One thing you will soon become familiar with if you spend time in Spain are the range and variety of taxes. Most of them are the same as you would expect in your home country. However, one or two might take you by surprise.
Like all countries, public services in Spain are paid for through taxes. You will find a number of different taxes here, some of which are collected by the government and others by the town hall. What you have to pay varies depending on whether you are a resident or non-resident and whether your home country is in the EU or not.
In this article we will go through the different types of Spanish taxes. However, we would like to remind you that taxes 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.
Annual property taxes
Some property taxes are directly paid to your town hall. IBI (council tax) is the main one that people are aware of. In the Alicante province this is collected annually by SUMA who have offices in the different towns. You can also pay via their website if you don’t have a tax representative like Ábaco to do it for you.
Other property taxes, such as imputed income tax, go directly to the government. This is a tax on the income you could have made if you rented out your property as a second home and is payable by non-residents and residents with more than one property. All home owners must pay rental income tax to the government on any rent they receive.
Tax on property that changes hands
There are several different types of tax that are charged as part of the conveyancing process. If you are selling your property you can be required to pay capital gains tax on any profit you make. There is also plus valía which is a tax on the profit you make on the land your property is built on. This is paid by the seller of the property and goes to the local town hall.
When you buy a resale property you pay transfer tax or ITP. The percentage varies from region to region eg. Valencia Community 10%, Murcia Region 8%. If it’s a new property that you are buying then you will have to pay IVA (VAT) at a rate of 10% and AJD (stamp duty) at 1.5%, again depending on where your property is.
There is inheritance and donation tax to pay when a property changes hands. The exact amount of this varies according to your relationship with the deceased (in the case of inheritance) and also according to where the property is situated. There are ways of reducing the amount of inheritance to pay that a good solicitor will be able to advise you on when making a will.
Tax on things you buy
The Spanish equivalent of VAT is IVA and you will find this tax on all items you purchase. Sometimes it will be included in how much you are charged but at other times it is added on. There are different rates of IVA – including the general rate of 21%, the reduced rate of 10% and a super reduced rate on some items of 4%.
The general rate is applied to all non-essential products and services and the reduced rate includes foodstuffs, soft drinks, glasses, house construction,, health assistance and dental work. The super reduced rate applies to staple food items such as cheese, milk, fruit and vegetables.
Tax on what you earn
If you work in Spain then you will also need to pay income tax. This can also apply if you are retired and earn above a certain amount. We recommend that everyone does an annual resident income tax return who lives here. This not only ensures that you are paying what you should but provides you with evidence that you are a tax resident in Spain.
In some types of employment you can opt to have some of your salary retained to pay towards your annual tax bill. The balance of how much you owe is calculated annually at the end of June.
Some surprising taxes
People who do make an annual tax return are sometimes surprised at the items they must declare. For example, there has been a scheme to encourage people to swap old cars for new.
This scheme is liable to taxation! If you win money on the national lottery you must also declare this and will be taxed on your winnings. Of course, if you were lucky enough to win a sizeable amount it’s unlike you would be too bothered about the requirement to pay tax.
What’s most important is that you keep up with whatever tax you must pay. Tax debts accrued will eventually catch up with you and you can be fined and have to pay interest too. Paying taxes is an unpleasant part of life but without them we’d soon miss the services they help to support.
To help navigate the bureaucracy of the Spanish tax system, our dedicated advisers are on hand to help at every step of the way. Contact us and we will offer you a free consultation without obligation.