.
  • Housing allowances paid in cash are taxable. If the employee is provided with the free use of a house rented by the employer, the amount of the rental payments made by the employer will be fully taxable for the employee.  If the employee is allowed the free use of a house owned  by the employer, 5 percent of the cadastral value of the house (if the value has been reviewed within the 10 previous tax years) or 10 percent, or 5 percent of 50 percent of the value of the house stated for net wealth tax purposes (in case cadastral value is not available) will be included in the employee’s taxable base, up to a maximum limit of 10 percent of the rest of the remuneration received by the employee.
  • Deferred compensation is taxable if paid in respect of services performed in Spain. However, the actual tax paid will vary depending on whether or not the individual is considered resident in Spain in the year in which the compensation is paid. If, during that year, the individual is a non-resident, the deferred compensation related to Spanish services will be taxed at a fixed general rate of 24 percent. If he/she is a resident, the compensation will be added to his/her worldwide income and taxed at progressive rates (consideration might have to be given in such a case to the eventual application of the domestic exemption of up to EUR 60,100 for employment income obtained for work performed outside Spain).
  • When the employee is not resident in Spain, the tax treaty signed between Spain and the country of residence needs to be considered in order to determine his/her taxation.
  • Contributions made to a pension plan established in accordance with Spanish pension plan laws by employees or by employers and allocated to the employee as work remuneration are deductible up to the lower of EUR 8,000 or 30 percent of the taxpayer’s net employment and business activities income There are special reductions for contributions made on behalf of the spouse (up to EUR 2,500) and handicapped family members. European Union pension plans, under certain circumstances, can also entitle the employee to the reduction.
  • A reduction of 30% over a maximum base of EUR 300,000 might be  applicable, if certain requirements were met and was allocated in general to a single tax period, to work income generated over a period of more than two years, (provided that the taxpayer had not obtained any other work income generated over a period of more than two years to which he had applied such reduction within the previous five tax years, excluding that deriving from the termination of a labor relationship for the purposes of this exception), or to those which are specifically regarded by PIT Regulations as being obtained on a non-regular basis.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Spain? If so, please provide a general definition of these areas.

Reimbursement of actual expenses related to relocating an employee should not be considered as income, provided they cover travel expenses, or living allowance for the taxpayer and his/her family during the move, and they are documented through the corresponding invoice. In addition, expenses connected with moving personal goods, provided that they are duly justified through the corresponding invoice, should not be considered as income.

Certain benefits in kind provided by the company to the employee, such as meal vouchers up to a daily amount of EUR 9, nursery vouchers, public transport vouchers within certain limits, medical insurance premiums up to a maximum annual amount of EUR 500 per family member covered, etc. can be exempt from taxation under certain conditions.

Under certain circumstances and provided certain formal procedures are followed, indemnities paid for dismissal or termination of the employment contract will be exempt from taxation  up to the maximum amounts prescribed by the applicable labor rules.

Free use of a company car is not considered taxable income for the employee if it is only available for professional activities and not for personal use. Otherwise, it should be regarded as taxable income for the employee in the percentage available for private use according to certain specific valuation rules (20% of the car’s value as if it was new). Up to a 30% reduction could be applicable for those cars regarded as energetically efficient.

The grant of company shares to active employees can be exempt up to an annual limit of EUR12,000 provided certain requirements are met (required holding period of the shares of at least three years and holding no more than 5 percent participation in the shareholding) and the offer is made within the same conditions to all the employees of the company, Group or subgroup of entities (it will be possible to exclude from the offer to certain population of the employees based on a minimum seniority in the company of at least two years).

Expatriate concessions

Are there any concessions made for expatriates in Spain?

A tax regime for inbound expatriates is available in Spain. Under this regime, individuals who become Spanish tax residents as a consequence of their assignment to Spain may choose between being taxed as Spanish tax residents (taxed on their worldwide income according to the PIT progressive scale of rates with a general 45 percent marginal rate for 2016(), although this rate can vary depending on the Autonomous Community) or as a non-resident (taxed on their Spanish-source income at flat rates, 24 percent for work income).

This option will affect the year in which the change of residence takes place and the following five years, provided that the following requirements are met.

Until 31 december 2014, the requirements in force were the following:

  • As from 1 January 2010, the expected remuneration of the employee does not have to exceed the annual amount of EUR600,000 in each of the tax years in which this regime will apply. This requirement applies to those employees that have been seconded to Spain later than 31 December 2009.
  • The individual has not been a Spanish resident during the 10-year period preceding his/her new assignment to Spain.
  • The assignment to Spain is derived from a labor contract. Certain connected requirements need to be further analyzed.
  • The services are performed in Spain. There is a limit of the percentage of time the individual can work abroad (15 percent or 30 percent if it is specifcally indicated in the contract that the individual carries-out functions in another group entity).
  • The services are rendered to a Spanish resident company or a permanent establishment in Spain of a non-resident company.
  • The taxpayer does not obtain income that would qualify as being obtained through a permanent establishment situated in Spain.
  • The work income received for the services is not exempt from Non-resident Income Tax.The expatriate should exercise the option by filing a 149 form within six months after the date on which he/she initiates his/her activities, this being the date on which he/she is registered with Social Security or the date shown in the documentation which allows the expatriate to maintain the social security legislation of his/her country of origin.

As a consequence of the amendments that entered into force with effects 1st January 2015, significant changes affected the rules applicable to this regime, two of the main ones being that, requirements referring to the necessity of the work having to be physically performed in Spain (with not more than a 15%, or up to 30% in certain cases of it being performed abroad) and for the benefit of a Spanish resident entity or permanent establishment, were eliminated and no longer apply.

  • As a consequence of that, while under the former regulations, employment income was only taxable provided that it corresponded directly or indirectly to work actually performed in Spain, under the new regulations in force, the whole of the employment income obtained by the taxpayer during the period of applicability of the regime will be deemed to correspond to work performed in Spain and, therefore, will be fully taxable in Spain. However, Personal Income Tax Regulations clarified that income related to an activity performed prior to the assignment to Spain by the taxpayer who has been granted the Special Tax Regime, will not be deemed as obtained in Spain. Moreover, with regard to income obtained once the assignment in Spain is over, provided that the taxpayer maintains Spanish tax resident status for said year, and the relevant notification is filed within a month with the tax authorities, that income will not be deemed as obtained in Spain.


A tax relief to avoid double taxation has been included in the Special Tax Regime. It is limited to 30 percent of the tax payable on the total employment income received in the fiscal year.

Under the new regulations, it will also be possible for individuals obtaining annual work income exceeding EUR 600.000 to be taxed under the special regime. The 24% non-resident rate will only be applicable to taxable employment income up to EUR 600.000 while any employment income exceeding that amount will be taxable at the marginal rate applicable to tax residents (45% as of 2016 onwards).

Finally, requirement of not being possible to obtain exempt work remuneration derived from the labor relationship has also being eliminated, and it has also been ruled that as a general rule, and except for a few exceptions, the list of exempt income applicable to tax resident individuals will not be applicable to individuals taxed under the special regime.

Professional sports-persons have also been excluded from the application of this special regime, while directors who do not hold a participation in the sharecapital of the entity or do participate in a percentage which does not imply being a related party can now apply for the special regime.

A transitory regime has been foreseen for those individuals who arrived in Spain prior to 31st December 2014 who, by exercising the relevant option in their annual 2015 tax return, will be entitled to choose to remain subject to the regime as per the requirements and tax rules and rates in force at 31st December 2014, rather than as per the new applicable regulations.

Salary earned from working abroad

Is salary earned from working abroad taxed in Spain? If so, how?

As tax residents are subject to taxation on their worldwide income, in principle, work income obtained from services rendered abroad will be taxable. However, an exemption may be applied as long as, among others, the following conditions are met.

  • Services are physically rendered out of Spain for the benefit of a company or a permanent establishment located abroad.
  • The country where the services are rendered is not a tax haven and has a tax similar to Spanish PIT (this requirement will be regarded to be met when the country or territory in which the services are performed has a Tax Treaty to avoid double taxation in force with Spain with an exchange of information clause).

The income that may benefit from this exemption has an annual maximum limit of EUR60,100.

Eventual tax treaty provisions should also be considered.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Spain? If so, how?

The taxpayer's income from the different categories will be broken down, where applicable, into general income and investment income. As a general rule, the general income will be the aggregate of the net total of employment income, income from immovable property, business or professional income, imputed income, and so on. The investment income will be aggregate of the net total income from financial investments, interest, dividends, capital gains, and so on.

Capital gains are, as a general rule, included in the investment income taxable base. However, the capital gain derived from the sale of an individual’s main residence could be tax-exempt, if certain conditions are met and the amount obtained is reinvested in the acquisition of a new principal residence, or the individual is over 65 years old.

The term capital gain includes any income arising from a change in the taxpayer’s net wealth. The gain or loss is generally determined as the difference between the acquisition cost and the sales value. The gain obtained for transfer of assets will be taxed at a rate of 19 percent for 2016  for amounts up to EUR 6,000, 21 percent  for income in an amount between EUR 6,000 and 50,000 and 23 percent  for amounts exceeding EUR 50,000, regardless the generating period (long-term or short-term capital gains).

If the assets sold were purchased before 31 December 1994, the proportional part of the capital gain arising up to 20 January 2006 could be reduced by a reduction coefficient, but certain restrictive limits have been established with effects 1 January 2015.

Dividends, interest, and rental income

As a general rule, investment income, such as dividends and interest arising from bank deposits, any gains on sales of shares, and so on, obtained by a Spanish tax resident will be taxed at a rate of 19 percent for 2016 for amounts up to EUR 6,000, 21 percent for income in an amount between EUR 6,000 and 50,000 and 23 percent for amounts exceeding EUR 50,000.

Property rental income is included in the general income, and therefore is taxable at general progressive rates. The expenses related to such income, such as interest paid on loans linked to the acquisition of the property, local taxes, depreciation, and so on, are deductible within certain limits. In the case of rental income derived from housing, once the net income is calculated, only a 40 percent of said figure should be included in the taxable base and consequently subject to taxation. 

Furthermore, individuals who own real estate other than their main residence and of land plots, which are not affected to economic activities or rented, will be taxed on deemed income equal to 1.1 percent of the real estate’s cadastral value (or 2 percent if the cadastral value has not been revised within the previous ten tax years ) or 1.1 percent of the 50 percent of the value of the house stated for net wealth tax purposes (in case cadastral value is not available).

Gains from stock option exercises

Although taxation may vary depending on the conditions of the plan, as a general rule the gain on exercise (difference between fair market value of the stock at exercise and the exercise price) is subject to income tax, as work income, at ordinary progressive rates provided that the options are non-transferable. Certain tax allowances and reductions might be available. 

Residency status

Taxable at:

  Grant Vest Exercise
Resident N N Y
Non-resident N N Y

Principal residence gains and losses

As a general rule, transmission of habitual residence is subject to a rate of 19 percent for 2016  for amounts up to EUR 6,000, 21 percent  for income in an amount between EUR 6,000 and 50,000 and 23 percent  for amounts exceeding EUR 50,000. If the amount obtained from the transfer is reinvested in the acquisition of another habitual residence, or if the individual is over 65 years old, the gain could be exempt from taxation, provided certain requirements are met.

Capital losses

Capital losses deriving from the transfer of assets could be compensated with the capital gains obtained in the same year. If there are losses that cannot be compensated with the gains of the year, they could be compensated with the gains obtained in the following four years, and also with a given percentage of negative income of the same tax year arising from financial investments income (a transitory regime is envisaged for these purposes).

Personal use items

Personal use items do not produce capital losses.

Gifts

The donor is subject to taxation on the eventual capital gain connected to the donated asset. Gifts received by the donee may be levied by gift and inheritance tax (specific rules depend on the autonomous community). 

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Spain? If so, please discuss?

See previous mention.

Are there capital gains tax exceptions in Spain? If so, please discuss?

See previous mention.

Pre-CGT assets

Information is not available.

Deemed disposal and acquisition

Information is not available.

General deductions from income

What are the general deductions from income allowed in Spain?

  • Social security contributions paid by the employee will be deductible from his/her gross work income provided that they are compulsory and directly connected to the work performed in Spain.
  • Personal and family minimum.
  • Personal Minimum: EUR5,550 (increased if the taxpayer is older than 65 or disabled).
  • Family minimum: EUR1,150 for each ascendant older than 65 that lives with the taxpayer subject to certain requirements (increased to EUR2,550 in case the ascendant is older than 75); EUR2,400 for the first descendant that lives with the taxpayer, EUR2,700 for the second, EUR4,000 for the third, and EUR4,500 for the fourth and each additional child. An additional minimum of EUR2,800 appliesd of the descendant is younger than 3.
  • The deductible amount for personal and family minimums is calculated applying the PIT progressive scale to the above mentioned amounts, in practice, for many occasions, a tax credit of 19 percent as of 2016 of that amount.

General deductions from taxable base

  • Work reduction
    1. A general amount of EUR 2,000 can be deducted from the individual’s net work income (handicapped workers are entitled to a higher deduction). Individuals with net employment income up to EUR 14,450 can reduce from their taxable base an additional amount of up to EUR 3,700.
  • reduction for joint filling (in general, EUR3,400)
  • geographic mobility reduction
  • children care reduction
  • disability reduction
  • reduction for contributions made to disables’ wealth
  • reduction for contributions made to welfare systems
  • reduction for alimony payments made to separated spouse according to judicial decisions
  • reduction for contributions made to Spanish registered or certain EU Pension plans.

Tax credits

Main tax credits available are the following:

  • A  15 percent deduction of the investment made in the acquisition or refurbishment of the habitual residence (maximum investment EUR9,040.15) is applicable only to those taxpayers who had acquired or had invested amounts for the construction of their habitual residence before 1 January 2013 and had applied the deduction for such residence in 2012 or a previous tax year. 

    1. a transitory regime is available
  • A potential transitory deduction is foreseen for the rental of habitual residence for those contracts subscribed before 1 January 2015.

  • donation and charity credits
    1. 10 percent of the donations made in favor of foundations legally recognized, and associations declared to be of a public interest.
    2. From 27.5 percent of up to a maximum of 75 percent (within certain limits) of the donations established in the Foundations Law.
  • New family deductions of up to EUR 1,200 have been established as of 2015 per each handicapped descendant or ascendant, or for large size families.
  • Deduction for employed mothers 

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Spain?

Spanish employers usually reimburse foreign taxes by grossing up the employee’s net salary.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Spain? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Pay-as-you-go (PAYG) withholding

Spanish resident employers and permanent establishments of non-residents are obliged to make withholdings of taxable income paid to their employees. The withholdings are made in accordance with a previous estimation of the final tax due. If the employees work for a Spanish related company or permanent establishment in Spain of the non-resident company, the withholdings on account must be made by the Spanish entity or permanent establishment for which the employee works.

The 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 kind remuneration must be considered) and the family status of the employee. If said circumstances were modified during the tax year, a new calculation shall be made.

PAYG installments

See previous and next question

When are estimates/prepayments/withholding of tax due in Spain? For example: monthly, annually, both, and so on.

Companies have to file withholding returns monthly or quarterly, depending on their turnover. Obligation to file annual summary withholding returns also applies.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Spain? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on? 

A foreign tax credit is granted on income arising from foreign-sources. The amount, which will be deducted from the tax due, will be the lower of the following amounts.

  • The amount paid abroad for taxes of a personal nature levied on the income.
  • The amount resulting from applying the average Spanish PIT rate to the portion of the taxable base, which has been taxed abroad.

Some of the tax treaties that have been signed by Spain, provide for the exemption method in order to avoid double taxation.

General tax credits

What are the general tax credits that may be claimed in Spain? Please list below.

There is a list of credits, that may be claimed against the taxpayer's regular (or alternative minimum) tax liability, as follows:

  • investments  made in the acquisition of the habitual residence (a transitory regime applies)
  • rental tax credit in respect of habitual housing (a transitory regime applies)
  • double international taxation tax credit
  • child or dependent care
  • donations tax credits.
  • see other mentions made in the previous tax credits section

Sample tax calculation

This calculation3 assumes a married taxpayer resident in Spain with two children (both born in 2010) whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2014
USD
2015
USD
2016
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = EUR0.89.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.
  • Assume that the tax regime for inbound expatriates has not been applied for.
  • The general scale of rates for withholding purposes (i.e. general default scale) has been used. Each Autonomous Community needs to approve its own scale of rates and therefore, depending on the Community of residence the Tindividual the rates will vary. 
  • Mandatory Spanish Social Security maximum employee contributions have been taken into account as deductible expenses for the tax calculation.

Calculation of taxable income

Year-ended 2014
EUR
2015
EUR
2016
EUR
Days in Spain during year 365 366 365
Earned income subject to income tax      
Salary 89,000 89,000 89,000
Bonus 17,800 17,800 17,800
Cost-of-living allowance 8,900 8,900 8,900
Net housing allowance 10,680 10,680 10,680
Company car 6,230 6,230 6,230
Moving expense reimbursement 0 0 0
Home leave 0 4,450 0
Education allowance 2,670 2,670 2,670
Total earned income 135,280 135,280
135,280
Other income (Interest) 5,340 5,340
5,340
Total income 140,620 145,670 140,620
Reductions 0 0 0
Total taxable income 140,620 145,070 140,620

 

Calculation of tax liability

  2014
EUR
2015
EUR
2016
EUR
Taxable income as above 140,620 145,070 140,620
Mandatory Spanish Social Security employee contributions 2,741 2,748 2,775
Work income reduction 2,652 2,000 2,000
Joint return reduction 3,400 3,400 3,400
Deductions. personal and family minimums 2,234 2,077
2,024
Work Income tax 49,376 49256
46,066
Interest income Tax 1,121
1,041
1,015
Total Spanish income tax 50,497
50297
47,081

KPMG in Spain has assumed a joint return for the sample.

Footnotes

1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3Sample calculation generated by KPMG Abogados, S.L., the Spanish member firm of KPMG International, based on the Personal Income Tax Law dated 28 November 2006, Law 26/2014 dated 27 Noveber mending it, and the Royal Decree 439/2007 dated 30 March 2007 that elaborated PIT Law.

© 2016 KPMG Abogados, S.L., a Spain legal liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG's new digital platform