Retirement in Spain is still a very popular choice. When better to take advantage of Spain’s beautiful climate and perfect pace of life than when you have the time to really enjoy it? However, what you don’t want whilst you are enjoying your new lifestyle are worries about tax or documentation in a foreign country. That’s where this article comes in – below, we run through tax in Spain for residents, with particular attention to what you need to know as a retiree.
We would like to remind you that taxation in Spain can be complicated and you could be subject to fines or penalties if you miss a deadline or don’t do your taxes properly. Advisably, you should seek fiscal advice from an expert to avoid possible complications.
Do I need to pay resident tax in Spain?
If you live in Spain for more than 183 days then you are a resident. These 183 days need not be sequential – if you return to your home country for a couple of days, it does not mean that your Spanish residency clock restarts. It’s how many days you spend in each country over the course of a calendar year that counts, and if you spend over a certain amount of time in Spain, you’ll be liable for resident taxes. Otherwise, you’ll have to pay non-resident taxes.
What is fiscal residency?
The Spanish government does not rely on the civil residency certificate alone to decide if someone is a resident in Spain or not. The problem with a certification system 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 a white, printed certificate obtained from the Agencia Tributaria (Spanish Tax Office). In order to obtain one of these it is beneficial to have a copy of your Spanish tax return or tax declaration 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, including avoiding the 3% retention of the sale price that applies to non-residents.
Who has to make a resident tax declaration?
Tax in Spain for residents is documented with a resident tax declaration, which the vast majority of residents are required to make. It does vary, however, according to the level of personal allowances and the number of sources of income. The actual thresholds as they pertain to retirees are shown in the table below.
Residents required to complete an annual tax declaration in Spain:
|Pensioners||Receiving one or more pensions from abroad that total more than €12,000 per year*|
|Early retirees||With an income through:|
*some other conditions apply
We do recommend that you make an annual tax declaration whether this table suggests you should or not. It will help you to prove your fiscal residency – a status which can save you money.
It is difficult to obtain a fiscal residency certificate without having presented a tax declaration. We are aware of people who have classed themselves as residents, later finding that they haven’t got the necessary proof to avoid being designated a non-resident for tax purposes.
Making a resident tax declaration
The annual resident tax declaration must be completed and presented before the 30th June each year. This declaration is retrospective, so, in June 2019 you are completing a declaration for the tax year, January to December 2018. A fiscal representative like Ábaco submits these every year on behalf of its clients and can give you the advice you need about the documents to bring to the appointment. You can fill out this form and we will offer you a first free consultation for free.
The appointment usually takes about an hour and the declaration is completed online. This means that we can tell people straight away if there is anything to pay or not, if there is a nil return or even if there is overpaid tax to collect.
If you are in the fortunate position of having overpaid tax and are due a refund, the Spanish Tax Authority is required to return it within six months. If they do not they will have to pay you interest on the amount owed. Any refunds are paid directly into your bank account and this can happen quite quickly.
Understanding the 720 declaration form
Another important detail about tax in Spain for residents in the 720 asset declaration form. However, it is important to be aware that this is for information only and is not a tax in itself. The form is issued by the Spanish Tax Authority in line with European Union requirements. Every resident who has assets outside of Spain which total over €50,000 within any one group, must complete the asset declaration form or risk incurring a substantial fine.
The three groups referring to assets held outside of Spain are:
- Bank accounts (group 1)
- Pension plans and investments (group 2)
- Property (group 3)
The deadline for completion of the form each year for the previous tax year is the 31st March. New residents in Spain, as well as those whose circumstances have changed will need to complete one before the next deadline has expired. Changing circumstances include:
- You have purchased or sold property.
- Your investments have matured.
- You have cancelled, closed or sold previously declared assets.
You will also need to complete a new form if one of these applies:
- Your assets have increased by €20,000 or more of total assets in any of the groups previously declared.
- You declared last year, but this year your assets have reached more than €50,000 in a previously undeclared category.
The penalties for not completing the form or completing one incorrectly are steep. People generally chose to engage a fiscal representative on their behalf to complete it.
Property tax in Spain for residents
Property tax in Spain for residents is another key expense to be aware of. If you are a resident, you have to pay IBI on all property you own in Spain. IBI (Impuesto Sobre Bienes Inmuebles) is the equivalent to council tax in Spain which must be paid by every homeowner whether they are a resident or a non-resident. It is a local tax and is payable directly to the town hall or via the SUMA offices in some regions.
This tax goes towards paying for local services such as the maintenance of facilities, parks and leisure areas and all kinds of infrastructure provided by the Town Hall. It is collected annually and the period during which it is collected depends on where your property is located. Rubbish collection is charged for separately either as part of your water bill or as a separate service charge issued by the Town Hall or SUMA.
Staying on the right side of the law
Taxes in Spain for residents can be tricky to complete, especially if Spanish isn’t your first language. For your own peace of mind it is important to ensure that you have completed the tasks that will make your residency – both civil and fiscal – complete. It can seem a little overwhelming at first, but by taking one step at a time with advice from professionals and you can feel as at home in Spain as you have felt anywhere in the world. For any further advice about your tax obligations in Spain, don’t hesitate to fill out this form and we will contact you as soon as possible.