The Spanish income tax system provides a generous tax free regime for persons who are resident in Spain but work abroad for part or all of the year.
Individuals are allowed up to 60.100 euros tax free income subject to the following conditions:
- That the person is tax resident in Spain, i.e. has habitual residence in Spain.
- Employer must be a foreign business, or a foreign permanent establishment of a Spanish business.
- Work is carried out outside of Spain and not listed as a tax haven.
- That the employer applies a tax similar to Spanish income tax. This condition is considered satisfied if Spain has signed a double tax treaty with that country, but failing this, other forms of proof may be admitted.
- There is no effective minimum taxation requirement for the other country to apply, with the result that income tax charged by the other country may effectively be zero.
In the case of qualifying foreign income that exceeds the 60.100 euros limit, the deduction applies up to the limit, leaving the excess income subject to income tax in the normal manner.
Tax legally paid in the foreign country is available as a tax credit in Spain but only as a credit against Spanish income tax applicable to income from the same source that has exceeded the 60.100 euros limit.
The exempted income is not included in the progressive income calculation for the purposes of determining the tax rates applicable to other sources of income. In other words, exempted income is not considered to exist with the result that any excess of income over the limit of 60.100 euros or income from other sources will be subject to the lowest income tax rates available to the individual.
It is important to understand that a person whose only home is in Spain is regarded as tax resident in Spain and is required to file a Spanish income tax declaration. It is often incorrectly thought that if a person’s only sources of income arise from non-Spanish sources then there is no obligation to file Spanish income tax declarations.
Examples where the tax free allowance applies to work abroad:
- On a North Sea oil rig for a UK registered employer.
- For a Norwegian registered shipping company.
- For a petroleum products engineering company in Saudi Arabia.
Examples where the tax free allowance does not work:
- Being sent to work in the UK by a Spanish employer, unless employment is contacted by a formal UK branch of the employer.
- Working as a Chef (for example) in a restaurant in Monaco. This is because Monaco is listed as a tax haven.
- For a petroleum products engineering company in Bahrain. This is because Bahrain is listed as a tax haven despite the fact that a double tax treaty has been negotiated because the treaty has not yet come into effect.
