What financial planning steps should expats take when moving to Spain?

Relocating to Spain offers an enriching lifestyle and new opportunities, but careful financial planning is essential to making the most of your move. As an expat, understanding how residency status, tax obligations, and managing foreign income will impact your finances can help you build a stable foundation. This guide provides an overview of the basics you’ll need to know, from determining your residency status and visa type to handling taxes on income earned abroad.

Navigating residency and visas

When moving to Spain, choosing the right visa is an important first step. Residency status affects your eligibility for work, the tax you pay, and your access to public services. Below, we explain some basic concepts on this subject.

Visa types for expats in Spain

The visa you need depends on your income and plans in Spain. Here are the main options:

• Non-Lucrative visa: Designed for retirees or those with passive income from outside Spain, this visa allows you to live in Spain but not to work.
• Work visa: Necessary if you plan to work for a Spanish employer or start a business in Spain.
• Other visa types: Spain offers additional options, such as student visas, entrepreneur visas, and family reunification visas for expats joining family members.

For a detailed overview of each visa type, requirements, and application steps, refer to our complete guide to Spanish visas.

Understanding tax residency

Tax residency is determined by where you live and where you have economic ties. In Spain, you’ll generally be considered a tax resident if:

• You live in Spain for more than 183 days in a calendar year, regardless of whether these are consecutive. This rule applies even if you hold property or conduct business outside Spain, as the Spanish tax authorities base this rule on physical presence within the country. Days spent outside Spain due to temporary absences, such as holidays, may also count towards this total if your habitual residence is considered Spain.
• Your primary business or economic interests are based in Spain. This criterion generally applies if you own businesses, have primary income sources, or possess substantial assets within Spain. Therefore, owning significant property or conducting the main part of your business in Spain can impact your residency status, even if you do not spend 183 days in the country.

Tax residency status means you’ll be taxed on worldwide income, including earnings from abroad. Properly structuring your residency status before and after your move can help you plan for tax obligations more effectively.

Understanding the financial steps to buying property in Spain

For expats planning to purchase a property, understanding the financial steps involved is essential. From budgeting for property taxes to planning around legal fees, these expenses add up and can impact your overall financial plan.

Key steps include:

1. Setting a budget: Factor in not only the property price but also additional costs like legal fees, taxes, and maintenance.
2. Understanding property taxes and expenses: Spain has specific transaction taxes and ongoing property taxes. For a detailed look at these costs, check out our guide on property expenses and taxes in Spain.
3. Securing financing: If you plan to finance, understanding mortgage options for non-residents and residents in Spain can help ensure you get the best rates and terms.

Planning ahead for property expenses alongside other financial obligations can help you build a secure financial foundation in Spain.

Managing tax obligations as an expat in Spain

Spain’s tax rules for expats depend on whether you are a resident or non-resident. Here’s a brief overview of what each entail:

1. Personal income tax (PIT) for residents: Residents in Spain pay income tax on their worldwide earnings. Tax rates vary by income level and range from 19% to 47%, with possible regional variations.
2. Non-resident income tax (NRIT): Non-residents are only taxed on income generated within Spain. Examples include income from a rental property, employment with a Spanish company, or local investments:

• Rental income: 24% tax rate for non-EU/EEA residents.
• Capital gains and dividends: A flat rate of 19%.

3. Wealth tax: Spain applies a wealth tax on high-value assets, which affects residents on their global assets and non-residents on Spanish assets only. Typically, this tax applies to assets exceeding €700,000, with rates between 0.2% and 3.5%, though some regions offer tax exemptions.

Avoiding double taxation: benefits under tax treaties

For expats earning income from multiple countries, Double Taxation Agreements (DTAs) help prevent being taxed on the same income twice. Spain has tax treaties with many countries, including the United States, Canada, and the U.K. Here’s what DTAs can do:

1. Income exemptions or tax credits: DTAs can either exempt foreign-earned income from Spanish taxes or allow you to claim credits for taxes paid in the source country. For instance, if you pay tax in the UK on foreign income, you may be able to offset it against your Spanish tax obligations.
2. Foreign tax credits: These credits are especially beneficial for those with passive income or investments abroad. Consulting with a tax advisor can help you apply for the right credits to minimise your overall tax liability.
3. Beckham law: As you may know, the "Beckham Law" is named after footballer David Beckham, who benefited from this tax regime when he joined Real Madrid in 2003, allowing him to be taxed as a non-resident despite living in Spain. Some expats relocating for work may be eligible for that regime, which allows qualifying individuals to be taxed as non-residents at a flat 24% rate on Spanish income for up to six years. Eligibility requires no Spanish tax residency in the prior ten years.

If you’d like more in-depth advice, see our tax guide for expats in Spain or speak with a tax advisor who specialises in cross-border tax issues.

Managing foreign income and assets in Spain

Expats often have income or assets abroad and understanding Spain’s rules on foreign-earned income and asset reporting is essential. You should take into account the following issues:

1. Declaring foreign income: Spanish tax residents must declare all worldwide income. Under DTAs, some income may be eligible for exemptions or credits if already taxed abroad, as explained above. This is especially relevant for retirees receiving pensions or those with rental income from property outside Spain.
2. Reporting foreign assets: If you hold assets abroad (bank accounts, properties, investments) valued over €50,000, Spain requires you to file the Modelo 720 form by March 31 each year. Non-compliance with Modelo 720 can lead to significant fines, so staying up to date with your asset reporting is critical.
3. Investment and tax-advantaged accounts: Spain offers special tax-advantaged savings plans for residents, such as the Plan de Ahorro 5, which is beneficial for long-term savings. This option was introduced in Spain in 2015 as part of a tax reform to encourage long-term savings with tax advantages for residents. There are two models for this type of savings plan:

• Cuenta Individual de Ahorro a Largo Plazo (CIALP): This bank-managed account functions as a savings account with tax-free growth on interest if held for five years, capped at €5,000 per year.
• Seguro Individual de Ahorro a Largo Plazo (SIALP): An insurance-managed account with similar tax benefits and an insurance component.

These accounts are conservative options for saving, structured to provide tax-free growth on interest, which may appeal to expats looking for low-risk, tax-efficient savings.

Exploring retirement planning and pension options in Spain

For expats planning to retire in Spain, securing stable income through Spain’s pension system or private pension plans is essential.

1. Spanish public pension system (Seguridad Social): Funded through social security contributions, this system provides pensions based on years of contributions. Public pension amounts may be lower than what expats from countries like the UK or the U.S. are used to, so many choose to supplement with private options.
2. Private pension plans: Private pension plans in Spain offer a valuable way to build additional retirement savings with certain tax advantages. Contributions to these plans may be tax-deductible up to a specified limit, potentially reducing annual taxable income and allowing for significant savings each year. Additionally, upon retirement, these funds can provide a supplementary income, complementing public pensions and giving retirees more financial flexibility and security.
3. Social security agreements: Spain maintains bilateral social security agreements with numerous countries, including many in the EU, the United States, and other nations, allowing contributions made in these countries to count toward Spanish social security benefits. This arrangement helps expats preserve their accrued benefits, enabling them to combine periods of contributions across countries to meet Spain's eligibility requirements for pensions, healthcare, and other social security entitlements. It is particularly advantageous for those who have lived or worked in multiple countries and want to maximise their retirement benefits in Spain.

For further retirement details, consult our guides on retirement planning in Spain.

Securing healthcare and social security for financial peace of mind

Spain’s healthcare system is accessible and generally affordable, but many expats choose to supplement public coverage with private insurance.

1. Public healthcare: Expats employed in Spain or those on non-lucrative visas making voluntary social security contributions have access to Spain’s public healthcare.
2. Private health insurance: Private insurance is often inexpensive compared to other countries and can offer faster access to specialists and English-speaking providers.

Our guide to healthcare in Spain offers more detailed information on coverage options for expats.

Effective financial planning is crucial for expats relocating to Spain, helping you avoid unexpected costs and secure a stable foundation. From understanding residency requirements and tax obligations to managing property expenses, a structured approach can make your transition smoother.

For a complete overview of what to consider when planning your move—from legal and financial essentials to lifestyle adjustments—see our guides to moving to Spain. Working with a financial advisor experienced in international tax can also help you navigate Spain’s financial landscape, ensuring a well-prepared and enjoyable start to your new life in Spain.