With the amazing weather and laid-back lifestyle, it is not a surprise that many foreigners consider Spain as the perfect destination for them and their families to move to. If you are one of those, you would probably like to know what tax filing obligations Spanish tax residents have and if there are any other considerations to bear in mind.
Here at Spence Clarke we are always glad to help, and this is why we have summarized the most important points:
Resident yearly tax filing obligations
- M720 declarations (declaration of non-Spanish assets). This is merely an informative declaration that doesn´t entail paying any tax.
You can find the answers to the most common questions asked about the M720 here: https://www.spenceclarke.com/articles/m720-faqs/
- M100 (Income tax) campaign, between April and June of each year. Spanish tax residents have to declare their worldwide income regardless of where it comes from.
2.1 M714 (Wealth tax declaration). During this same period, Spanish tax residents will need to submit a wealth tax declaration if their wealth is above a certain threshhold, which varies amongst regions, the general rule being 700.000€ with an additional allowance of 300.000€ on the habitual dwelling. They will then be taxed on their worldwide wealth above this threshhold.
2.2 M718 (Grandes fortunas). Last but not least, there is a “temporary” tax called Impuesto sobre Grandes Fortunas, which has to be filed by anyone with a net wealth of 3.700.000€. Note the speech marks on “temporary”, as, unfortunately, these taxes seem to have a way of sticking. It is important to remember that the M714 started as a temporary tax as well…
You can find out more about this tax here: https://www.spenceclarke.com/articles/spains-new-national-tax-on-wealth/
Other tax filing obligations
There are other tax filing obligations that a tax resident would need to consider, such as gift tax and inheritance tax. As in Spain the beneficiary of a gift or inheritance has the obligation to submit a tax declaration.
Of course, if you are running a business in Spain, additional tax obligations would need to be dealt with quarterly and annually.
You can check our tax guides in this respect in the following links:
https://www.spenceclarke.com/wp-content/uploads/2024-Tax-tables.pdf
https://www.spenceclarke.com/articles/spanish-tax-forms-guide/
The importance of timing when moving to Spain
In contrast to other countries, Spain does not have in its legislation the concept of partial tax residency. This means, in general terms, that if you move to Spain during the first 6 months of the year (for example March), you would be considered Spanish tax resident from 1st January that year (not from March as one would expect). Contrarily, if you move during the last 6 months of the year, you will not be regarded as such until 1st January of the following year, in this case you would be considered a non-resident for the whole year.
While this may seem drastic, it also opens up the possibility for efficient tax planning, if done with sufficient time. Making it possible to avoid unexpected tax liabilities, such as capital gains from the sale of a previous home or business or cashing in a lumpsum of a pension, which could be tax free in the UK but not in Spain, for example, amongst others.
And to the last question; where?
You might be thinking at this point; well now I have a general idea of the Spanish tax system I will start looking for the area that mostly suits me and start looking for a home, but there is more.
Spain is divided into 17 autonomous regions which each applying their own tax rates and exemptions.
As a result, a Spanish tax resident´s tax liability can vary immensely from one region to another.
For example, if we were to estimate the tax payable for a Spanish tax resident with an income of 40.000€ per year and a total wealth of 3.000.000€, living in Madrid, one of the most beneficial areas, this person would pay approximately 8.250€ in total. The same person, but living in Valencia, one of the least favourable locations from a tax point of view, this person would pay approximately 23.100€ (8.900€ in income tax and 14.200€ in wealth tax). A huge difference of 14.850€, mainly due to the fact that the threshhold for wealth tax in Valencia is as little as 500.000€, whereas in Madrid there is a 100% exemption on this same tax. But as you can see, even if you are below the wealth tax limit, after 10 years of living in Spain you could end up paying 6.500€ more in income tax.
Having said this, I do ask myself; does it seem fair that two people living in the same country, with identical income and wealth, can face such different tax liabilities?
Once you have chosen the region of Spain where you would like to move and you have obtained your permit, you would also need to register at the tax office as a tax resident, even if you are retired. Additionally, if you decided to work whilst living in Spain, whether as self-employed or as an employee of your own company, other registrations are required to avoid breaking the rules, with exposure to unpleasant fines for not having done things properly.
In any case, we always recommend seeking professional tax advice well in advance of choosing where to live in Spain, to be clear on what obligations you would have to face when moving to Spain.
