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Tax advantages on becoming resident in Spain

Updated: May 1, 2021

The purpose of this article is to give some pointers on why becoming (tax) resident in Spain is not as bad as some people would lead us to believe. Mind you, if you do become tax resident in Spain, you will be taxed on your worldwide income & assets unless you are lucky enough to attain from Spain’s Tax Office a coveted Non-Domiciled tax status (only affluent taxpayers need apply, thank you very much) which basically legally exempts you from paying any tax on your worldwide assets/income! Heh, so much for equality.

The below list is open-ended, there are many more I do not mention (regional variations).

Income tax

  • Holiday rentals: property owners can benefit from lenient tax relief which, on average, reduces a landlord’s tax bill by 70%, or more. Ideal for those running a holiday rentals business.

  • Residents and EU-residents pay a much lower percentage as opposed to non-EU residents (approximately 21% less tax).

  • Residents in Spain do not have to pay every year Non-Resident Imputed Income Tax (NRIIT).

  • You do not need to file any income tax return for earnings below €22,000 from a single employer (not valid as self-employed)*.

Inheritance tax:

  • Take advantage of lenient tax allowances (at a three-tier level: national, regional and local) which make a vast majority of foreign inheritors not having to pay ANY inheritance tax whatsoever in Spain. For example, in Andalusia inheritances under one million euros go untaxed (per beneficiary).

  • 95% of tax reduction on a heir’s taxable base on his main home (up to 99.99% in some regions in Spain i.e. Andalusia). **

Gift tax:

  • Multiple regions in Spain offer generous tax allowances between next-of-kin i.e. Valencia offers €156,000 tax-free for cash gifts to under 21-year-olds. €100,000 euros tax-free for over 21-year-olds.

Capital gains tax (on selling your property in Spain):

  • No 3% of the sales proceeds withheld by the Spanish Tax Office on selling your property in Spain.

  • Rollover relief: investing the sales proceeds in a new main home in Spain (or in the European Union) will negate completely your cgt liability.

  • Absolute relief: pay no capital gains tax on selling your property in Spain. Over 65-year-olds are tax-exempt from paying cgt on selling their main home. ***

  • More details on this in our in-depth taxation article: How to avoid paying capital gains tax on selling property in Spain.

Plusvalia tax (on selling, on inheriting):

  • Town halls offer significant discounts to residents. Up to 95% in some cases.

IBI tax (Spain’s council tax):

  • Significant discounts available to residents of up to 35% in some town halls.

Wealth tax:

  • Wealth tax: huge regional reductions available for residents on the main home (per partner) besides a personal tax-free allowance. For example, in Andalusia, a resident couple may apply for a combined tax reduction on their main home (in addition to their own personal tax-free allowance each) of 2mn euros.

  • Spain’s Non-Dom Tax Scheme (for affluent expats)

Other advantages:

  • Access to state healthcare.

  • Voting rights in local elections: enrolling on your local town hall census (Padron) allows your town hall to receive more funds which in turn are used to improve public services (more ambulances, increased medical attention, discounts on public services etc.). This also enables you the right to vote in local elections.

  • Mortgage loan applications: Non-residents are limited to 60 LTV. Whereas Spanish residents are handed out more lenient terms, generally being able to borrow 80% LTV, or even more. When you are starting out your own business in Spain, this can make a key difference on the money you can raise.

  • Lease agreements: Non-residents, are perceived as a greater financial risk by landlords because they have no ties to Spain. Thus, landlords request additional financial assurances to offset the risk (read increased deposits i.e. 12-months in advance). Whereas Spanish residents are left off the hook and only need to comply with the bare legal minimum.

  • And the list goes on and on.

* Subject to terms. ** Subject to a cap. *** Subject to terms.

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