Becoming a Spanish Resident: Tax obligations

Am I a Spanish tax resident?

If you live in Spain for more than 183 days a year then you are classified as a tax resident here. Note that the number of days does not have to be consecutive, it is the total days stayed during the Spanish tax year, which is the 1st of January to the 31st of December.

If you also potentially hold tax residence in another country then you will be considered resident in Spain for tax purposes if your primary interests are in Spain, such as your professional and business activities, or if your spouse and/or children live in Spain.

How do I register for tax in Spain?

You are required to register as a taxpayer with the Agencia Tributaria (Spanish Tax Authority), this is required in order to file your very first resident tax return. To do this, you must have an NIE number. If you have a full residence card (TIE) then normally you will be registered for tax automatically and you do not need to take any further action. If you just have an NIE document then you can register for tax either online if possible in your case, or at the Tax Office in person by presenting the form Modelo 030. This form is also used whenever you need to inform Hacienda of any changes in your personal details.

Resident Tax Returns

Below is a summary of the forms you may need to file with the tax office as a Spanish resident:

Annual Income Tax Return – Modelo 100
Due by 30th june, or 25th June to pay tax by direct debit to your bank account

Personal income tax is Spain is known as Impuesto sobre la Renta de Personas Fisicas or IRPF. An annual declaration must be filed via the Form 100, also referred to as ‘La Renta’ to declare your Spanish and worldwide income. This means that any income you make from foreign assets, businesses, or savings has to be reported to the Spanish Tax Authorities.

The filing deadline to submit this form is at the end of June, and the online filing system usually opens at the beginning of April. It’s also worth noting that the taxpayer’s personal digital certificate is often required to file this return, because over the last couple of years the Tax Office’s new system has been having problems recognising the details on the taxpayer’s identification documents in order to register for online filing.

The tax rates are progressive ranging from 19% – 45%. More info can be found here.

Double taxation
To ensure that people do not pay double tax on their income, Spain has dual tax agreements with many countries. If you have already paid tax on the income earned in a country, depending on the type of income this amounts may be exempt from tax in Spain, or, the tax paid is deducted from the tax to pay in Spain on the same income. 

Wealth tax return, statement of worldwide assets – modelo 714
DUE BY 30TH JUNE, OR 25TH JUNE TO PAY TAX BY DIRECT DEBIT TO YOUR BANK ACCOUNT

Residents and non-residents of Spain who own any Spanish and foreign assets that exceed a certain net value are obliged to file this return. The tax is applied over an individual’s assets/acquired wealth, not on their income earned from the assets.

This specific tax varies per region or Comunidad Autónoma. Typically the tax applies to anyone who has acquired assets that have a net value of over 700,000 euros, though in some regions it is lower such as Catalonia and Valencia. In Madrid, there is currently an exemption from Wealth Tax.

If you think that Wealth Tax may apply to you this year, please let us know and we will send you further details. The filing deadlines are the same as for the Renta.

The scale varies from one region to the next – for instance in Andalusia it’s: 0.2% – 3.5%.

Beckham Law – A tax regime for expats – Modelo 151
Due by 25th June

The “Beckham Law” is a special regime that can be used by expats to reduce their taxes in Spain. Under this regime, individuals will be considered as a non-resident for tax purposes and will be liable for tax only on the income earned in Spain, not worldwide. They can also benefit from a lower tax rate of 24% (up to 600,000 Euros of annual salary) instead of the standard resident’s tax rate, which ranges between 19-45%.

To opt for this regime, you will need to be employed by a Spanish company and you must not have resided in Spain during the last 10 years.  Generally speaking, this regime is beneficial for those earning an annual salary above around 60,000 Euros. 

Declaration of Foreign Assets – Modelo 720
Due by 31st March

Tax residents are also obliged to report any foreign assets within the categories of deposits, investments and life assurance and property where the total amount is at least 50,000 euros. Although submission of this form is for informative purposes only, and not tax collection, Hacienda can charge extortionate fines if you fail to submit, file late, or declare incorrect information.

Find out more about the Modelo 720 by clicking here.

Self-employed?

If you’re self-employed, registered as an autónomo in Spain, your income tax will be paid on a quarterly basis by submitting a Modelo 130 However, you still need to include this income on your Modelo 100, which will calculate whether you have paid enough tax throughout the year.

Read more on autónomo tax obligations here.

We can help you

This blog post seeks to give a simple overview of what to expect when it comes to resident taxes in Spain, however, exact calculations will depend on your personal circumstances. If you require some assistance with your Resident tax returns, please email admin@europeaccountants.com or contact us here. We provide an English-speaking service online to prepare and submit all of the Spanish tax forms listed below:

– Modelo 030 – Registering for tax
– Modelo 100 – Annual Income tax declaration
– Modelo 151 –  Income Tax Return for individuals under the special regime 
– Modelo 714 – Wealth Tax
– Modelo 720 – Declaration of Foreign Assets
– Modelo 130 and Modelo 303 – quarterly income tax and VAT returns for autonomos/self-employed in Spain

Autonomo deregistration

You may decide to deregister as an autónomo/self-employed in Spain for various reasons, for example, if you are now employed by a company and taxed at source, or if you’re moving abroad, or if you no longer want to make social security contributions.

The process for deregistering as an autónomo/self-employed in Spain is relatively simple. As with the registration, there are two submissions required, the ‘baja en RETA’ (Social Security) and filing a Modelo 036/037 (tax) with Hacienda. Note that you must have a digital certificate if you are looking to do this online via the Agencia tributaria and Seguridad Social websites. Please feel free to contact us if you need our assistance.

As a Spanish resident, you are still obliged to submit an annual income tax return (IRPF/Modelo 100) and VAT return (Modelo 390) in the year following your last year as an autónomo. If you have any VAT credits on your account, you can also claim a refund by filing a Modelo 303 form for the final quarter of the year.

What happens if I want to reregister as an autónomo?

You can reregister again at any time, however, it’s worth noting that if you wish to do so within two years since you last registered, you will lose the right to ‘Tarifa Plana’ meaning that you cannot benefit from the reduced flat rate for newly self-employed individuals.

We offer an autónomo deregistration service to submit the relevant information with the Tesorería General de la Seguridad Social and Hacienda. Please email us at admin@europeaccountants.com for more details.

Alternatives to Spanish company formation for non-resident companies

In our last article we looked at the difficulties of forming a limited company in Spain and suggested an alternative to individual business owners who are just starting off in business in Spain.

Non-resident companies who are considering opening a Spanish office face similar administrative and bureaucratic hurdles. If you would like to form a Spanish subsidiary of your company, the requirements are even more stringent. You will need to obtain a Spanish tax number (NIF) for the parent company in order to complete the company incorporation. A company director will need to be physically present in Spain for some days to visit a bank to open and activate the company bank account and attend the Notary signing. After all is completed, your local accountant (gestor) will deliver the paperwork to the Tax Office and Mercantile Registry. After around a month, the company incorporation will be complete.

As well as filing company tax returns (Modelo 200), Spanish companies are required to file annual statutory accounts. Thankfully these can now be filed online with the D2 software, but the Mercantile Registries (each region of Spain has it’s own Registry) can be very picky and reject accounts for technical reasons which should really be controlled in the initial filing. It’s classic Spanish bureaucracy and leads to a lot of extra work and some stress for your accountant who has to deal with it and having to explain to you who are rightly asking “why” ?!

We no longer offer a full Spanish company formation service for non-resident companies but would like to suggest an alternative which achieves exactly the same aims. This is the registration of your company for tax and VAT in Spain. You can find further details on our website. The procedure is much more simple and does not require you to physically come to Spain. A Spanish bank account is recommended so that you can pay your tax due directly, however we do offer a tax payment service for those clients that require it.

If your company opens an office, shop or warehouse in Spain it will have what is known as a Permanent Establishment and will then be required to file annual Spanish company tax returns (Modelo 200). There is no further tax registration required for this and you will file these returns under the same tax number (NIF) that you were originally registered for.

As always, feel free to contact us if you have any queries and we will get back to you as soon as possible.

Alternatives to Spanish company formation for resident and non-resident individuals

Forming a company in Spain is more complex than in many other European countries. This is mainly because Spain still uses the Notarial system for legalisation of private and public transactions, including purchasing a property.

Therefore, in order to form a limited company (sociedad limitada) in Spain, it is necessary for the shareholders and directors of the company to go to a Spanish Notary to sign the Deed of Constitution. This is only one of the steps necessary to complete the company formation, which includes submitting forms to the Tax Office and finally lodging all of these forms and the company Deed at the Mercantile Registry, who take around a month to finally register the company. So at the end of the day, this process ends up being long, frustrating and also costly for the client. For this reason, in recent years we have not offered full Spanish company formation to our clients.

Recently the authorities have introduced a new online One Stop Shop (CIRCE) for procedures which include company formation. Our experience of forming a company through this system has not been good, due to the fact that a Notary visit is difficult for a Notary, who is a typical Spanish public servant with not much will or necessity to adapt or be flexible, to be part of this online procedure. So we are not recommending the CIRCE system for company formation in Spain.

For an individual, whether they are resident or not in Spain, who would like to form a Spanish limited company, there is a simple alternative, which is a registering as self-employed, autonomo. From a tax point of view, the director may not be at a disadvantage using this route. Company tax is Spain is currently 25%. A non-resident individual operating as autonomo pays either 19% (EU residents) or 24% (non-EU residents) on their Spanish profits, so there is a clear tax saving there, subject to any unmitigated international double taxation.

For residents, the company director-shareholder is going to subject to Spanish income tax on dividends and salaries taken from a company. You can find the latest rates on our website. There is also no dividend double tax credit which means that there is double taxation if the profits are paid out via dividends. Sure, for higher company profits the income tax bands go to a lot higher than the 25% company tax rate. But remember that any money that the director draws from the company for their personal use as a salary will also be taxed at income tax rates.

So really we would be recommending Spanish company formation for residents in the circumstance where the company profits are guaranteed to be, say, at least 50,000 Euros a year, and/or there are going to be multiple shareholders involved in the business. If you are an individual business person just starting off in Spain, when it is very possible that you may make a trading loss or small profit in your first years, it would be much better for you to register as autonomo. It is always possible to move to a full company at a later date once your business and earnings are established.

Note that whether you operate in Spain via a limited company or as autonomo , you will be required to pay monthly Social Security contributions which are a fixed rate and do not depend on the actual profit that your business makes. This also applies to you if you are non resident and will never gain any benefit from the Spanish Social Security system !

In all cases you will be need to open a Spanish company bank account, because the Tax and Social Security offices only accept direct debit payments from Spanish bank accounts.

You can find full details about registering as an autonomo and how we can help you on our website. Registration is online via the CIRCE system and is normally complete within a 2-3 working days.

As always, feel free to contact us if you have any queries and we will get back to you as soon as possible.

The new EU VAT E-Commerce Package- big changes are on the way !

Originally meant to be introduced in 1st January of this year, the implementation of these big changes in VAT in the European Union has been put back to 1st July due to COVID-19 and may be delayed even further because of concerns raised by influential countries such as Germany and the Netherlands on whether they can implement the changes on time.

The new law is very complex and you can find full links to the EU legislation on the EU website .

However here is a brief summary of the changes:

For goods imported from outside the EU or sold by non-EU traders, E-Commerce internet marketplaces will be, in certain cases, for VAT purposes deemed to be the supplier of goods to customers in the EU.

Let’s see how this work out in the case of an Amazon trader. So in these cases the Amazon trader will no longer need to collect the VAT on each sale and pay it over to the tax authorities where the customer is based ! Amazon will be required to do all of this on the trader’s behalf!

As a consequence, the trader will no longer be required to file VAT returns, or even maintain VAT registration, in the EU countries where there customers are based and they hold no stock. They will be required to keep their VAT registration in countries whey they are physically holding stock e.g. in the Amazon fulfilment warehouse, and to raise a VAT exempt invoice to Amazon for each sale that is made to customers. We assume that this will need to be reported quarterly to the Tax Authority for that country as a VAT exempt Intracommunity supply.

So in which cases is this big change going to apply ?

  1. Goods imported and sold to EU customers by non-EU traders, to a maximum of 150 Euros.
  2. Goods that are already in the EU (whether by origin or having been imported and cleared EU customs) that are sold by non-EU traders.

These changes are going to have a very big effect because much of what is being sold online in the EU is either imported or being sold by non-EU companies.

It is important to note that, for these rules to apply, the internet marketplace must be seen to be “facilitating the sale”, which means that it must control the terms and condition of the sale, payment between customer and supplier and arrange the delivery of the goods- which would be the case in the full package offered under Fulfilment by Amazon (FBA).

Extension of the EU VAT One Stop Shop to all traders and all services/goods

This change will make life a lot easier for many EU traders. They will now be able to declare and pay VAT on their sale to customers in other EU countries in one unified VAT return in their own country.

So if a Dutch Amazon trader has customers in Spain and France then they will be able to include these sales in their Dutch One Stop EU VAT return. VAT on the French sales will be at 20% and on the Spanish sales at 21% and the Dutch tax authorities will pay the amounts due to their Spanish counterparts. As you can see, these are massive changes to make to the tax declaration systems in EU countries, and it no surprise that some Member States are requesting a further delay to give them time for implementation.

One important note is that, under this scheme, traders will still be required to maintain VAT registration in the countries where they hold stock. So if the trader is using the Fulfilment by Amazon (FBA) program, it remains to be seen how this will work out in practice. I.e. if a Portuguese trader holds stock in an Amazon FBA centre in Spain, and makes sales to Portuguese customers (there is no Amazon distribution centre in Portugal), then will they still need to declare these sales in Spain or could they do it via the One Stop Shop of the Portuguese Tax Authorities ?

Amazon itself is being very quiet on this matter and we can find no reference on their websites to the upcoming changes in EU VAT law, which is unexpected because the changes are imminent !

Spanish Residents: What is the Modelo 720?

The Modelo 720 is a declaration form that must be submitted by all Spanish tax residents who own any foreign assets exceeding 50,000 euros. Although submission of this form is for informative purposes only, and not tax collection, Hacienda can charge extortionate fines if you fail to submit, file late, or declare incorrect information. Many of those who have moved to Spain are not even aware of this declaration and risk these massive penalties, therefore it is important to know if you meet the criteria and are obliged to file this form.

who is required to submit this return?

All Spanish tax residents who own assets located outside of Spain, that exceed over 50,000 euros in value are obliged to submit a Modelo 720. These assets may fall under any of the categories listed below:

  1. Accounts in any kind of financial institution e.g. banks, building societies.
  2. Investments/ rights of representation in foreign companies or other entities
  3. Investments in foreign collective investment institutions (e.g. unit trusts).
  4. Foreign life/ invalidity insurance;  income from foreign annuities
  5. Property and rights to property.

Where assets are jointly held (e.g. with a spouse), a separate return must be submitted for each person and both must declare the full value of the asset and indicate their percentage holding in the asset.

How do I submit Modelo 720?

There is no option to submit the Modelo 720 form in person, therefore it must be submitted electronically on the Agencia Tributaria website.

All of your assets must be reported in Euros, so any investments that are valued in other currencies must be converted into Euros using the exchange rate as at 31st December of the filing year.

If you find the form too complex to complete yourself, we offer a service to prepare and submit the Modelo 720 to the Spanish tax office on your behalf. We would require the completion of a simple questionnaire to state the different assets owned and their value in Euros. For more guidance and information, please contact us.

When is the deadline to submit the Modelo 720?

You have three months, from 1st January to 31st March following the end of the year in which you are obliged to submit this return.

For the year 2020, the filing deadline is 31st March 2021.

How often do i need to submit the modelo 720?

If you have previously submitted this form, you only need to declare assets where the total value of assets in that class have increased by at least 20,000 Euros in value.

The Agencia Tributaria guidelines state the following:

After the initial return is presented, a new return must be filed in subsequent years when the total of any category of assets increases  (since the last filed declaration) by at least 20,000 Euros, either at 31st December or during the last quarter of the year.

Although the guidelines are extremely uninformative on this issue, it would appear that only the categories of assets that are affected need to be resubmitted.

What are the penalty charges if I do not submit a Modelo 720 or if I miss the deadline?

Late, incorrect/incomplete, or non-submitted returns are taken very seriously and there are considerable fines being imposed by Hacienda, which can reach up to a hefty six-figures. The Agencia Tributaria FAQ’s imply that even the slightest error, even unintentional (e.g. in a bank account number) will be punished by a minimum fine of 10,000 Euros. The guidelines also mention “minimum” penalties of 30,000 Euros for non-disclosure.

European commission and Modelo 720 Fines

These unreasonably high penalties have been challenged by the European Commission in recent years, and they have prompted Spain to change its legislation. However, as revised laws have not yet been finalised, we strongly advise that you file the Modelo 720 by the deadline to avoid any issues.

If you require our assistance to file your Modelo 720, please do not hesitate to contact us and we will get back to you as soon as possible.

Depending on the number of assets that need to be declared, our standard charge for preparation and online filing of each declaration is between 100 and 230 Euros plus IVA.

Claiming a tax refund from selling your Spanish Property

When you sell your Spanish property as a non-resident, you may notice that you only receive 97% of the sale proceeds—this is because the buyer is required to withhold 3% of the sale price and pay this over to the Spanish tax office on your behalf. Whether you make a profit or not, the tax office will use this method to collect tax from from selling your property as a foreigner.

If you made little to no profit, you may be able to claim this money back, but you will only have four months from the date of sale to do this by submitting a final tax return (Form 210). This can be submitted in person at the local Tax Office here in Spain, or online through the Agencia Tributaria website.

The following documents are required to file the final return:

  1. Copy of the Deeds (Escritura de Compraventa) for both the sale and purchase;
  2. Proof of withholding tax which is Modelo 211 (this is important, as this document contains a key reference number ‘numero de justificante‘ which must be stated in your refund reclaim);
  3. A schedule of the purchase and sales costs such as agency fees, Notary fees, and ITP
  4. In the event that there will be a tax refund to claim, you would also need to provide a bank statement (or similar document) from your country of residence which shows the name of the account holder and IBAN.

A digital certificate is required from the Agencia Tributaria if you wish to file this return yourself and to obtain one, a visit to your local Tax office in Spain is required with documents to verify your identify.

Once your tax return has been submitted, the Spanish tax office may take quite a while to review your submission and pay any tax back—the average time for refund payment ranges between 12 and 18 months.

Looking to claim a tax refund on the sale of your property? Leave it with us! With our accountants’ digital certificate we can file the return and deal with any necessary subsequent communication with the Tax Office on your behalf. Our charge for this service is 250 Euros + VAT. Feel free to contact us if you have any queries and we will get back to you as soon as possible.