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Tax on Personal Income or Impuesto sobre la Renta de las Personas Físicas (IRPF) is a personal, progressive and direct tax on income during a calendar year for individuals residing in Spain, taking into consideration their personal family circumstances.
The general criteria are to be physically in Spain for over 183 days in a calendar year. Temporary trips abroad are not counted, for any absence from Spain to be made effective, the taxpayer must provide a residence certificate from another country.

Components of Taxpayer’s Income

a) Employment income (wages, salaries, pensions …)
b) Income from movable capital (dividends shares, interest on accounts …) and real estate (property rental…).
c) Business Income (entrepreneurs, professionals …).
d) Gains and losses (for transfer of goods, certain prizes …).
e) Charges of statutory income (derived from the ownership of certain properties other than the usual non-leased housing…).

The amount and nature of the income received during the year determine whether or not you are required to submit an Income tax declaration.  Any earnings whether they are abroad or not, have to be declared.  If you have a pension in the UK, for example, you still have to declare it in Spain even if you are paying taxes in the UK.  The amount of tax that you paid in UK will be deducted from the declaration in Spain.

Who has to make a Tax Declaration?

Generally speaking those individuals whose habitual residence is in Spain have to make a tax declaration, with some exceptions:

Earnings with the following limits:
1. In general the limit is 22,000€ per annum, per person, if you are an employee working for one company. This limit also applies if received from various persons/companies when:

  • The sum of the amounts received by the second or third payers must not jointly exceed the amount of 1,500 € year.
  • Your only income consists of Social Security pensions and other benefits and that the determination of type of retention applicable has been made according to the established regulations.

2. The limit is set at 11,200 € per year if:

  • When the income is from more than one payer, provided that the sum of the amounts of the second and other payers exceed 1,500€ per year.
  • When there are maintenance payments from the spouse.
  • Earnings before tax from movable capital, earnings subject to tax or interest on accounts, which do not jointly exceed 1600 € per year.
  • Property income from the ownership of property, earnings before tax on treasury bills and grants to purchase council housing, with the total limit set 1,000€ per year.

The tax payers will not have to declare the amounts received as income on capital whether movable or fixed, economic activities and capital gains, where the sum of all of them do not exceed 1,000 euros per annum, and annual losses of less than 500 euros.  However taxpayers do have to submit the declaration if they wish to benefit from the following deductions:

  • Deduction for Investment in your main residence.
  • Deduction for business savings account.
  • Deduction for international double taxation.
  • Reductions in the tax base for contributions
  • to different social systems.

These limits are the same in individual taxation and joint taxation.  If you exceed any of these limitations you have to present your declaration.

Exemptions

Compensation for redundancy or dismissal, or termination of work, will be exempt up to the amount that the Statute of Workers set as mandatory. Where the termination of an employment contract is by mutual agreement, there is no exemption on the compensation.

Compensation due to personal liability. In order to avoid tax fraud, the exemption will be limited to the amount set by law and legal settlements. Also, those resulting from accident insurance contracts will be limited to the amount by applying the system of valuation for those injured in road accidents.

Social security benefits for incapacity. The exemption for such benefits shall be exempt only in the case of permanent total disability or major disability.

Literary artistic and scientific awards.

Prizes for sweepstakes and gambling.  Exempt sums obtained for a prize in lotteries and gambling organized by the National and State Lottery, the Autonomous Communities, the Spanish Red Cross and the ONCE.

When do you have to present your tax declaration?

The taxes are presented between 1st May and 23rd June, this period can be extended until 30th June for those declarations where there are refunds.

Where do you present the declaration?

When the tax declaration has an amount to either pay in or refund, the declaration can be presented at the local Tax Office or at any Bank. When the declaration is negative, that is to say neither to pay in, nor refund any amount, then it can be presented either directly to the tax office or be sent by post.
One important reformation that has been introduced is the abolition of wealth tax for both residents and non residents.
As you can see the matter is a taxing one but can be simplified by using a trustworthy lawyer.