Income Tax
Individuals deemed resident in Spain for tax purposes are taxed on their worldwide income. Non residents will be liable to Spanish tax only on income earned in Spain or income arising from Spanish owned assets (i.e. rental income).
Also there are situations whereby income received tax free in either UK or Ireland could be taxed in Spain (e.g. lump sums from pension funds, lottery or prize bond winnings etc).
Although Spain could be said to have high tax rates there are situations whereby individuals may, in fact, be better off being taxed in Spain. One such situation (depending on age) arises whereby income is derived from purchased annuities (i.e. pensions).
Residents
Tax residents are liable for tax on their general income (salary, pension and rental income) at progressive scale rates, from 24% to 43% over four income bands. Income not categorised as general income is savings income (i.e. interest & dividends) and is taxed at 18%.
Pension income is complex and may be considered as a purchased annuity and only subject to tax at 18% or a whole of life annuity (which includes a return of capital) and anywhere between 60% to 92% of the annuity can be received tax-free.
2008 Income tax rates |
||
From |
To |
Rate |
EUR0 |
EUR17,707 |
24% |
EUR17,798 |
EUR33,007 |
28% |
EUR33,708 |
EUR53,407 |
37% |
EUR53,408 |
Onwards |
43% |
For 2008 an individual is entitled to claim a basic allowance of EUR5,151 for a single return and EUR10,302 for a joint return. This allowance is increased by EUR918 for an individual aged 65 or more and by a further EUR1,112 for someone aged 75 or more.
Additional allowances can also be claimed for dependent children as follows:-
- First child EUR1,836, second child EUR2,040, third child EUR3,672, and EUR4,182 per child thereafter. If the child is younger than three then an additional EUR2,244 can be claimed per child.
Further additional allowances can also be claimed where parents aged 65+ reside with the taxpayer.
An individual in receipt of earned income (salary, pension etc but not rental income) may claim an additional deduction of up to EUR4,080. The maximum deduction is available to those with an income of up to EUR9,180. The minimum deduction for those earning more than EUR13,260 is EUR2,652. Earnings between the upper and lower limit are on a sliding scale.
Only 50% of net residential rental income is taxed at normal scale rates.
Tax returns for income earned in 2008 must be submitted by 1st July 2009 and all tax due must also be paid by that date.
Non-residents
A non resident is taxed in Spain on income arising from property at the rate of 24% on gross income without any deductions for expenses or interest costs.
In the case of a property being owned but not rented then the owner is subject to an imputed income tax. The property owners' imputed income tax is based on a deemed rental income and is payable by all non-residents owning property in Spain. The tax is calculated based on the rateable value of the property. The rental income is deemed to be 2% (1.1% if the valor catastral has been revised since 1994) of the rateable value and one is then taxed on that amount at 24% which is the non-resident flat rate of income tax.
