The individual taxation system in Spain can be broadly categorized into two broad categories:
- Personal Income Taxes for individuals that are residing in Spain (PIT)
- Personal Income Taxes for non-residents – also referred to as non-resident income tax (NRIT). This category refers to persons who are not residents of Spain, but obtain income within Spain.
Therefore, this implies that everyone who earns an income in Spain is liable to pay taxes. The difference exists between paying Personal Income Tax (PIT for residents) and Personal Income Tax for non-residents (NRIT).
As far as residents are concerned, they are liable to pay taxes on their worldwide income. Regardless of the geographic location of the source of foreign income, it is taxed at progressive rates, as far as residents are concerned.
On the other hand, non-residents are only liable to pay NRIT on their Spanish source income only.
Personal Taxation for Residents
As far as residents are concerned, it can be seen that they are liable to pay taxable income on two different basis: general taxable income, and savings taxable income.
Savings Taxable Income is classified as per the following terms and conditions:
- Dividends as well as other income that is generated from shareholding in other companies.
- Interest and other relevant income that is generated as a result of transfer of capital to a related company to a third party.
- Income that is generated from capitalization of transactions as well as life and disability income insurance.
- Capital gains that are generated from the transfer of assets.
On the other hand, general taxable income includes the following criteria:
- Firstly, anything that is not classified under savings taxable income is categorized as general taxable income.
- Capital gains that are NOT generated as a result of transfer of assets.
- Income allocations, imputations and income attributions that are established under law.
- Interest, and other income that is generated as a result of transferring taxpayers own capital to a related company.
Personal Taxation for Non-Residents
As far as taxable income for non-residents is concerned, it can be seen that as far as non-residents is concerned, it is calculated using the gross income, as per the Spanish Personal Income Tax law. There are no reductions applicable in this regard. In other words, for non-residents, the income that is not obtained using a Permanent Establishment (PE), is taxable on each individual against total or partial accruals of income that is subject to tax. Therefore, any losses cannot be off set against gains.
Personal Taxation for Expatriates
Personal Income Tax is not levied on employment income that is obtained by persons who are tax residents in Spain for effective work that is carried outside Spain. However, the threshold is up to 60,100 Euros (EUR), in the case where certain requirements are met. These requirements are as follows:
- The employee is a resident of Spain for tax related purposes.
- The work is carried outside the periphery of Spain.
- The work is carried out for the company that is not a resident of Spain.
- A tax that is identical to Spanish Personal Income Tax is levied where employee carries out the work.
Personal Income Tax Rates for Residents
As far as Savings taxable income is concerned, it is taxed on the following rates:
- For the first 6,000 EUR: A tax rate of 19% is applicable.
- For an income between EUR 6,000 to EUR 50,000: A tax rate of 21% is applicable.
- For an income between EUR 50,000 to EUR 200,000: A tax rate of 23% is applicable.
- For an income over and above EUR 200,000: A tax rate of 26% is applicable.
On the other hand, as far as general taxable income is concerned, progressive rates of taxation are levied. This rate varies from different autonomies that are based in Spain.
Personal Income Tax Rates for Corporates
For non-residents, income that is obtained without a Permanent Establishment (PE) is taxed at rates varying from source to source. These rates are given below:
- General Rate: 24% tax is applicable.
- Capital Gains generated from the transfer of assets: 19% tax is applicable
- Interest: 19% tax is applicable.
- Dividends: 19% tax is applicable.
- Royalties: 24% tax is applicable.
Corporate Taxation in Spain
The applicable Corporate Income Tax rate in Spain is 25%. Other tax rates might be applicable, varying from business to business, as well as the type of operations the business is in. As far as resident companies are concerned, they are taxed on their worldwide income. On the other hand, Permanent Establishment (PE) companies NRIT is charged is also charged at a rate of 25%. Non-resident Income Tax is also levied on non-established foreign companies that earn a certain income in Spain.
Newly Formed Entities in Spain
As far as Newly Formed entities are concerned, they are taxed at a rate of 15% for the first tax period, as well as the second tax period when they are profitable. The tax rate does not tend to apply to equity companies, or newly created companies that constitute to be part of the national or international group of business.
Other Corporate Taxes in Spain
In addition to Corporate Income Tax, there are certain other taxes that are also levied on corporates in Spain. These taxes are as follows:
- Value Added Tax (VAT): A value added tax is applicable on goods and services that are executed in Spain. Additionally, value added tax is also imported goods and serviced in Spain. The VAT is applied in the form of 3 rates, which are given below:
- An ordinary rate of 21%, that is applicable on regular supply of goods and services.
- A reduced rate of 10%, applied on basic necessities.
- A super reduced rate of 4% applied on very basic necessities, including bread, milk, books and medicine.
- Custom Duties: Most goods and services that are imported in Spain from EU are subject to custom duties.
- Capital Duty: A capital duty is levied at 1% on capital reductions and company dissolution. It is payable by shareholders.
- Payroll Taxes: A progressive rate of withholding tax rate of 19% and 47% is applied in the form of payroll taxes, varying on the basis of personal circumstances of employee, as well as income.