Spain

Spain

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. 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.

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Income tax

Liability for income tax

A person’s liability for Spanish tax is determined by his/her residence status. A person can be a resident or nonresident for Spanish tax purposes.

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 residency in another country.

In general, nonresident taxpayers are taxed at the rate of 24 percent on income obtained in Spanish territory or which arises from Spanish sources (2019 percent for investment income and capital gains, 19 percent as of 2016.

General rate of 20 percent applies as of 2015 (19% 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.

Tax regime for inbound expatriates

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 47 percent top marginal rate,45 percent as of 2016) 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 five 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.

  • The expatriate has not been a Spanish resident during the 10 tax years prior to the assignment to Spain.
  • The assignment to Spain is derived from a labor contract (excluding professional sports-persons) or from acquiring a board of director position in an entity with no participation in its sharecapital or in a percentage which does not imply being a related party.
  • The taxpayer does not obtain income that would qualify as being obtained through a permanent establishment situated in Spain.
  • 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. As per the draft wording of the Personal Income Tax regulations developing the Law, which are still to be approved, pre-assignment related income might be excluded from taxation.
  • 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 (47% for 2015 and 45% as of 2016 onwards).
  • 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.

Tax trigger points

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.

Types of taxable income

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).

Tax rates

For residents, tax is assessed on taxable income using graduated tax rate tables (combining general tables and autonomous community tables) ranging from 2024 percent (19% as of 2016) to a general 47 percent (45 percent as of 2016),which could vary depending on the Autonomous Community where the individual is tax resident.

Non residents are taxed at a general flat rate of 24 percent (20 percent/19 percent as of 2016, for individuals who are tax resident in a country 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.

Investment income and capital gains for tax residents are taxed at a flat rate of 20 percent (19 percent as of 2016) for annual amounts up to EUR 6,000, 22 percent (21 percent as of 2016) for income exceeding in an amount between EUR 6,000 and 50,000, and 24 percent (23 percent as of 2016) for amounts exceeding EUR 50,000.

Investment income and capital gains for nonresidents are taxed at a flat rate of 20 percent (19 percent as of 2016).

Social security

Liability for social security

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 social security contributions and regimes.The current maximum monthly social security base is EUR3,606.00.

Compliance obligations

Employee compliance obligations

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 June 30 following the tax year-end, which is December 31. 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.

Employer reporting and withholding requirements

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 flat 24 percent withholding is applied. 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.

Other

Work permit/visa requirements

A citizen of any EU member country 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 three months must obtain the “Central Registry for Foreigners Certificate” at the corresponding Police Station within the first three 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.

Double taxation treaties

Spain has entered into double taxation treaties with more than 80 countries to prevent double taxation and allow cooperation between Spain and foreign tax authorities in enforcing their respective tax laws.

Permanent establishment implications

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.

Indirect taxes

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.

  • Spanish value-added tax – Spain imposes a value-added tax (IVA) on taxable supplies of goods and services in mainland Spain and the Balearic Islands. The rates are 4 percent or a ”super-reduced rate” for basic necessities; 10 percentor ”reduced rate” for food, dwellings, transport, tourism, etc.; and 21 percent or ”standard rate” for everything else.
  • Spanish Transfer Tax – Transfer tax (ITP-TOP) is levied at a general rate which usually ranges from 6 to 10 percent (as established by the applicable Autonomous Community) on the second and any subsequent transfers of immovable property and rights thereon. No transfer tax is levied where the transaction is subject to IVA.

Transfer pricing

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 beenare 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.

Local data privacy requirements

Spain has data privacy laws.

Exchange control

There are no limits on the amount that an individual can bring into or take out of Spain; however, there are certain reporting requirements.

Nondeductible costs for assignees

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. For tax residents, deductible expenses are rather limited, one of the main ones derived from employment income being compulsory social security contributions.

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