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Taxation of inbound expatriates in Spain

Spanish Income tax and Wealth tax

A person’s liability for Spanish Income Tax and Wealth Tax is determined by his residence status.

A tax resident of Spain is an individual who remains in Spain for more than 183 days in any given calendar year or has his business or economic interests located in this country. Temporary absences from Spain are disregarded in order to calculate the number of days spent in Spanish territory, unless the individual can prove residency in another country.

A Spanish tax resident person is liable to Spanish Income Tax and Wealth tax on his worldwide income and wealth, respectively. As an exception Spanish Wealth Tax is not actually levied in the Region of Madrid.

The Income Tax rates consist of a progressive rates’ scale with a general 45 percent top marginal rate, which varies depending on the Autonomous Community (Region) where the taxpayer is resident.

The Wealth Tax rates consist of a progressive rates’ scale with a general 2.5 percent top marginal rate, which also varies depending on the Autonomous Community (Region) where the taxpayer is resident.

Special Tax Regime for Inbound Expatriates

General

The law offers a special inbound expatriate tax regime for individuals settling in Spain either as

  • an employee or
  • a company director, provided that they are not related to the company pursuant to Spanish transfer pricing regulations.

Under the special inbound expatriate tax regime the taxpayer will be treated during the tax year in which he moves to Spain and for the next five (5) years as a non-resident for tax purposes and be liable to

  • Income Tax at advantageous tax rates exclusively in respect of his worldwide earned income and any other Spanish-source income and to
  • Wealth Tax exclusively in respect of his assets and rights located in Spain.

Requirements

A tax payer may opt for the special inbound expatriate tax regime if the following requirements are met:

  • The taxpayer has not been a tax resident in Spain during the 10 calendar years prior to the year of displacement to Spain.
  • The displacement to Spain takes place under a Spanish employment contract or the assignment to a Spanish entity of a group, or following the appointment as a member of the board of directors of an unrelated company.
  • Income is not obtained through a permanent establishment in Spain nor under a professional sport employment contract, as defined under Royal Decree 1006 of 26 June 1985.

The application to the Special Tax Regime (Form 149) has to be filed within six months as from the individual starting his activity in Spain.

Taxable income and wealth

Income Tax

Under the special inbound expatriate tax regime the taxpayer will be exclusively taxed on

  • his worldwide earned income (with the exception of the income derived from an activity developed prior to the date of displacement to Spain or after the date of departure communication from Spain), and on
  • any other income (e.g., interests, dividends and capital gains) obtained in Spain (Spanish-source income).

The taxpayer will not benefit from any tax exemption set forth under the Non-Residents Income Tax nor will be entitled to offset tax losses against income.

Wealth Tax

Under the special inbound expatriate tax regime the taxable base will be subject to taxation at normal Wealth Tax rates.

The taxpayer will be entitled to a tax credit for taxes paid abroad on foreign assets and rights.

Annual Tax returns

The annual Income and Wealth Tax returns have to be filed within the months of May and June of the year following the year for which the returns are filed.

Should you need any further assistance on the matter, please do not hesitate in contact our law offices in Madrid, Barcelona, Marbella, Gran Canaria or Mallorca.

Guillermo Frühbeck Borrero – Dr. Frühbeck Abogados Madrid

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