How to file income tax returns in Spain

Navigating the tax system in a new country can be a daunting task, especially when you're not familiar with the intricacies of its laws and regulations. If you've recently moved to Spain or are a long-term resident, understanding how to file your income tax return is crucial to ensure compliance and potentially maximise your returns. Here's everything you need to know about filing your annual tax declaration in Spain:

Who Needs to File a Tax Declaration in Spain?

In Spain, both residents and non-residents have income tax obligations, but the specifics depend on various factors such as your income source and residency status. Let's dive into who is required to file a tax declaration:

• Tax Residents: You're considered a tax resident in Spain for different reasons :

1. If you spend more than 183 days in the country within a calendar year
2. You have economic interests primarily located in Spain
3. Your spouse and minor children reside in Spain

Tax residents must declare their worldwide income both passive and active, which includes employment income, dividends, savings, investments, and rental income.

• Non-Tax Residents: If you don't meet the criteria above, you're likely a non-resident for tax purposes, obligated to pay tax only on income earned in Spain. This includes employment income sourced within Spain or rental income from Spanish property.

Tax Declaration Exemptions

Not everyone is required to file a tax return in Spain. For instance, tax residents whose only income comes from employment and totals less than €22,000 annually from a single payer or whose passive income (for example: interests, dividends or capital gains) totals less than €1,600 per year, would be exempt. However, the criteria change if you have multiple income payers or other types of income.

Understanding Your Tax Obligations

Income tax rates in Spain are progressive, meaning the more you earn, the higher the percentage of tax you'll pay, ranging from 19% to 47%. You can see in the table below the current tax rate for income tax in Spain:

For the sake of understanding how your tax declaration works, firstly, you must differentiate your active income from your passive income.

Active income refers to money that you earn by actively working. This includes wages, salaries, tips, and income from businesses in which you actively participate. It involves a direct exchange of your time and effort for money.

Passive income, on the other hand, is money earned without an active, direct involvement. It is often called "money while you sleep", and includes things like dividends from investments, rental income from real estate, and earnings from an online business that doesn't require daily involvement.

In 2024, the tax rates on active income range from 19% to 47%, based on income brackets that take into account both the income amount and your autonomous community. However passive incomes are taxed at different rates, starting at 19% for the first €6,000 and scaling up to 28% for amounts over €300,000.

After establishing your tax obligations you will either find yourself in a situation where you have to pay additional tax or you are due a tax refund. If you have to pay, you can choose whether to pay the amount in one payment or in two instalments or more. If you are due a refund, that will be paid back into your bank account after presenting your declaration.

Income tax can be paid through a direct debit from your bank account, in-person at designated financial institutions, or online via the Agencia Tributaria (Spanish Tax Agency) website.

How to File Your Income Tax Return in Spain

Filing your tax return in Spain has been streamlined thanks to the Renta Web platform, allowing most taxpayers to complete the process online. However, we would only recommend this route if your tax situation is straightforward and clear. Here’s a quick overview:

Understanding your 'Borrador' – Draft Tax Return

The 'borrador' is a preliminary tax return provided by the Spanish Tax Agency, pre-filled with data they already have. This effectively works as a starting point. It’s crucial to review this document carefully as it may not include all your deductible expenses or sources of income. You can access this draft via the Renta Web platform.

Carrying Out the Process Online

1. Access the Renta Web Platform: Visit the Agencia Tributaria website and access the Renta web service.
2. Identify Yourself: Log in using your digital certificate, Cl@ve PIN, or reference number.
3. Review Your Draft Tax Return (Borrador): Check the pre-filled information for any inaccuracies or omissions.
4. Modify and Complete: Adjust any details as necessary, including adding deductibles and income not previously included.
5. Submit: Once you've reviewed and confirmed all information is correct, submit your tax return.
6. Payment or Refund: Depending on the outcome, you'll either need to arrange payment or wait for your refund.

Non-residents and those with more complex tax situations might require additional forms and would benefit from using a professional tax advisor or 'gestor' to ensure accuracy and compliance.

Why Consider Professional Help?

While the process might seem straightforward for those with simpler tax situations, the Spanish tax system’s complexities often mean that seeking advice from a tax professional can save you time, ensure compliance, and even identify potential savings or deductions you might have missed. Please keep in mind that certain rules change between the autonomous communities, this is one area where a tax expert can assist you.

Key Dates

The Spanish tax year aligns with the calendar year, with tax returns generally filed between 3rd April and 1st July of the following year. The 3rd of April 2024 would mark the start of the payment period for the 2023 tax year declaration (from January to December 2023).

What If You Don't Pay On Time?

Failing to submit your tax return or pay any owed tax before the deadline can result in penalties, including late filing fees and interest on unpaid amounts. It's essential to be mindful of deadlines and requirements to avoid unnecessary charges. The Spanish Tax Agency may also take enforcement actions to collect unpaid taxes.

Tax Deductions or Bonifications

Spain offers various tax deductibles and relief options, including deductions for large family expenses, rental expenses, pension contributions, and donations. Maximising these benefits can significantly reduce your taxable income. These deductions can vary between the different autonomous communities, but there are also bonifications determined by the State. For example, if you deposit more than €1,500 into your pension each year this can be deducted. Alternatively, if you are freelance you can deduct your expenses related to your activity and an additional €500 if you have private medical insurance.

Income such as rental income enjoys favourable bonifications. Residents can qualify for a 60% deduction of their profit obtained from rental income when renting out property for a permanent residence, alongside deductions for associated costs such as maintenance and insurance. Non-residents from the EU pay a 19% tax rate on rental income after expenses, whereas non-EU non-residents are taxed at 24% with no expense deductions.

Deductions are also allowed for donations to Non-Profit Organisations or political parties. It's vital to stay informed about any deductions or tax relief options you might be eligible for. Find out more about income tax deductions here.

Double Taxation Agreements in Spain

Spain has entered double taxation treaties with many countries to prevent paying tax on the same income in two countries. This can significantly affect how you file and what you owe. For comprehensive details, visit our article on double taxation agreements in Spain.

Beckham's Law and How it Affects Your Tax Declaration

Beckham's Law allows certain expatriates, notably those moving to Spain for work, to elect to be taxed as a non-resident, capping their tax rate at 24% for incomes up to €600,000. This option is available for the first six years of residency.

Navigating the intricacies of the Spanish tax system can be daunting, especially when considering the nuances of tax residency, available deductions, and digital processing. However, by breaking down each step, keeping aware of your obligations, and utilising available resources, the process becomes decidedly more manageable. For those looking for personalised assistance, consulting with a professional tax expert (gestor) is highly advisable. Consult our directory of tax experts to find the right professional for your needs and ensure your tax filings are correctly handled, allowing you peace of mind to enjoy the beautiful diversity Spain offers.