Taxes can be a real stumbling block. Particularly in countries with high tax burdens, such as Spain. Taxation in Spain is a complex process and anyone who fails to disclose and pay the necessary tax risks facing hefty fines and penalties.
The taxation system in Spain
If you live and work in Spain, you must pay income taxes in Spain on your earnings and assets and file a Spanish tax return. It is only your residency status that determines whether you pay Spanish taxes on your worldwide income or Spanish-based income.
In Spain, taxes are divided between state and regional governments. This means that income tax, property tax, wealth tax, capital gains tax, and inheritance tax rates in Spain can vary across the country.
Useful tips to save taxes
With the overall tax system in mind, we can now move on to the specific tips that will assist you in saving taxes as a foreigner.
Fill out an application for the Beckham Law.
The Beckham Law is a special tax regime that applies to foreign workers who come to Spain for work. It allows you to become a non-resident for tax purposes even if you spend more than 183 days a year in the country.
What exactly does this mean?
The Beckham law in Spain is a special tax regime that allows foreigners who relocate to Spanish territory to pay a flat fee of 24 percent only on
income earned in Spain rather than a progressive tax on all income earned worldwide (19-45 percent ).
Who is eligible to apply for this special tax regime?
Generally, any foreigner who moves to Spain and meets the following criteria can apply:
- Foreign workers who have recently relocated to Spain.
- Wealthy foreigners in positions of authority or management.
- Administrators who are hired by a company
The following people, on the other hand, are not eligible:
- Employees who work for themselves
- Athletes in professional sports are entity directors.
So, basically, this special tax regime for foreigners allows them to pay much lower taxes, allowing them to save a lot of money. During the first six years, it allows all workers who live abroad and want to come to work in Spain to pay income and wealth tax as if they were non-residents.
This theory, which was published in 2004, is governed by Section 93 of the Spanish Income Tax Act. It was named after the famous football player David Beckham in order to attract talented and qualified workers to Spain (the first one to take advantage of it).
Who is required to pay taxes in Spain? Spanish tax for residents
If you have lived in Spain for six months (183 days) or more of the calendar year (not necessarily consecutively), or if your main vital interests are in Spain (for example, your family or business), you are considered a Spanish resident for tax purposes.
In the following situations, as a Spanish resident, you must file a Spanish tax return and pay Spanish income tax on your worldwide income:
your annual income from employment exceeds €22,000; you are self- employed or run your own business in Spain; you receive rental income of more than €1,000 per year; You have more than €1,600 in capital gains and savings income per year, and this is your first year declaring tax residency in Spain.
Non-residents must pay taxes in Spain.
If you spend less than six months (183 days) in Spain in a calendar year, you are considered a non-resident and must only pay taxes on income earned in Spain. If you are a non-resident and own a property in Spain, whether or not you rent it out, you must file a tax return and pay both Spanish property taxes for non-residents (or imputed income tax on your property) and local Spanish property taxes.
What conditions must you meet in order to benefit from this special tax regime?
First and foremost, as previously stated, the reason for your visit to Spain is a job offer. And that job offer has to come from a Spanish company. You cannot have lived in Spain for the past ten years. If you receive income from another country, it cannot account for more than 15% of your total earnings. To take advantage of this regime, you must notify the Spanish tax agency by completing Form 149.
As you can see, the Beckham Law implies, without a doubt, a significant advantage in terms of tax savings, as the flat tax rate of 24% is significantly lower than the rates that Spanish residents face, which can reach 45%. A 21% reduction!