The Tax system
As little as twenty years ago, tax evasion was a way of life in Spain and almost encouraged. Not any more! During the last decade, Spanish taxes have increased dramatically, particularly income tax. Although overall taxation remains reasonably low and is still less than the EU average, the gap is closing fast.
Foreign residents with income or assets abroad should obtain expert advice regarding Spanish taxes. This will ensure that you take optimum advantage of your current tax status and also ensure that you don't make mistakes that you may later regret.
These days it's far more difficult to avoid paying taxes in Spain and penalties are stiff.
Foreign governments in Europe and Scandinavia have been known to share information with Hacienda, the common name for "Agencia Estatal de Administracion Tributaria".
The Spanish tax system is complicated and even the experts have difficulty agreeing with the tax authorities. In short, taxes are levied by three tiers of government: the central government, autonomous regional governments and local municipalities. Government taxes are administered by the Ministry of Economy and Taxation which has its headquarters in Madrid and assessment and tax collection centres in provincial capital towns.
There are tax collection centres in provincial capital towns.
It is possible to go down to your local tax office where the staff are usually quite helpful with simple queries. There is a freephone number for Agencia Tributaria 900 333 555 or try 901 200 345.
There's a five year statute of limitations on the collection of back taxes in Spain which means that if no action has been taken during this period to collect unpaid tax, it can't be collected.
The most important taxes that are relevant to foreigners in Spain are listed here.
Taxes relating to everybody
- Income Tax: Payable on worldwide income of residents.
- Wealth Tax: Payable on capital assets, including property.
- Inheritance and Gift Tax: Payable on worldwide assets.
Taxes relating to Property Ownership
- IBI The IBI is the Impuesto sobre Bienes Inmuebles, which could be translated as "property tax". This is a municipally levied tax and varies widely from one municipality to another and from one type of property to another. You might for instance, pay as little as 50 euros per year for a simple property in a rural area. While a luxury home on a prime lot in an expensive urban neighbourhood might cost as much as 1,500 to 2,000 year.
- Capital Gains Tax: Payable on the profits made on the sale of property and other assets.
- Basura: (Rubbish Collection Tax) Annual tax payable by all property owners to the local town hall.
Plus Valia A tax on the increase in value of a property paid at time of sale, usually by the seller but it sometimes assigned to the purchaser by agreement.
Taxes relating to Business
- Company Tax: Paid at a percentage of profits by partnerships and registered companies.
Offshore Company Tax: Annual tax on offshore companies that don't declare the individual owner of property in Spain or the source of investment.
- Social Security: Isn't strictly a tax but is payable by employees, employers and the self employed.
- Value Added Tax: Payable on a wide range of goods and services at varying rates. Self employed and businesses pay the IVA to Hacienda. IVA is the difference between the sum of IVA collected from Sales invoices and the sum of IVA paid on purchase invoices. Calculations relate to each calendar quarter. Payment must be made by the 20th of the following month. (30Jan, 20April, 20July, 20 October)
- Business Tax: IAE or Impuesto sobre Actividades Economicas. Paid by the self-employed and companies annually. This tax was discontinued in 2003.
Taxes relating to Motorists
- Motor Vehicle Tax: Paid annually by all vehicle owners to the local town hall.