Living in Spain
Becoming a Tax Resident in Spain: Key Benefits
Do you dream of living in Spain? Beyond the sunny lifestyle and relaxed atmosphere, Spain also offers interesting tax advantages. By becoming a tax resident in Spain, you can benefit from a more favorable tax climate than in the Netherlands. In this article, we explain what it means to be a tax resident in Spain, how to become one, and the benefits involved.
What Does It Mean to Be a Tax Resident in Spain?
A tax resident in Spain is someone who is liable to pay taxes on their worldwide income in Spain. This means that all of your income, regardless of the source, is taxed in Spain.
You can become a tax resident if you meet any of the following conditions:
- You spend at least 183 days per year in Spain.
- You have economic interests in Spain, such as a business or employment.
- Your family (partner and/or children) lives in Spain, which is considered an indication that your tax residence is there.
If you meet any of these criteria, you are considered a tax resident of Spain and must file taxes with the Spanish Tax Agency (Agencia Tributaria)
Benefits of Being a Tax Resident in Spain
Although Spain does not have the lowest tax rates in the EU, its tax system offers some attractive advantages compared to the Netherlands:
- No wealth tax on your main residence: In many regions, your primary home is exempt from wealth tax.
- Lower corporate tax: Spanish companies pay only 25% corporate tax if they earn less than €8 million in revenue.
- No mandatory contributions for certain taxes: There is no tax on corporate training or required annual lump-sum charges.
- Lower social security contributions: Employers pay an average of 30.6% in social contributions, which is lower in some sectors than in the Netherlands.
Tax Advantages in Comunidad Valenciana vs. Netherlands
- Income Tax (IRPF): Progressive rates in Comunidad Valenciana range from 19% to 47%, compared to up to 49.5% in the Netherlands. Additional deductions exist for families, seniors, and people with disabilities.
- Wealth Tax: Comunidad Valenciana provides an exemption up to €500,000 per person. In the Netherlands, wealth tax applies from €57,000 (2023).
- Gift & Inheritance Tax: Substantial reductions for family members in Comunidad Valenciana; direct heirs often pay less than 1%. In the Netherlands, inheritance tax for children can reach 20% and up to 40% for non-family members.
- Property Tax (IBI): Rates vary by municipality in Spain, but in Comunidad Valenciana they range from 0.4% to 1.3% of the cadastral value. In the Netherlands, municipal property taxes vary depending on the municipality.
How to Become a Tax Resident in Spain
To become a tax resident, you must follow several steps:
- Spend at least 183 days per year in Spain and keep proof of your stay.
- Apply for a NIE (Número de Identificación de Extranjero), a mandatory identification number for foreigners in Spain.
- Register with the Spanish Tax Agency (Agencia Tributaria) as a tax resident.
- Notify the Dutch Tax Authority of your departure to avoid double taxation.
- File your annual Spanish income tax return (IRPF – Impuesto sobre la Renta de las Personas Físicas).
Avoiding Double Taxation
The Netherlands and Spain have a tax treaty to prevent double taxation on your income. Certain types of income, such as pensions or rental income from the Netherlands, are taxed in only one of the two countries. In some cases, you may claim a tax deduction in Spain for taxes already paid in the Netherlands.
Tax Filing and “Modelo 720”
As a Spanish tax resident, you must file your annual income through the IRPF tax return. Additionally, if you own assets abroad worth more than €50,000, you must submit the Modelo 720, an informative declaration of your foreign bank accounts, investments, and real estate.
Conclusion
Moving to Spain offers not only an attractive climate and high quality of life but also tax advantages. By becoming a tax resident, you can benefit from lower taxes and a more favorable economic environment. However, it is important to be aware of your obligations to avoid unpleasant surprises.
Are you ready for a new adventure under the Spanish sun? If you plan to buy a home in Spain, contact us to make your dream a reality!
