Personal Income Tax
1. General information
The Personal Income Tax ( IRPF-Impuesto sobre la renta de las personas fïsicas) is a direct tax levied on the income of individuals.
The income may derive either of a dependent work or could have been obtained by means of self-employment: development of a business or professional activities.
The taxable income is determined as the difference between the income earned and the expenses that are deductible according with the Spanish Law.
At the moment, only those individuals earning more than 22.000 from one only employer a year in Spain, are obliged to declare income tax . If your income comes from investment or capital gains and has been more than 1600 € you are obligesd to declare. Rental income over 1600 € must also be declared.
The tax period coincides with the calendar year, and the structure of the tax is progressive.
This tax is assessed differently for residents and non-residents in Spain.
2. Non-residents income tax liability
Non-residents are liable for this tax on any income arising in Spain, such as a money deposited with an Spanish bank, a property in Spain, or income derived of any business in Spain.
Property owners are taxed on their property income, the tax base is the property catastral value (valor catastral), which can be found on any I.B.I receipt. Tax base rate is 25% of a 2% of the catastral value, with slight annual variations
Should you fail to pay this tax, you will be charged by the Spanish Tax Office a fine and at the time of selling your property if you want to recover the 3% retention, you will have to file the last 4 years ITNR
3. If you are Spanish resident
If you are Spanish resident you are taxed for your worldwide income. You may deduct your income tax paid in your home country.
Double tax treaties are in place to avoid double-taxation. When there is no treaty with your country of origin, you may deduct the foreign tax paid, foreign compensation may also be applied. Your Solicitor at Iglesias & Asociados may calculate this amount for you.
Those non-residents living more than 183 days in Spain are also considered as residents for tax purposes, even if they have not obtained their residence permit, and they must file their income tax on their universal income, unless they can prove to the tax authorities that they really do not reside in Spain (mainly diplomats, or contracted for period workers…)
4. Tax base
The income tax base may be determined in two different ways: direct evaluation or objective evaluation.
4.1. Direct evaluation
This method will be applicable to business and professional activities of any taxpayer that are not subject to the objective evaluation, either because that method is not applicable or, when applicable, because the taxpayer filed a waiver rennouncing to it.
Net income will be computed as the difference between the assessable income and the deductible expenses. It is the advised system for most businesses: if you earn, you pay, if not you do not
4.1.1. Simplified direct evaluation
This method is applied to some business and professional activities predetermined by the Tax Office, which turnover during the previous year did not exceed 600.000 €.
The taxpayer may file a waiver in the month of December and the rennounce effects will last for 3 years.
Net income is the difference between income and deductible expenditure
These are only general guidelines, the calculation of the simplified direct evaluation presents other particularities that your Spanish Solicitor at Iglesias & Asociados may inform you about.
4.2. Objective evaluation
This method is applicable to those business and professional activities predetermined the Spanish Tax Ministry appoints.
The taxpayer may file a waiver in the month of December before commencing a new tax period. The waiver effects will last for 3 years.
Net income is determined by tax authorities taking into account typical parameters of each type of business. The business within this system will pay a quarterly amount of IRPF (income tax) and IVA, independentely of having made a profit or not.
5. When do you have to file your income tax declaration?
Tax returns shall be filed from the 1st of May to the 20th of June. If contributors are entitled to tax refund, then this period will be extended up to the 30th of June.
6. Where do you have to file the income tax declaration?
Income tax declarations shall be filed at the Tax Office of the address of taxpayer.
Contributors also have the possibility to file their tax declaration to the Spanish bank where they have an account; provided that they are entitled to tax refund or shall make any payment as a result of their tax declaration.
7. Deductible expenses
Certain deductible expenses, such as medicines, deductions for dependants, amounts paid for the purchase of a home or accounts opened for that purpose (Cuentas vivienda). may be claimed in the annual tax returns. Every year which expenses are deductible are changed by the authorities, mainly depending on the national economic circumstances and the political party in power.
Employers must provide employees with a certificate of taxes withheld (Certificado de Retenciones) in order that they can subtract them to calculate their tax obligation. Payments into the Spanish Social Security System can be deducted.
These are only general guidelines, it is suggested that all technical and legal matters pertaining to taxes be referred to professionals for advice, guidance and execution.