Foreign citizens who settle or invest in Spain have doubts related to tax obligations. What taxes must be paid? Since when is one considered a tax resident? What happens to income or property held in the country of origin?
In this guide, we explain in a clear and practical way the main tax aspects that a foreigner living or investing in Spain must take into account. If this is your case, it will help you to avoid penalties and comply correctly with the Spanish tax authorities.
Who is considered a tax resident in Spain?
The Tax Agency considers a person to be a tax resident in Spain if he/she complies with the following conditions at least one of the following criteria:
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Remaining more than 183 days in Spanish territory during the calendar year.
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Having in Spain the center of their economic activities or vital interests.
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That your spouse not legally separated and/or minor children habitually reside in Spain.
If any of these conditions are met, the foreigner will be obliged to pay tax in Spain on his worldwide income. That is, for all income obtained inside and outside the country. Tax residency does not depend on your nationality, nor is it optional.
Double Taxation Avoidance Agreements
The purpose of double taxation treaties is to prevent the same income from being taxed both in Spain and in the taxpayer's country of origin. They also seek to promote international tax cooperation. Spain has signed this type of agreement with more than 90 countries, among them most of Latin America and Europe, USA, Canada, Morocco, Algeria, China, India, Japan and more countries.
There are countries, many of them in Latin America, that allow you to maintain your tax residency even if you live abroad. This can generate situations of double tax residence. In these cases, the application of double taxation treaties is key, since they allow to resolve conflicts and avoid paying duplicate taxes. However, it is essential to analyze each particular case.
Case 1: Bringing money from abroad into Spain
A common tax query is from foreigners who live in Spain, have money in their country of origin and want to bring it to Spain. But they do not know if they have to pay taxes in Spain. As a general rule, if you are a tax resident in Spain, the profits you have obtained abroad must be paid in Spain.
This does not imply that if any other tax was paid abroad, the same tax has to be paid again in Spain. That is why the Convention was made, to avoid double taxation. But if there is a tax in Spain that does not exist in your country of origin, it is possible that you will have to pay it when you bring it to Spain. And this will depend on the origin of the funds.
Case 2: Emigrating to Spain with money
For those who emigrate to Spain, taxation is different. As they are not yet tax residents, they do not pay taxes in Spain,therefore, the money they bring with them is not taxed.
But the money can be retained when it is transferred to a Spanish bank from abroad. This is a preventive measure of the Spanish State to avoid money laundering. When it is proved that it is not black money, that it was declared in the country of origin and paid the corresponding taxes, it can be disposed of.
You can enter Spain with up to €10,000 in cash without having to declare it. If you exceed this amount, you must make the declaration Model S-1 and present it at the airport of origin, before traveling. At that time, the origin of the funds must be accredited.
If you send your money to Spain by wire transfer, the account of origin and destination must be of the same holder. It is important that the movement of money is made before the taxpayer must be a tax resident in Spain, because otherwise tax will be payable.
Case 3: Living in Spain with assets abroad
Tax residents in Spain are required to file a tax return with the Spanish tax authorities all assets abroad exceeding €50,000. The declaration - Form 720 - is made between January 1 and March 31, based on their net worth situation as of the previous December 31.
This is an informative declaration and does not imply in itself the payment of taxes. Later it will be decided whether or not to pay depending on the origin of those assets. But failure to file Form 720 can result in fines of up to 50% of the undeclared value, if the Tax Agency considers that it is an unjustified capital gain. The statute of limitations expires after four years. You can read more information in our post Declaring assets abroad (Form 720): guide for residents in Spain
In Spain, on the other hand, the Wealth Tax is levied on assets and rights both in Spain and abroad. Some autonomous communities allow it (such as Madrid), but others apply it effectively (such as Catalonia or the Valencian Community). There are exempt minimums that vary by region.
Case 4: Living in Spain, getting paid abroad
This is the case of tax residents in Spain with income from abroad. Being a tax resident entails the obligation to declare the income obtained abroad and to pay tax on it if applicable. This includes property rentals, income from remote or sporadic face-to-face work, stock dividends. And also any other type of occasional income such as inheritances and donations. The amount to be taxed for these incomes will depend on each case and should be studied carefully.
If, in any case, you decide not to declare it and bring it to Spain, you must be aware that it is money that cannot be justified.
If the Internal Revenue Service considers that a person resides more than half of the year in Spain, even if you do not have a residence permit, the tax rules will apply to you as if you were a tax resident. Tax residency is an empirical fact, it does not depend on what the DNI says.
Case 5: Living abroad, getting paid in Spain
For example, foreigners who lived in Spain and bought a property, but then returned to their country and left it rented. In this case, you must pay in Spain the Non-Resident Income Tax (IRNR, in spanish). The Tax Agency controls more those who live abroad, because the risk of not paying taxes is higher. For example, if a person lives abroad and sells a property in Spain, the Spanish notary will withhold 3% of the amount as a preventive measure for the taxes to be paid. That 3% will be settled after the IRNR.
Case 6: Paying taxes for leaving Spain
If you live in Spain and you are thinking of moving abroad, you should find out about the "Exit Tax". Yes, sometimes you have to pay a tax before leaving Spain. But only affects entrepreneurs or investors with 10 years or more of tax residence in Spain. You can read more information in our post Exit Tax in Spain: what it is and when it applies.
How can MBT Abogados help you?
The Spanish tax system is complex and non-compliance with tax obligations is a serious matter. We advise you to seek advice from specialists in Spanish tax law. When significant amounts are involved, it is better to be well informed than to make decisions that have no way back.
We are a law firm specializing in global taxation, investments, and asset relocation. Our main office is in Barcelona, and we also offer video conference appointments. Contact us at email or Whatsapp. If you would like an appointment with a tax lawyer, we offer 45- and 60-minute appointments, depending on the subject matter and complexity of the consultation. The fees are €115 and €150 respectively.
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Frequently Asked Questions (FAQs) / Taxes for Foreigners in Spain
- When do I become a tax resident in Spain?
When you stay more than 183 days in the calendar year in Spain or if you have the center of your economic activities or vital interests here. - Do I have to declare my foreign income?
Yes, if you are a tax resident in Spain, you are obliged to declare all your worldwide income, including that generated outside the country. - What is the Model 720?
It is a mandatory informative declaration for tax residents in Spain who own assets abroad valued at more than €50,000. It includes bank accounts, real estate, shares and other assets. - Does Spain have a double taxation agreement with my country?
Spain has agreements with more than 90 countries, including Mexico, Argentina, Colombia, Brazil, the United States, Italy, among others. These agreements prevent you from paying taxes twice for the same income. On this website of the Spanish government you can see the complete list of countries that have an agreement with Spain. - What if I am only in Spain for a few months?
If you do not exceed 183 days and have no financial interests here, you would be considered non-resident and you would only be taxed on income generated in Spanish territory (IRNR).
