Important information for Non-residents: How COVID-19 state alarm has affected tax residence in Spain.
Tax return in Spain – IRPF
What is the tax return in Spain?
The tax return in Spain is a tax that levy on the worldwide income of all taxpayers (expats) residing in Spain – it is known as the Personal Income Tax (IRPF or Declaración de la Renta). It is a complex tax, and when income from other countries is taxed, it gets even more complicated, like for example, for British expats who are residing in Spain, as well as for the rest of expatriates from other countries, such as USA expats.
Through international double taxation agreements, the states establish mechanisms to avoid double taxation, taxpayers with income from abroad are entitled to the deduction for international double taxation that is regulated in article 80 of the Personal Income Tax as part of the (IRPF) tax return in Spain.
In this article, we are going to try to analyze the most common incomes that are taxed in Spain by expats and that are regulated through the Double Taxation Agreement signed between Spain and the United Kingdom and the Personal Income Tax.
Who has to submit a tax return in Spain?
What determines whether an expatriate is regulated in article 9 of the personal income tax (IRPF), in general terms they are considered a permanent resident when any of the following requirements are met:
- When your stay on national territory is longer than 183 days a year.
- When their main economic interests/activities are located in Spain.
- Unless proven otherwise, it will be presumed that the taxpayer has his habitual residence in Spain when, in accordance with the above criteria, the spouse, not legally separated, and the minor children who depend on them, habitually reside in Spain
Once the tax residence has been determined, the expatriate must pay taxes in Spain for all their worldwide income.
In general terms, they are obliged to declare the Income Tax Return in Spain:
- Regarding income from work (which includes income as employees, and pensions received both in Spain and abroad) with a limit of 22,000 euros per year.
- The limit is of 14,000 euros for those taxpayers who receive income from work or pensions that come from more than one payer, with certain exceptions that we will not go into detail due to its complexity. (For example, if a British citizen residing in Spain receives a State Pension of 9,000 euros and another Private Pension of 6,000 euros, they would be obliged to declare since the limit for the obligation to declare is 14,000 euros)
- Rental income exceeding 1,000 euros per year.
- Dividend income, interest and capital gains, and provided they are subject to withholding in Spain, with a limit of 1,600 euros.
Rosana Tejada, a tax advisor at TejadaSolicitors, and tax specialist for expats, reminds us that all expatriates who want to benefit from the international double tax deduction will be obliged to declare in any case.
How COVID-19 state alarm has affected tax residence in Spain
In accordance with the binding consultation of the Spanish tax agency, V1983-20 of 17 June 2020, this consultation results in the following:
All citizens who cannot return to their country of origin because of the state of alarm, the days spent in Spain during the 2020 tax year (the tax year in Spain is from 01 January to 31 December) will be counted for determining tax residence in Spain.
In this consultation, they analyze a case of a couple that are residents in Lebanon, but traveled to Spain for a period of 3 months in the year 2020, and that as a result of the state of alarm, could not return to Lebanon (their country of residence). The tax agency resolves by confirming that if they stayed more than 183 days in Spanish territory in the year 2020, they would be considered tax residents in Spain and therefore taxpayers of Personal Income Tax.
Spanish Tax return: Deductions and allowances
At the time to file the IRPF, the deductions represent the primary way to pay fewer taxes. In general terms we are going to name the deductions that we consider most important:
- The purchase of the main residence: only for those who purchased 2013.
- General reduction of €2,000 for income from work and pensions, that is, this reduction will apply to all expatriate residents with income from pensions or work, even if such income comes from other countries.
- A 60% reduction applicable to income from the rental of housing, provided that the property constitutes the permanent residence of the lessee. This reduction is also applicable to rental incomes from properties located abroad.
- Working mothers: The mothers of children under the age of 3 can deduct the amount of 1,200 Euro per year in the IRPF or collect the anticipated monthly allowance of 100 Euro.
- Pension plans.
- Donations: There are deductions for contributions made to charities and political parties.
- Transmission of habitual residence for people over 65 years of age, the profit obtained is exempt from paying income tax.
- Transfer of habitual residence for people under 65 years of age; for Taxpayers who obtain a profit from the sale of their habitual residence do not pay income tax if they reinvest the amount obtained in the acquisition of a new habitual residence.
The capital gains derived from the sale of urban properties located in Spanish territory that had been acquired from May 12, 2012, until December 31, 2012 (applicable to both residents and non-residents tax) are exempt by 50 %.
Exemption regulated in article 7.p LIRPF, of the income received from work carried out abroad, as long as certain requirements are met, with the maximum limit of 60,100 euros per year.
Individual: € 5,550
Taxpayers over 65 years old: €6,700 per year
Taxpayers over 75 years old: €8,100 per year.
For joint tax cases, this option is only possible for couples who form marriages and not for common-law couples, in addition to the previous allowances, we can add a reduction of 3,400 euros.
Need a professional consultation for your Renta 2020?
Tax Return Rates Spain
The tax rates in Spain are different depending on the Autonomous Community where the taxpayer resides, in this case, we are going to inform about the case of taxpayers who reside in Andalusia.
2019 Tax Return Rate
For income from work, pensions, rental incomes, and other income, the tax scale for 2019 is:
2020 Tax Return Rate
For income from work, pensions, rental incomes, and other income, the 2020 tax scale is:
For interests, capital gains and other income, the tax scale for 2019 and 2020 is:
2021 Tax Return Rate
For work, pensions, and rental incomes at the tax scale for 2021, a new tax rate of 24,50% has been introduced for taxable incomes from 300,000.00 euros.
For interests, capital gains, and other incomes at the tax scale for 2021, a new rate of 26% has been included for taxable incomes from 200,000.00 euros.
Rosana Tejada – Tax Adviser
Deadline of the Tax return in Spain
While the tax year in the United Kingdom runs from April 6 to April 5 of the following year, in Spain the tax year (tax year is the same as the calendar year) runs from January 1 to December.
Therefore, expatriates who resided in Spain during the year 2019 (and, of course, all other residents), the deadline for filing the Tax Return for 2019 begins on April 1 and ends on June 30, 2020.
Also, there is the possibility of being able to split the payment of the tax, without interest or surcharge whatsoever, that is, the amount of the tax debt resulting from your declaration of the Personal Income Tax can be divided into two parts:
The first, of a 60% of its amount, at the time of filing the statement, and the second, of the remaining 40%, which if you opted for direct debit will be charged to your account (direct debit) on November 5, 2020, inclusive.
What happens if I do not present the tax return in Spain?
If you do not file your return within the voluntary period established by the Spanish tax agency (normally from April 1st to June 30th of each year) there are 2 scenarios:
Scenario 1. Submission after deadline but before Treasury request
Presentation of the declaration after the deadline but before the Treasury sends us the request (The most advantageous and least expensive)
- The surcharge will be 5% of the amount not entered if the declaration is filed within 3 months after the end of the established legal term. This will have no extra interests for delay nor penalties.
- The surcharge will be 10% of the amount no longer paid if the declaration is filed within 3 and 6 months after the end of the established legal term. This will have no extra interests for delay nor penalties.
- The surcharge will be 15% of the amount not entered if the declaration is submitted within 6 and 12 months after the end of the established legal term. This will have no extra interests for delay nor penalties.
- If the presentation occurs after 12 months, the surcharge is 20%. Also, in this case, the taxpayer must pay default interest for the period elapsed from the day following the end of the twelve months to the filing date, that is, during the first twelve months, no interest is accrued.
Scenario 2. Treasury requirement
When there is a requirement on the part of the Treasury because the declaration did not submit the established legal term, this scenario is the most burdensome, and the least advisable, and that every taxpayer resident in Spain should avoid:
- This scenario can entail sanctions of between 50% and 150%. The applicable sanction depends on the severity of the infraction committed. The Spanish tax treasury classifies the sanctions as light, serious or very serious depending on the amount stopped if there has been concealment or fraudulent means have been used.
In any case, Rosana Tejada always advises to choose scenario 1, since filing the declaration after the deadline but before the Treasury sends us the request, carries surcharges (between 5% and 20%) and no penalties (between 50% and 150%), which means that you can save money and unnecessary troubles. Keep in mind that there are information exchange agreements between different countries and that the Spanish Tax Treasury can obtain almost automatically both economic data and the origin of income obtained outside of Spain.
In the same way, we advise our readers that, to avoid sanctions with the Treasury that in many cases can be very high, if you do not know if you are obliged or not to file your income statement in Spain, contact a tax adviser so they can advise you correctly of all the tax implications that come with being a tax resident in Spain.
When obtaining income from abroad, we would like to highlight that some of the tax implications related to residency may be from Model 720 Declaration on Goods and Rights located abroad – you can read more about this matter in the following article, Spanish tax form 720 assets declaration model.
Submit your tax return with a legal representative
At Tejada Solicitors, we offer all expat residents in Spain online services, without the need for commuting to our offices. For correct advisory services and tax planning, we organize online meetings, we telework on your income statement, etc. If you are interested in our services, fill in the following form:
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How UK pensions and other incomes are taxed in Spain
For expats who reside in Spain that obtain Government Service Pensions in the United Kingdom such as, fire service, police, most teachers and others civil servant etc, this type of income will be taxed exclusively in the United Kingdom and are not directly taxable in Spain. However, under the double taxation treaty between the United Kingdom and Spain, this income is taken into account to determine the effective tax rate on your other taxable income. This means that your progressive tax rate will generally increase for the rest of your general income. This mechanism is called “exemption with progression”.
- Other types of Pensions, such as State Pension, Private Pension, Scheme Pension, (Article 17 UK/Spain double tax treaty) are taxed exclusively in Spain.
- Rental Incomes (Article 6 UK/Spain double tax treaty). In terms of income arising from the immovable property for real estate located in the United Kingdom “the same can be subject to taxation both in Spain and the United Kingdom.” That way, the resident taxpayer shall have “the right to apply the deduction for international double taxation in the IRPF in Spain.”
- Dividends (Article 10 UK/Spain double tax treaty)
Dividends obtained from a British source can be subject to taxation in Spain according to the stipulations of domestic legislation.
If the United Kingdom is the State of residence of the society that pays for the dividends, the same can be subject to this taxation. But, if the recipient of the dividends is a resident of Spain “the taxes thus demanded in the United Kingdom shall have a maximum limit of 10% or 15% of the gross amount of the dividends.”
That way the taxpayer who is a resident in Spain shall apply up to said limit to the deduction for “international double taxation” in the IRPF statement.
- Capital Gains (Articulo 13 UK/Spain double tax treaty). Regarding capital gains or wealth tax obtained through the disposal of personal and real property located in the United Kingdom that belongs to residents of Spain, just as it happens with shares, stock and other assets, the same can be subject to taxation both in Spain and the United Kingdom, and the taxpayer has the right to apply the deduction for international double taxation in the IRPF statement in Spain.
- Interests (Articulo 11 UK/Spain double tax treaty). In general terms, the interests coming from the United Kingdom and whose beneficiary is a resident of Spain, can only be subject to taxation in Spain. But this is not always the case, there are special situations where this rule does not apply.