Taxation of Non-Residents in Spain

In a perfect world, non-residents of any country would not incur any tax liability in that jurisdiction. In our imperfect world, being a non-resident in one country and a tax resident in another can be a winning strategy in reducing your taxable income.

So how does the Spanish Tax Agency treat you as a non-resident in Spain? And how does this affect your level of Spanish tax rate? This article explains.

Looking for help with European taxes? Our specialist team has helped seven- and eight-figure entrepreneurs and investors use the following jurisdictions to reduce their tax liability:

Who Is a Non-Resident of Spain for Tax Purposes?

The best way to address this issue is to establish who is a resident of Spain for tax purposes.

Spain’s Agencia Tributaria views you as a Spanish tax resident if you either:

1. Pass the physical presence test of being present in Spain for more than 183 days within a calendar year
2. Have Spain as the location of your economic interest in that the majority of your income comes from Spain.

There is also tax residency based on family ties. If your spouse and dependent children are tax residents in Spain, then it is likely you will be considered a tax resident also.

Tax Obligations

As a tax resident in Spain, you will have three main tax obligations:

1. Reporting personal income tax on your worldwide income
2. Paying a wealth tax on your worldwide assets, although not in the region of Andalusia, which abolished this in September 2022
3. Reporting your foreign assets through the 720 tax form.

Residence Determined by Tax Treaty

Spain has entered into double taxation treaties with various countries, including the United States.

This is to promote foreign investment so that your investment in Spain is not taxed by both your home country and the Spanish Tax Office.

The double taxation treaties mean that your tax liability is halved rather than doubled.

The tax treaty between the USA and Spain is applicable when it comes to the following assets:

• IRAs
• 401s
• Government payments for people with disabilities.

All taxes paid outside of the USA by tax residents in Spain are deductible against their continuing tax liability in the USA as American citizens.

When it comes to disability payments paid by the US government to a person, they are tax-free in Spain. It may be necessary to get the payment form to be assessed by a Spanish-registered doctor to satisfy the authorities that these are indeed disability payments. Spain has a grading system whereby a person is assessed according to their incapacity level:

• Up to 33%
• Between 33%-65%
• From 65%-100%.

It is this official assessment given by a certified medical professional which will determine tax exemptions and other issues, such as a disability badge for transport use.

Spanish Tax Registration for Non-Residents

As a non-resident of Spain who spends less than 183 days a year in the country or who doesn’t earn the majority of their income from Spanish sources, you are still obligated to apply for a tax identification number known as an NIE.

The NIE is a personal, unique, and exclusive number assigned to you as a foreigner who, for economic or professional reasons, is based in Spain.

Obtaining an NIE

You may apply for an NIE in Spain or at the Consular Office of your country of residence.

Applicants can make a personal application or apply through a duly accredited representative.

Whichever route you take, your physical presence or that of your representative is mandatory.

The required documents are the following:

• Original and copy of EX-15 standard application form, completed and signed by you or your representative
• Original of your valid passport and a copy of the passport’s biographical data page or EU member state ID (original and one copy, front and back)
• Original and copy of your representative’s identity document or passport, along with a power of attorney in which it is expressly stated that this representative is empowered to apply on behalf of you
• Document proving residence in the consular area
• Completed Form 790, code 12.

The General Commissariat for Immigration and Borders, under the aegis of the Spanish Directorate-General for the Police, assigns an NIE. They normally issue an NIE within two weeks.

Tax Registration for Entrepreneurs, Professionals, and Withholders

You have to register on the Tax Register if you carry out a business or professional activity or pay income subject to withholding. Forms 036 and 037 are the relevant documentation. Once registered, it’s possible to modify your data.

Non-Resident Income Tax on Income Obtained Without a Permanent Establishment

Non-resident taxpayers who obtain income in Spanish territory without a permanent establishment have to pay tax on that taxable income.

Exempt Income

There is a wide range of exempt income. Income, which, in accordance with the regulations for income tax (IRPF), is exempt and received by individuals, such as pensions due to total permanent disability or severe disability, and public grants.

The interest and capital gains derived from movable property obtained by residents of another Member State of the European Union (EU) ) or of the European Economic Area (EEA) with effective exchange of tax information or by permanent establishments of such residents located in another Member State, are exempt subject to the following exceptions:

• Where the interest and/or gains are obtained through a tax haven
• When they are gains deriving from the transfer of stocks, shares, or other rights in a company whose assets consist mainly of Spanish real estate properties
• In the case of individuals, when they are gains deriving from the transfer of stocks, shares, or other rights in a company and the taxpayer, at some previous moment during the 12 months prior to the transfer, has participated directly or indirectly in at least 25% of the capital or equity of the company
• In the case of companies, the transfer does not meet the requirements for the application of the exemption provided for in Section 21 of the Corporation Tax Act.

Other exempt income includes:

• Income sourced from public debt
• Income of non-residents deriving from Spanish securities
• Income from non-resident bank accounts
• Income from the lease, assignment, or transfer of containers or bareboat ships and aircraft used in international maritime or air transport.

Determining the Taxable Base

Generally, the tax base is the entire earned amount, and therefore it will not be possible to deduct any expenses.

However, it’s possible to deduct certain expenses in the following cases:

• Taxpayers resident in another member state of the European Union (Article 24.6 of the Non-Resident Income Tax Law) or in another state of the European Economic Area with effective exchange of tax information
• In the case of individuals, the expenses provided for in the Law IRPF, and in the case of entities, those provided for in the Corporate Income Tax Law, provided that it is accredited that they are directly related to the income obtained in Spain and that they have a direct and inseparable link with the activity carried out in Spain
• Income from economic activities (article 24.2 of the IRNR Act), expenses of personnel and supplies
• The liability of the special levy on real estate of non-resident companies (article 44 of the IRNR Act).

EU, Iceland, and Norway residents have to pay income tax rates of 19.50% and other taxpayers, 24%.

Non-resident individuals in Spanish territory on a fixed-term contract for seasonal workers, under the provisions of the employment regulations, pay 2%.

The income tax rate for dividends and other revenues derived from holdings in a company’s equity varies according to the year of accrual. From 2016, it has been set at 19%. This is the same for interest and other revenues obtained by the assignment of equity capitals to third parties.

Pensions and other similar provisions received by non-resident individuals in Spanish territory are taxed from 8% up to 40%.

Income deriving from reinsurance operations is taxed at 1.5%.

Airlines or shipping companies resident abroad whose ships or aircraft touch Spanish territory are taxed at 4%.

Capital gains deriving from the transfer or redemption of shares or holdings representing the capital or equity of collective investment institutions are liable to a capital gains tax of 19%.

Income Tax Deductions for Non-Residents Without a Permanent Establishment

Only the following is deducted from the amount payable:

1. Deductions for donations under the same terms provided for in the Personal Income Tax Act
2. Tax withholdings that have been applied to the taxpayer’s income.

Non-Resident Income Tax on Income Obtained With a Permanent Establishment

According to Spanish law, income from economic activity via permanent establishment in Spanish territory is interpreted to be acquired in Spanish territory.

In accordance with Spanish domestic legislation, a natural person or entity is considered to operate through a PE when it has in Spanish territory:

• A head office
• Branch offices
• Factories
• Workshops
• Warehouses, shops, or other establishments
• Mines
• Oil or gas wells
• Quarries
• Farming, forestry, livestock operations, or any other place of exploration or extraction of natural resources
• Construction, installation, or assembly works whose duration exceeds six months.

PE Taxation

According to Spanish law, non-residents who obtain income through a permanent establishment in Spain will pay tax on the total value of the income earned by this establishment, wherever the income is obtained.

This taxable income is made up of earnings from the economic activities or operations undertaken by this permanent establishment, those derived from elements related to the permanent establishment, and the liable capital gains or losses derived from the related elements.

Liable capital gains or losses are considered to be those reassigned within the three tax periods following the time when they were made.

The representative assets of holdings in the capital of an organization are only considered liable for capital gains or losses when the permanent organization is a branch office registered in the Companies Register; these assets are reflected in the accounts of the permanent organization and, being a permanent organization that can be considered to be a parent organization, this permanent organization has a corresponding organization of material resources and staff available to direct and manage these shares.

The taxable income of the PE will be determined in accordance with the provisions of the general corporate income tax system, with the following distinctive features:

Application of the binding rules for operations performed by the permanent establishment with the head office, or with another permanent establishment of the same head office and with other individuals or organizations connected to the head office or its permanent establishments, either those situated in Spanish territory or abroad.

Generally, non-deductibility of the payments that the permanent establishment makes to the head office for fees, interest, commissions, technical assistance services, and for the use or assignment of assets or rights

Deductibility of part of the management general administration expenses charged by the head office to the permanent establishment, as long as they are reflected in the accounts of the permanent establishment and are charged continually and rationally.

The difference between the market value and the book value of the following assets will be included in the tax base:

Those attached to a permanent establishment located in Spanish territory, which ceases its activity.

Those previously assigned to a permanent establishment located in Spanish territory are transferred abroad.

Estimated Expenses and Imputed Income Tax for Internal Operations of a Permanent Establishment

In those cases in which, by application of the provisions of an international double taxation avoidance agreement signed by Spain, for the purposes of determining the income of a permanent establishment located in Spanish territory, the deduction of the estimated expenses for internal operations carried out with its head office or with any of its permanent establishments located outside Spanish territory is permitted, the following shall be taken into account:

• The general non-deductibility of payments made by the PE to the head office for royalties, interest, commissions, technical assistance services, and for the use or transfer of goods or rights is not applicable.
• Income attributed to the head office or to any of the permanent establishments located outside Spanish territory corresponding to the aforementioned estimated expenses will be treated as an income obtained in Spanish territory, without the intermediary of a permanent establishment.

Imputed income tax is due on 31 December of each year.

The permanent establishment located in Spanish territory is obliged to make withholding and payment on account of the income imputed.

The provisions of Article 18 of the Corporate Income Tax Act shall apply to internal transactions carried out by a permanent establishment located in Spanish territory with its head office or with any of its permanent establishments located outside Spanish territory to which this additional provision applies.

PE Tax Rate

The corresponding rate of taxation is applied from among those provided for in the corporate income tax regulations.

The general tax rate is 25%.

PE Deductions and Allowances

PEs can apply the same deductions and allowances to their gross tax liability as corporate income taxpayers, giving rise to the net tax liability, that, for tax periods beginning on or after 1 January 2022, may in no way be negative.

For tax periods commencing on or after 1 January 2022, the minimum tax rate established in Article 30 of the Corporate Income Tax Act (generally 15% of the tax base) will apply for those PEs with a net turnover equal to or greater than €20,000,000 during the 12 months prior to the date on which the tax period commences, in order to determine the tax liability. Therefore, as a result of the application of deductions and allowances, the net tax liability cannot be reduced below this amount.

PE Tax Period and Accrued Amount

The tax period coincides with the financial year declared, without exceeding twelve months. Tax is accrued on the last day of the taxable period.

Permanent establishments are obliged to undertake the same accounting, registering, and formalizing obligations as resident entities.

PE Declaration

Permanent Establishments must file tax returns using the same Model 200 forms and within the same deadlines as resident entities subject to corporate income tax. The deadline is 25 calendar days following six months after the end of the tax period.

Inheritance and Gift Tax for Non-Residents

If you’re a non-resident in Spain and you receive a donation or an inheritance, you must self-assess the inheritance and gift tax at the Tax Agency.

You will have to file a different self-assessment Form (650, 651, or 655) depending on whether you are dealing with a succession, a donation, or an extinguished usufruct.

Form 650

If you are an individual heir, legatee, or beneficiary of a life insurance policy who does not have your principal residence in Spain, this is the inheritance tax form to fill in.

This covers acquisition of property and rights by inheritance, bequest, or any other succession, and receipt of amounts by beneficiaries of life insurance contracts, when the contracting party is a person other than the beneficiary.

This succession tax self-assessment form, with the payment already made if the amount is payable, must be submitted to the National Tax Management Office, Inheritance and Donations of Non-Residents Spanish government body.

Required documents:

• An original and certified copy of the deeds of acceptance of the inheritance
• In the absence of this, the estate and heirs inventory, in duplicate, showing the identifying details of the person making the bequest and the heirs, an address for correspondence, a detailed list of the assets and rights included in the inheritance with the value of each at the date of death, together with any charges, debts or costs, the deduction of which is being sought
• A death certificate copy
• A photocopy of the certificate from the General Registry of Wills and Testaments
• A will or the declaration of heirs photocopy
• Non-resident taxpayers must designate a tax representative in Spain and can use the Representation Form for procedures initiated by taxpayers, which must be submitted together with the self-assessment
• The representation must expressly state that it authorizes the taxpayer to act before the tax administration in relation to all their obligations for inheritance and donations tax.

Extra documents to be submitted for this succession tax, where applicable:

• A photocopy of the IBI (Spanish property tax) bill and of the deeds of acquisition of the property, or in the absence of this, the Property Register Certificate
• A copy of the insurance contracts or certificate from the insurance company
• Bank certificate displaying the balances of the accounts and deposited securities at the date of death
• Documentary evidence of the costs, debts, taxes, and charges that might be deductible, together with the age of the heirs
• A copy of the passport, identity card, or certificate of the Foreigners’ Identification Number (NIE) of the heirs and of the fiscal representative in Spain
• Copy of the vehicle documents (technical certificate, vehicle registration certificate)
• Documentary evidence of the taxpayer’s disability with a certificate issued by the competent body
• Documentary evidence of the theoretical value of the shares in the capital of legal entities whose shares are not listed on the Stock Exchange, by providing a certificate from the administrator of the entity indicating the number of shares in the entity, the number of shares owned by the deceased, and the theoretical value of each share.
• A copy of the General Register of Insurance Contracts for Death Cover Certificate.

Form 651

This gift tax is for individuals who are not residents in Spanish territory with respect to assets and rights which are located, can be exercised, or must be fulfilled in Spanish territory, and which they acquire by donation or any other legal transaction free of charge and inter vivos.

These tax returns must be filed within 30 working days from the day following the conclusion of the act or contract.

Required documents:

• An original and photocopy of the deeds of donation
• Failing this, the private document of donation, in duplicate, which must confirm the IDs of the donor and the recipient (name, tax identification number, and full address), an address for notification purposes, and a detailed list of the assets and rights that are the object of the donation, with an expression of the value of the same
• A copy of the recipient’s identity document, passport, or Foreign Citizens Identification Number (NIE)

Non-resident taxpayers must designate a tax representative in Spain. They can use the Representation Form for procedures initiated by taxpayers, which must be submitted together with the self-assessment.

The representation must expressly state that it authorizes the taxpayer to act before the Tax Administration in relation to all their obligations for inheritance tax and donations tax.

Other documents to be submitted, where applicable:

• Documentary evidence of the theoretical value of the shares in the capital of legal entities whose shares are not listed on the Stock Exchange, by providing a certificate from the administrator of the entity indicating the number of shares in the entity, the number of shares donated and the theoretical value of each share.

Form 655

You need to fill in this non-resident tax in Spain form if you are consolidating ownership as a result of the extinction of a usufruct constituted through a lucrative transfer (succession or donation).

Required documents:

• An original and photocopy of the notarial document proving the consolidation of ownership in the person of the first or successive bare owner
• Failing this, a duplicate of the private document, establishing the extinction of the usufruct and the consequent consolidation of ownership, in which the identification details of the usufructuary (name, tax identification number, address), originating from the title of the constitution of the bare ownership, identifying the usufructuary, date of constitution, date of extinction of the usufruct and value of the consolidation, an address for notification purposes, and a detailed list of the assets and rights subject to consolidation
• A copy of the death certificate of the usufructuary, in examples of termination of lifetime usufructs
• A copy of the identity card, passport, or NIE certificate of the joint owner
• An original or simple copy of the notarial document showing the segregation of ownership
• Failing this, a private document showing the segregation of ownership.

Non-Resident Transfer Tax and Stamp Duty

For tax purposes, non-resident property owners might need to self-assess transfer tax and stamp duty with the Tax Agency.

Within the Tax Agency, the National Tax Management Office oversees the tax payable on Spanish property transfer and stamp duty for those cases not referred to the relevant autonomous community.

Form 600

Non residents pay taxes on the transfer of property for valuable consideration (TPO), excluding used vehicles.

This Onerous Transfer of Property Tax must be self-assessed when transferring all kinds of goods and rights that form part of the assets of individuals or legal entities, as well as the constitution of rights in rem, loans, guarantees, leases, pensions, administrative concessions, and inter vivos.

This property tax does not apply when business owners or entrepreneurs carry out transfers during the course of business or entrepreneurial activities, as these are subject to Value Added Tax (with the exception of certain taxable but VAT-exempt operations on real estate).

The ONGT should never be self-assessed for real estate rental income, as this is the responsibility of the autonomous community where the real estate is situated.

You must also file tax returns when declaring transfers of assets for valuable consideration, loans, guarantees, leases, constitution of pensions, when you, the taxable person, is non-resident, as well as administrative concessions and titles of nobility.

Form 620

Non-residents who purchase a used vehicle, boat, or aircraft in Spain must pay Spanish taxes using form 620.

If aircraft and vessels have to be registered in the Register of Movable Goods, you will have to pay taxes in the autonomous community where the Register is located.

These are the various tax rates:

• Transfer of movable property or livestock: 4%
• Transmission of receivables and securities: Tax Exempt
• Creation and transfer of rights in rem in movable or livestock property (except rights in rem as security): 4%
• Rights in rem as security: 1%
• Constitution of simple loans: Tax Exempt
• Constitution of sureties: 1%
• Constitution of pensions: 1%
• Administrative concessions: 4%.

Wealth Tax for Non-Residents

In Spain, a wealth tax is levied on your net wealth. Your net wealth consists of all the property and economic rights you own, following the deductions of burdens and encumbrances.

Unlike individuals resident in Spain who are subject to the tax “by personal obligation”, non-residents are subject to the tax “by real obligation”.

If you’re a resident in Spain, the wealth tax is levied on the total net wealth regardless of where the wealth is located or the rights can be exercised (worldwide wealth), while non-residents pay a wealth tax on wealth or rights that are located, can be exercised, or have to be fulfilled in Spanish territory (wealth in Spain).

In order to determine net wealth, only charges and encumbrances affecting assets and rights which are located in Spanish territory or which may be exercised or have to be fulfilled in Spain, as well as debts for capital invested in the aforementioned assets, is considered deductible.

There is a minimum exemption of €700,000 euros, which can be applied to non-residents subject to a real obligation to contribute.

Wealth tax is due on 31 December every year. Tax rates extend from 0.2% up to 3.5%.

From 11 July 2021, all non-resident taxpayers are entitled to the application of the specific regulations approved by the autonomous community where the highest value of the assets and rights they own and for which tax is due is located, can be exercised, or must be fulfilled in Spanish territory.

Additionally, as from 1 January 2015 onwards, non-residents who are resident in a member state of the European Union or the European Economic Area are entitled to the application of the specific regulations approved by the autonomous community where the greater value of the assets and rights they own and for which wealth tax is required, because they are located, can be exercised or must be fulfilled in Spanish territory.

Taxpayers under the special system set out in Article 93 of the Personal Income Tax Act, taxation under Wealth Tax, are individuals residing in Spain who have opted to apply non-resident Spanish income tax regulations (they declare Spanish income tax on a special form, form 151), but maintain their status as personal income taxpayers. These taxpayers pay wealth tax by real obligation on their Spanish wealth.

They can, if they choose to, apply the autonomous regulations of the autonomous community of residence.

This Spanish income tax option is reflected in the wealth tax return.

Capital Gains Tax in Spain

The European Commission has asked Spain to amend its regulations regarding the timing of recognition of capital gains for non-resident taxpayers in transactions with deferred payment due to the possible contravening of EU law.

Spanish personal income tax and corporate income tax laws govern certain types of transactions with deferred payment or those paid in installments. These laws give Spanish resident taxpayers the option to pay the capital gains tax when the capital gains accrue or to defer the tax and pay it proportionally based on the cash flow.

Non residents taxpayers are not offered that option and must pay the capital gains tax when the capital gains accrue, even if they defer payment.

For a supposedly relaxed country, the Spanish tax authorities have created a surfeit of taxes in Spain. Then again, this is a country that is obsessed with red tape.

As a Spanish tax resident, you will have to pay tax. But non-residents have to pay taxes in Spain too. And, as we have seen with the likes of capital gains tax, they don’t enjoy the privileges of a tax resident.

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