SPAIN'S government has increased the minimum wage after striking a deal with national unions, a move that will affect at least 1.8 million workers.
Income tax return season starts: Your comprehensive guide
11/04/2023
WE'VE only just finished our Easter holidays, and already there's another key date waiting for us.
Today - Tuesday, April 11 – is, if you live in Spain, the start of Declaración de la Renta season, which concludes on the last working day in June.
Basically, that's our annual personal income tax declarations, and which can be either a source of dread or excitement, depending upon your situation.
If you've overpaid in the calendar year of 2022, you'll be due something back, but if you've underpaid, you'll need to hand over the difference.
For those fortunate enough to be in the first category, the State tax office, Hacienda, has until December 31 to pay it to you without adding on any interest.
This effectively means that any tax you overpaid in the year 2022 does not legally have to be refunded to you until the day before 2024 starts, and interest-free, which can be frustrating.
But the good news is that Hacienda does not normally stretch it out that long, especially if you get your declaration in early – sometimes, taxpayers get their rebates before May is out.
For those who need to pay to make up a shortfall, you would typically be expected to settle it in a lump sum before the end of June, but as long as you apply to do so before the close of 'declaration window', you can arrange to stagger it in several quotas.
Who is required to make a Declaración de la Renta
Annual tax declarations, in Spain, are not just for the self-employed. Almost everyone has to file one, even if they are retired or their income is from non-work-related activities – but there are some exceptions.
You should always seek professional advice if you suspect you may be exempt, since you could be fined if it turns out you should have made a declaration and failed to do so.
In general, tax residents in Spain who do not have to make an annual declaration are those whose income for the whole of the previous calendar year was from just one source, and was less than €22,000 in total.
So, if you have a full-time job, and do not earn any money from anything else, then you are normally exempt.
Small amounts of money received as gifts or, for example, interest on a deposit account, selling a few second-hand personal effects at a village fête or on eBay, or a friend giving you €10 as a thanks for feeding their pets when they were on holiday, do not normally count as 'earnings' for tax declaration purposes. Again, though, you should seek professional advice to ensure that any money coming your way that was not through your normal working activities would not be classed as 'income'.
But if you have one full-time job and also rent out a small flat you bought as an investment, or if you left a job on January 2 to start a new one that you were in for the remaining 363 days of 2022, you are considered to have received earnings from more than one source.
Additionally, if you only had one full-time job in 2022 but spent any of that year registered as unemployed, on maternity or paternity leave, or on State sick pay, these are deemed to be a second source of income, meaning you will still have to file your IRPF return.
The same normally applies if you are on very low earnings – perhaps you have a part-time job on minimum wage – and received financial help from the State or your local authority, such as food vouchers.
'Sources of income' in addition to a sole full-time job you held the whole of 2022 and which may still mean you have to do a tax return can be surprising; one of these is if you took advantage of a government 'cash-for-scrap' scheme to upgrade your car, or for buying an electric car, or having solar panels fitted to your home.
Others who do not normally have to file a declaration are those whose total income for the year was below the minimum €14,000 threshold.
Those not living in Spain full-time
If you spend 183 days or more of a calendar year in Spain, you are automatically deemed to be 'tax resident', even if you have never applied for a residence permit and do not intend to remain living there.
For those who have spent less than 183 days of the year in Spain, you will be required to file a Declaración de la Renta if you have earned any money in the country – through a job that you held for at least a month, through rental income earned on a holiday home or investment property you have in Spain, for example.
Also, if you own a home in Spain, even if you do not live in it, you may have to file a declaration.
Making a tax declaration in Spain does not automatically mean you will have to pay tax in the country; indeed, it could be that you have, indeed, paid some tax through your earnings there and did not need to, so you will get it refunded to you.
Non-resident tax declarations follow a different timetable to resident declarations – make sure you get advice on when the deadlines are, to ensure you don't miss them.
Pensioners resident in Spain
The exemptions based upon earnings from only one source, or below the minimum €14,000 threshold, also apply to those who have retired from work. If you are on a State pension from Spain – or you have moved to Spain from another country and get a State pension from your nation of origin – you still have to declare it in Spain unless it is the only income you receive.
Given that many countries have company pension schemes as well as State pensions, your income may well be from more than one source after retirement, meaning you are obliged to file a declaration in Spain.
Your Declaración de la Renta applies to your worldwide earnings if you are resident in Spain, not just money earned on Spanish soil.
But some pensions are taxed at source in the country they are paid from – this is often the case with pensions paid by Civil Service, police forces, or the military – or perhaps the contributions you made to your pension fund over your working life were taxed as you paid them in.
As a result, different countries have very different tax systems. Many of them have 'dual tax agreements' with other nations, so their authorities share information to make sure you do not end up having to pay twice on the same income.
This does mean, though, that if you live in Spain and your income is from a different country, where the tax you have already paid on that income in that country is lower than you would be liable for in Spain, you will need to pay the difference to Hacienda.
On the other hand, with 'dual tax agreements' between countries, it could be that the rates you paid for your income from overseas at source are higher than you would be expected to pay in Spain, so you might get a rebate from your previous country.
How to get help
Filing a Declaración de la Renta is quite a complex exercise, meaning practically everyone does so through a legal and financial advisor, known as a gestor or asesor. They will normally charge anything from around €40 to €100 to do it all for you, and will also be able to tell you whether or not you are obliged to do so.
Although not everyone is required by law to make a declaration, this does not mean anyone is actually forbidden to so. As a result, many who do not need to make a tax declaration may choose to do so anyway, if they or their gestor calculates that they are likely to get a refund.
This said, your gestor might advise you, if you fall into that category, not to bother if his or her fee is about the same or more than you would get as a rebate.
You can, of course, file your Declaración de la Renta yourself, by going to your nearest Hacienda branch in person. To do this, you would need to book an appointment after May 25, for a visit no sooner than June 1.
But you would need to make sure you had all the paperwork to show your annual earnings, as well as all necessary documents for any expenses you have incurred that may be possible to offset against your IRPF liabilities. As a consequence, there is a strong chance you might miss out something crucial, or make a mistake on the form, and you may have to travel some distance, so it is generally considered not worth the hassle. A gestor's fee – you can check how much they charge in advance, and enquire with other gestorías in your town to make a comparison – is normally held to be a sound investment.
Gestores have access to the required taxation computer system, and know what to ask you to supply if they do not already have this information to hand, as well as advising you what you might be able to offset against your tax liabilities. This way, you can guarantee it is all done properly, with no expensive mistakes or omissions.
Some of the personal and work expenses you can offset against your IRPF
Note that your annual Declaración de la Renta applies to you as an individual – so if you own a company, only any money you pay yourself personally as a wage in the firm's name is relevant to your IRPF return.
You should check with a gestor exactly what you can offset against your income tax liabilities, but in general, having a mortgage on a primary residence helps reduce what you owe and can make the difference between getting a bill and getting a refund.
The same applies with personal loans, car loans, contributions to a personal pension fund, and any donations you may have made to charity – and, if you are employed, any membership funds you pay to a union.
If you have children in compulsory full-time education, you will probably be able to offset any expenses relating to their schooling, such as uniforms, PE kits and textbooks, since the Spanish government has just announced that these will now be considered as personal expenses for IRPF purposes.
Although financial assistance for parents of dependant children is very limited in Spain compared to much of northern Europe, small tax rebates – typically around €100 a month – may be applied, in accordance with your overall income and personal situation.
This 'personal situation' could include being a single parent or a 'large family' (either a couple with three or more children, or a one-parent family with two or more); having a disability or a household member with a disability; having care duties, such as a dependant parent or child living with you; or being a victim of domestic or gender violence, where this has been reported and confirmed.
Disability – temporary or permanent - will normally only count for reduced tax if you have been officially granted a minimum 'grade' of 33%. Whilst being able to get a declaration that you are, say, 20% or 25% disabled may help you in other ways – as proof of your condition or limitations where needed, or to prevent discrimination – any figure below 33% disabled rarely comes with financial benefits such as IRPF reductions.
If any of your income in the previous calendar year has come from property-related activities – renting out a home you own, or selling it and 'downsizing' by buying a new home that's cheaper – you may also get a reduction of your income tax liabilities for certain factors such as necessary repairs, maintenance, or refurbishments you have carried out which increased its value or its energy efficiency.
This applies equally to a home you rent out or have sold in another country, whether or not it is a main residence.
Tax liability on rental income you have received may also be reduced if you have a mortgage on the premises, but if you own more than one home for your personal use and have mortgages on them, only the loan on your main residence will help reduce your income tax bill.
If you are self-employed but are not operating as a company, expenses that may help reduce your IRPF liabilities would be those you have necessarily incurred in order to do your job – new equipment or repairs and maintenance on existing work items, for example, or membership of or subscription to professional or regulatory bodies, whether compulsory to enable you to practice or not, or any money you have spent on professional training, qualifications or attending conferences, or on subscribing to professional publications or periodicals. Even your standard monthly Social Security payments – which cover healthcare, future retirement or sickness pension, maternity or paternity leave, temporary sick pay, and so on – can be partially offset against your IRPF.
You will not, of course, get 100% of what you paid on these elements back, but you may get a small percentage of your costs subtracted from your IRPF liabilities for the year. Exactly how much will vary widely – possibly the full amount for necessary work-related expenditure if you are self-employed, or just a single-figure percentage for other aspects.
Concluding the declaration process
Fortunately, long gone are the days when the ordinary individual would have to take time collecting annual tax summary statements from their banks, mortgage and loan providers, and charities they made regular contributions to. At one time, these would not automatically be included on the draft return issued by Hacienda, so you would have to present them to guarantee you got the deductions you were entitled to. In fact, you would even be given a copy of the declaration result in paper format, then have to get it stamped by counter staff at the bank to validate it, and pay anything you owed over the desk.
Nowadays, details of your pension contributions, mortgage repayments, loan repayments and standing orders to charities are present on the Hacienda system your gestor has access to, so will be applied directly without any additional effort on your part.
Other expenses may not, however, so your gestor might ask you for documentary evidence.
Finally, your gestor will send off the completed form electronically, along with any application for deferred or 'staggered' quotas of tax you owe if you want to pay it off gradually.
If you decide to pay your dues in one lump sum, the Agencia Tributaria will take it directly from your bank – the entry will show as being a payment to 'AEAT'.
For those who are due a refund, this will simply appear in your bank account with the source description as Devolución Renta ('Income Tax Rebate').
Should this refund not appear by New Year's Eve 2023, contact your gestor and ask them to investigate, as there may be technical reasons relating to your declaration that have caused the hold-up. Where the rebate is late, you will normally be paid some interest, but this is typically a very small amount – measured in cents rather than euros.
When seeking finance, such as hire purchase or a bank loan, you are normally asked to show a copy of your most recent Declaración de la Renta. Where this is the case, your gestor can either give you the printed version, or email it to you in PDF format, upon request.
'Staggered' repayments not yet due could still be deducted from your rebate
Those due an IRPF rebate should bear in mind that if they have been granted a quota-based repayment scheme for other tax obligations earlier in the year, Hacienda may deduct whatever you still owe from your rebate.
As an example, if you opted to 'break up' your IVA (value-added tax) bill for the final quarter of 2022 (payable by January 30, 2023) or for the first quarter of 2023 (which will be payable by April 20), into perhaps two, three or four monthly quotas, any of these quotas that are not due to be collected yet may be deducted in full from any cash you are due in return after your Declaración de la Renta.
So even if you get your rebate in June, and were not due to pay quotas for 'splitting up' your IVA bill until, say, July, August and September, you might still find all these have been subtracted from your refund in advance.
If this does not make sense to you, don't worry, because it probably means you are not in that situation. Those who are – typically the self-employed – will understand.
Warning for taxpayers with more than one job
You should also be aware that, if you have two or more jobs – as an employee, with a contract – or are employed and also do self-employed work on top, the income tax (IRPF) retained at source by your firm may fall short of what you should actually be paying.
The Agencia Tributaria – the State tax-collection agency – recently warned about this factor, as it frequently causes misunderstanding.
Let's say you work part-time in two companies, and each one pays you €20,000 a year, meaning a total gross salary of €40,000.
This is an extremely good wage in Spain, where the mean average is in region of €25,000 and the mode, or most common, is a take-home pay of between €1,200 and €1,400 a month.
Each of your two companies will deduct income tax as though they were the providers of your only job.
The minimum threshold for paying IRPF is €15,000 a year from the start of 2023, and was €14,000 in 2022.
So each of your two employers will only be taxing you on €6,000 of your annual gross pay (€5,000 from this year), or the amount they pay you in wages above the €14,000 threshold.
Between the two companies, then, you will have paid tax on €12,000 of your full earnings.
But as your total gross pay was €40,000, you should in fact be taxed on a total of €26,000, since only one €14,000 threshold applies.
This means that, even though you may have thought your employers were both paying the correct amount on your behalf – and they would be, if each one was your sole job provider – you will, in fact, have underpaid, and will get a bill for the shortfall.
As an employee, though, if you know you are not paying enough – for example, if you got a big bill last year and want to avoid it in future, or if you simply want to guarantee yourself a healthy rebate as your annual 'holiday fund' – you can ask your company to retain more IRPF on your behalf. Naturally, this means you will be earning less throughout the year, but you may prefer it this way if it relieves the uncertainty for you – or even if you know you're not very good at saving up money, since it effectively means your firm and Hacienda can do your saving up for you.
Why have I only been taxed at 2%?
In some cases, your IRPF retention on your pay slip may be as low as 2%, which means you could well find yourself having to make up the difference.
Retentions of 2%, which is the minimum permitted – even on the lowest earnings - are only applied to temporary job contracts (lasting less than a year) or those for ad hoc services or training and work experience.
Almost every company, when you start working for them, will begin with a temporary contract, typically six months, and later convert it into a permanent one if you and they are satisfied with your working relationship.
After two years' service, you are automatically and legally considered a permanent employee even if your company continues to just give you a string of temporary contracts; this was made law many years ago to prevent known abuse by a minority of unscrupulous employers, to reduce the disproportionately-high percentage of non-permanent jobs in Spain, and to give workers the security they needed to be able to commit to a mortgage, buy or rent property, or start a family.
In conclusion, then, if you started a new job at any time in 2022, you will have been on 2% IRPF retentions, and should prepare yourself to have to pay more after your declaration between now and June.
Unless, of course, your total earnings for 2022 were below the €14,000 minimum threshold – in this case, you may get a rebate instead.
Being self-employed means more chance of a rebate
On the other hand, completely self-employed persons tend to find they are more likely to get a rebate than a bill. This is particularly the case if all your clients are corporate and pay you upon receipt of an invoice, since you are required by law to apply a 15% IRPF retention to your fee – this cannot be reduced to help cashflow, nor are you permitted to increase it to guarantee you overpay and get a rebate.
The corporate client then pays you according to your invoice, but minus the 15%, which it gives directly to Hacienda in your name.
At this figure, on average earnings, you are unlikely to have to pay any more and, particularly if you have expenses you can offset against your IRPF bill, may get a very welcome repayment.
The likelihood of a rebate is much higher, since the 15% retentions apply to every single cent of your earnings, not just anything over the first €14,000, despite the minimum threshold applying just as much to you as it does to an employee or any other taxpayer.
Self-employed people whose clients include non-corporate ones, meaning they do not expect customers to pay income tax on their behalf – you wouldn't be required to hand over IRPF for your builder or plumber, for example – make quarterly income tax declarations as well as their annual one in spring, so what they owe tends to be adjusted throughout the year.
Those who are self-employed but whose entire earnings are subject to the 15% retentions are not required by law to make quarterly IRPF declarations, but as you are obliged to charge IVA (value-added tax) on all your earnings, from the first cent and irrespective of how much money you make, you still have to make quarterly IVA declarations.
Here, you can offset the IVA element of any of your expenses, with the cost net of IVA being offset against your IRPF, as detailed above.
Related Topics
WE'VE only just finished our Easter holidays, and already there's another key date waiting for us.
Today - Tuesday, April 11 – is, if you live in Spain, the start of Declaración de la Renta season, which concludes on the last working day in June.
Basically, that's our annual personal income tax declarations, and which can be either a source of dread or excitement, depending upon your situation.
If you've overpaid in the calendar year of 2022, you'll be due something back, but if you've underpaid, you'll need to hand over the difference.
For those fortunate enough to be in the first category, the State tax office, Hacienda, has until December 31 to pay it to you without adding on any interest.
This effectively means that any tax you overpaid in the year 2022 does not legally have to be refunded to you until the day before 2024 starts, and interest-free, which can be frustrating.
But the good news is that Hacienda does not normally stretch it out that long, especially if you get your declaration in early – sometimes, taxpayers get their rebates before May is out.
For those who need to pay to make up a shortfall, you would typically be expected to settle it in a lump sum before the end of June, but as long as you apply to do so before the close of 'declaration window', you can arrange to stagger it in several quotas.
Who is required to make a Declaración de la Renta
Annual tax declarations, in Spain, are not just for the self-employed. Almost everyone has to file one, even if they are retired or their income is from non-work-related activities – but there are some exceptions.
You should always seek professional advice if you suspect you may be exempt, since you could be fined if it turns out you should have made a declaration and failed to do so.
In general, tax residents in Spain who do not have to make an annual declaration are those whose income for the whole of the previous calendar year was from just one source, and was less than €22,000 in total.
So, if you have a full-time job, and do not earn any money from anything else, then you are normally exempt.
Small amounts of money received as gifts or, for example, interest on a deposit account, selling a few second-hand personal effects at a village fête or on eBay, or a friend giving you €10 as a thanks for feeding their pets when they were on holiday, do not normally count as 'earnings' for tax declaration purposes. Again, though, you should seek professional advice to ensure that any money coming your way that was not through your normal working activities would not be classed as 'income'.
But if you have one full-time job and also rent out a small flat you bought as an investment, or if you left a job on January 2 to start a new one that you were in for the remaining 363 days of 2022, you are considered to have received earnings from more than one source.
Additionally, if you only had one full-time job in 2022 but spent any of that year registered as unemployed, on maternity or paternity leave, or on State sick pay, these are deemed to be a second source of income, meaning you will still have to file your IRPF return.
The same normally applies if you are on very low earnings – perhaps you have a part-time job on minimum wage – and received financial help from the State or your local authority, such as food vouchers.
'Sources of income' in addition to a sole full-time job you held the whole of 2022 and which may still mean you have to do a tax return can be surprising; one of these is if you took advantage of a government 'cash-for-scrap' scheme to upgrade your car, or for buying an electric car, or having solar panels fitted to your home.
Others who do not normally have to file a declaration are those whose total income for the year was below the minimum €14,000 threshold.
Those not living in Spain full-time
If you spend 183 days or more of a calendar year in Spain, you are automatically deemed to be 'tax resident', even if you have never applied for a residence permit and do not intend to remain living there.
For those who have spent less than 183 days of the year in Spain, you will be required to file a Declaración de la Renta if you have earned any money in the country – through a job that you held for at least a month, through rental income earned on a holiday home or investment property you have in Spain, for example.
Also, if you own a home in Spain, even if you do not live in it, you may have to file a declaration.
Making a tax declaration in Spain does not automatically mean you will have to pay tax in the country; indeed, it could be that you have, indeed, paid some tax through your earnings there and did not need to, so you will get it refunded to you.
Non-resident tax declarations follow a different timetable to resident declarations – make sure you get advice on when the deadlines are, to ensure you don't miss them.
Pensioners resident in Spain
The exemptions based upon earnings from only one source, or below the minimum €14,000 threshold, also apply to those who have retired from work. If you are on a State pension from Spain – or you have moved to Spain from another country and get a State pension from your nation of origin – you still have to declare it in Spain unless it is the only income you receive.
Given that many countries have company pension schemes as well as State pensions, your income may well be from more than one source after retirement, meaning you are obliged to file a declaration in Spain.
Your Declaración de la Renta applies to your worldwide earnings if you are resident in Spain, not just money earned on Spanish soil.
But some pensions are taxed at source in the country they are paid from – this is often the case with pensions paid by Civil Service, police forces, or the military – or perhaps the contributions you made to your pension fund over your working life were taxed as you paid them in.
As a result, different countries have very different tax systems. Many of them have 'dual tax agreements' with other nations, so their authorities share information to make sure you do not end up having to pay twice on the same income.
This does mean, though, that if you live in Spain and your income is from a different country, where the tax you have already paid on that income in that country is lower than you would be liable for in Spain, you will need to pay the difference to Hacienda.
On the other hand, with 'dual tax agreements' between countries, it could be that the rates you paid for your income from overseas at source are higher than you would be expected to pay in Spain, so you might get a rebate from your previous country.
How to get help
Filing a Declaración de la Renta is quite a complex exercise, meaning practically everyone does so through a legal and financial advisor, known as a gestor or asesor. They will normally charge anything from around €40 to €100 to do it all for you, and will also be able to tell you whether or not you are obliged to do so.
Although not everyone is required by law to make a declaration, this does not mean anyone is actually forbidden to so. As a result, many who do not need to make a tax declaration may choose to do so anyway, if they or their gestor calculates that they are likely to get a refund.
This said, your gestor might advise you, if you fall into that category, not to bother if his or her fee is about the same or more than you would get as a rebate.
You can, of course, file your Declaración de la Renta yourself, by going to your nearest Hacienda branch in person. To do this, you would need to book an appointment after May 25, for a visit no sooner than June 1.
But you would need to make sure you had all the paperwork to show your annual earnings, as well as all necessary documents for any expenses you have incurred that may be possible to offset against your IRPF liabilities. As a consequence, there is a strong chance you might miss out something crucial, or make a mistake on the form, and you may have to travel some distance, so it is generally considered not worth the hassle. A gestor's fee – you can check how much they charge in advance, and enquire with other gestorías in your town to make a comparison – is normally held to be a sound investment.
Gestores have access to the required taxation computer system, and know what to ask you to supply if they do not already have this information to hand, as well as advising you what you might be able to offset against your tax liabilities. This way, you can guarantee it is all done properly, with no expensive mistakes or omissions.
Some of the personal and work expenses you can offset against your IRPF
Note that your annual Declaración de la Renta applies to you as an individual – so if you own a company, only any money you pay yourself personally as a wage in the firm's name is relevant to your IRPF return.
You should check with a gestor exactly what you can offset against your income tax liabilities, but in general, having a mortgage on a primary residence helps reduce what you owe and can make the difference between getting a bill and getting a refund.
The same applies with personal loans, car loans, contributions to a personal pension fund, and any donations you may have made to charity – and, if you are employed, any membership funds you pay to a union.
If you have children in compulsory full-time education, you will probably be able to offset any expenses relating to their schooling, such as uniforms, PE kits and textbooks, since the Spanish government has just announced that these will now be considered as personal expenses for IRPF purposes.
Although financial assistance for parents of dependant children is very limited in Spain compared to much of northern Europe, small tax rebates – typically around €100 a month – may be applied, in accordance with your overall income and personal situation.
This 'personal situation' could include being a single parent or a 'large family' (either a couple with three or more children, or a one-parent family with two or more); having a disability or a household member with a disability; having care duties, such as a dependant parent or child living with you; or being a victim of domestic or gender violence, where this has been reported and confirmed.
Disability – temporary or permanent - will normally only count for reduced tax if you have been officially granted a minimum 'grade' of 33%. Whilst being able to get a declaration that you are, say, 20% or 25% disabled may help you in other ways – as proof of your condition or limitations where needed, or to prevent discrimination – any figure below 33% disabled rarely comes with financial benefits such as IRPF reductions.
If any of your income in the previous calendar year has come from property-related activities – renting out a home you own, or selling it and 'downsizing' by buying a new home that's cheaper – you may also get a reduction of your income tax liabilities for certain factors such as necessary repairs, maintenance, or refurbishments you have carried out which increased its value or its energy efficiency.
This applies equally to a home you rent out or have sold in another country, whether or not it is a main residence.
Tax liability on rental income you have received may also be reduced if you have a mortgage on the premises, but if you own more than one home for your personal use and have mortgages on them, only the loan on your main residence will help reduce your income tax bill.
If you are self-employed but are not operating as a company, expenses that may help reduce your IRPF liabilities would be those you have necessarily incurred in order to do your job – new equipment or repairs and maintenance on existing work items, for example, or membership of or subscription to professional or regulatory bodies, whether compulsory to enable you to practice or not, or any money you have spent on professional training, qualifications or attending conferences, or on subscribing to professional publications or periodicals. Even your standard monthly Social Security payments – which cover healthcare, future retirement or sickness pension, maternity or paternity leave, temporary sick pay, and so on – can be partially offset against your IRPF.
You will not, of course, get 100% of what you paid on these elements back, but you may get a small percentage of your costs subtracted from your IRPF liabilities for the year. Exactly how much will vary widely – possibly the full amount for necessary work-related expenditure if you are self-employed, or just a single-figure percentage for other aspects.
Concluding the declaration process
Fortunately, long gone are the days when the ordinary individual would have to take time collecting annual tax summary statements from their banks, mortgage and loan providers, and charities they made regular contributions to. At one time, these would not automatically be included on the draft return issued by Hacienda, so you would have to present them to guarantee you got the deductions you were entitled to. In fact, you would even be given a copy of the declaration result in paper format, then have to get it stamped by counter staff at the bank to validate it, and pay anything you owed over the desk.
Nowadays, details of your pension contributions, mortgage repayments, loan repayments and standing orders to charities are present on the Hacienda system your gestor has access to, so will be applied directly without any additional effort on your part.
Other expenses may not, however, so your gestor might ask you for documentary evidence.
Finally, your gestor will send off the completed form electronically, along with any application for deferred or 'staggered' quotas of tax you owe if you want to pay it off gradually.
If you decide to pay your dues in one lump sum, the Agencia Tributaria will take it directly from your bank – the entry will show as being a payment to 'AEAT'.
For those who are due a refund, this will simply appear in your bank account with the source description as Devolución Renta ('Income Tax Rebate').
Should this refund not appear by New Year's Eve 2023, contact your gestor and ask them to investigate, as there may be technical reasons relating to your declaration that have caused the hold-up. Where the rebate is late, you will normally be paid some interest, but this is typically a very small amount – measured in cents rather than euros.
When seeking finance, such as hire purchase or a bank loan, you are normally asked to show a copy of your most recent Declaración de la Renta. Where this is the case, your gestor can either give you the printed version, or email it to you in PDF format, upon request.
'Staggered' repayments not yet due could still be deducted from your rebate
Those due an IRPF rebate should bear in mind that if they have been granted a quota-based repayment scheme for other tax obligations earlier in the year, Hacienda may deduct whatever you still owe from your rebate.
As an example, if you opted to 'break up' your IVA (value-added tax) bill for the final quarter of 2022 (payable by January 30, 2023) or for the first quarter of 2023 (which will be payable by April 20), into perhaps two, three or four monthly quotas, any of these quotas that are not due to be collected yet may be deducted in full from any cash you are due in return after your Declaración de la Renta.
So even if you get your rebate in June, and were not due to pay quotas for 'splitting up' your IVA bill until, say, July, August and September, you might still find all these have been subtracted from your refund in advance.
If this does not make sense to you, don't worry, because it probably means you are not in that situation. Those who are – typically the self-employed – will understand.
Warning for taxpayers with more than one job
You should also be aware that, if you have two or more jobs – as an employee, with a contract – or are employed and also do self-employed work on top, the income tax (IRPF) retained at source by your firm may fall short of what you should actually be paying.
The Agencia Tributaria – the State tax-collection agency – recently warned about this factor, as it frequently causes misunderstanding.
Let's say you work part-time in two companies, and each one pays you €20,000 a year, meaning a total gross salary of €40,000.
This is an extremely good wage in Spain, where the mean average is in region of €25,000 and the mode, or most common, is a take-home pay of between €1,200 and €1,400 a month.
Each of your two companies will deduct income tax as though they were the providers of your only job.
The minimum threshold for paying IRPF is €15,000 a year from the start of 2023, and was €14,000 in 2022.
So each of your two employers will only be taxing you on €6,000 of your annual gross pay (€5,000 from this year), or the amount they pay you in wages above the €14,000 threshold.
Between the two companies, then, you will have paid tax on €12,000 of your full earnings.
But as your total gross pay was €40,000, you should in fact be taxed on a total of €26,000, since only one €14,000 threshold applies.
This means that, even though you may have thought your employers were both paying the correct amount on your behalf – and they would be, if each one was your sole job provider – you will, in fact, have underpaid, and will get a bill for the shortfall.
As an employee, though, if you know you are not paying enough – for example, if you got a big bill last year and want to avoid it in future, or if you simply want to guarantee yourself a healthy rebate as your annual 'holiday fund' – you can ask your company to retain more IRPF on your behalf. Naturally, this means you will be earning less throughout the year, but you may prefer it this way if it relieves the uncertainty for you – or even if you know you're not very good at saving up money, since it effectively means your firm and Hacienda can do your saving up for you.
Why have I only been taxed at 2%?
In some cases, your IRPF retention on your pay slip may be as low as 2%, which means you could well find yourself having to make up the difference.
Retentions of 2%, which is the minimum permitted – even on the lowest earnings - are only applied to temporary job contracts (lasting less than a year) or those for ad hoc services or training and work experience.
Almost every company, when you start working for them, will begin with a temporary contract, typically six months, and later convert it into a permanent one if you and they are satisfied with your working relationship.
After two years' service, you are automatically and legally considered a permanent employee even if your company continues to just give you a string of temporary contracts; this was made law many years ago to prevent known abuse by a minority of unscrupulous employers, to reduce the disproportionately-high percentage of non-permanent jobs in Spain, and to give workers the security they needed to be able to commit to a mortgage, buy or rent property, or start a family.
In conclusion, then, if you started a new job at any time in 2022, you will have been on 2% IRPF retentions, and should prepare yourself to have to pay more after your declaration between now and June.
Unless, of course, your total earnings for 2022 were below the €14,000 minimum threshold – in this case, you may get a rebate instead.
Being self-employed means more chance of a rebate
On the other hand, completely self-employed persons tend to find they are more likely to get a rebate than a bill. This is particularly the case if all your clients are corporate and pay you upon receipt of an invoice, since you are required by law to apply a 15% IRPF retention to your fee – this cannot be reduced to help cashflow, nor are you permitted to increase it to guarantee you overpay and get a rebate.
The corporate client then pays you according to your invoice, but minus the 15%, which it gives directly to Hacienda in your name.
At this figure, on average earnings, you are unlikely to have to pay any more and, particularly if you have expenses you can offset against your IRPF bill, may get a very welcome repayment.
The likelihood of a rebate is much higher, since the 15% retentions apply to every single cent of your earnings, not just anything over the first €14,000, despite the minimum threshold applying just as much to you as it does to an employee or any other taxpayer.
Self-employed people whose clients include non-corporate ones, meaning they do not expect customers to pay income tax on their behalf – you wouldn't be required to hand over IRPF for your builder or plumber, for example – make quarterly income tax declarations as well as their annual one in spring, so what they owe tends to be adjusted throughout the year.
Those who are self-employed but whose entire earnings are subject to the 15% retentions are not required by law to make quarterly IRPF declarations, but as you are obliged to charge IVA (value-added tax) on all your earnings, from the first cent and irrespective of how much money you make, you still have to make quarterly IVA declarations.
Here, you can offset the IVA element of any of your expenses, with the cost net of IVA being offset against your IRPF, as detailed above.
Related Topics
More News & Information
THE EUROPEAN Commission has approved Spain's 'recovery plan' post-pandemic, meaning it is now entitled to funding from the bloc which all member States who applied in time are able to access.
A MIXED online and in-person awards ceremony for the 'Top 100 Women Leaders in Spain' saw everyone from Paralympic sporting greats to national politicians, artists and writers through to chief executive officers...
SELF-EMPLOYED workers and owners of small and medium-sized businesses will be considered for a slice of the €7 billion fund approved by Spain's government this week if they can show at least a 30% drop in their...