More and more people are discovering the benefits of relocating to Spain. The country on the Iberian Peninsula not only attracts with its Mediterranean climate but also with tangible financial advantages for newcomers.
In this article, we will explore what makes taxes in Spain so special, the specific tax considerations to keep in mind, and the factors that make moving to Spain an attractive option.
Content
- Taxes in Spain – How the country attracts foreign talent
- What are the benefits of moving to Spain?
- What to consider when leaving germany
- How high are taxes in Spain exactly?
- How are tax returns submitted?
- Comprehensive service for moving to Spain
Taxes in Spain – How the country attracts foreign talent
Spain has a progressive tax system that applies to income and, above a certain threshold, also to wealth. The regular income tax rate in Spain can be as high as 47%, depending on the level of income and the legal status applicable to taxpayers.
However, Spain offers various tax incentives specifically designed to attract foreign professionals and investors. A prominent example is the so-called Lex Beckham—a law originally enacted to provide tax advantages to highly paid professionals and entrepreneurs who relocate to Spain.
Under Lex Beckham, qualified individuals can benefit from a fixed tax rate of just 24% on their income earned in Spain, instead of being subject to the progressive tax system. This tax rate applies to income up to €600,000. Income exceeding this amount is taxed at 47%.
Another advantage of Lex Beckham is that worldwide income is not taxed in Spain. Only income earned in Spain is subject to Spanish taxation.
What are the benefits of moving to Spain?
Attractive cost of living in Spain
In addition to the tax advantages, there are many other reasons to consider relocating to Spain. One of them is the relatively low cost of living. Compared to other Western European countries like France or Germany, the costs for rent, food, and leisure activities are significantly lower in many parts of Spain.
This allows you to maintain a comfortable lifestyle without putting too much strain on your budget. Life is especially affordable in rural areas and smaller towns.
First-class healthcare
The Spanish healthcare system is among the best in Europe, offering reliable medical care for both locals and foreigners. The public healthcare system is funded by taxes and provides almost universal coverage.
Additionally, there are numerous private healthcare providers that often offer shorter waiting times and many specialized services.
Welcoming Expat community
Spain has a large and well-established expat community, which makes the transition to a new life easier. Whether in major cities or popular coastal areas like the Costa del Sol, there are networks and communities everywhere that welcome and support new residents.
This makes it particularly easier for families and individuals to adjust to their new environment and build connections.
Mediterranean climate and lifestyle
With over 300 days of sunshine a year and mild winters, Spain is ideal for those who enjoy outdoor living and wish to maintain a healthy, active lifestyle. Whether it’s beach visits, hiking in the mountains, or simply enjoying a relaxed life in the sun, Spain’s climate significantly contributes to the quality of life and overall happiness.
Easy immigration and attractive residency regulations
Recently, Spain has simplified its immigration and residency rules to attract skilled professionals and investors. The “Golden Visa” program, in particular, is appealing to investors looking to relocate to Spain.
Access to Europe and global connections
Spain offers easy travel and business opportunities within Europe. With excellent infrastructure, international airports, and high-speed trains, it is easy to travel to other European countries for both business and leisure. Additionally, Spain serves as a crucial hub for connections to Latin America and North Africa, making it a strategically advantageous location for international business.
What to consider when leaving Germany
The exit tax in Germany is designed to prevent the circumvention of German tax law through relocation. It ensures that the hidden reserves generated in Germany—namely the increased value of shares in corporations—are taxed before the right to tax them under German law is lost.
Who is affected by the Exit Tax?
The exit tax primarily affects shareholders who hold more than 1% of their shares in a corporation as part of their private assets and have been subject to unlimited tax liability in Germany for at least 7 out of the last 12 years. If these individuals relocate their residence abroad, the German tax authorities will treat this move as a fictitious sale of the shares at their market value. As a result, the hidden reserves contained in the shares are taxed in Germany.
When Is the Exit Tax due for individuals?
The tax becomes due immediately upon relocation but can be paid in seven annual installments upon request.
In the case of a temporary move to Spain, the exit tax can be deferred interest-free for an indefinite period, provided there is an intention to return to Germany. An extension of up to five additional years is possible, but only if the intention to return continues to exist.
How high are taxes in Spain exactly?
In Spain, taxes generally follow a progressive model, where the tax rate increases as income rises. This means that taxable income is divided into different brackets, with each bracket being subject to a specific tax rate.
Below you will find an overview of the current income tax rates for 2024 in Spain:
- Up to 12,450 euros: 19%
- Up to 20,200 euros: 24%
- Up to 35,200 euros: 30%
- Up to 60,000 euros: 37%
- Up to 300,000 euros: 45%
- Above 300,000 euros: 47%
These rates apply to individuals who are tax residents in Spain, meaning they have their main residence in the country and spend more than 183 days a year there.
For income from Spanish capital assets, such as dividends or interest, special tax rates apply, ranging between 19% and 26%.
As mentioned above, the “Lex Beckham” is an interesting option for newcomers who migrate to Spain, allowing them to bypass the progressive tax rates in Spain.
Wealth Tax in Spain
As an individual residing in Spain, you are subject to a wealth tax in most regions. This tax is generally levied on your entire wealth, which includes assets held both in Spain and abroad. This encompasses real estate, investments, cash, valuable vehicles, and other luxury goods.
The tax rate in Spain varies depending on the region and ranges progressively between approximately 0.5% and 3.8%, depending on the total value of the assets. In many regions of Spain, there is an exemption threshold of 700,000 euros, below which no wealth tax is due. In Mallorca, the exemption threshold is currently (as of August 2024) even set at 3 million euros.
Special regulation for Lex Beckham cases:
In such cases, wealth tax is only levied on assets held in Spain.
Real Estate: Property Tax and Transfer Tax in Spain
When purchasing a property in Spain, different taxes apply depending on the situation. The purchase of a second-hand property is subject to the Transfer Tax (Impuesto sobre Transmisiones Patrimoniales, ITP), which ranges from 6% to 10% of the purchase price in most regions.
If a new-build property is purchased, the Value Added Tax (Impuesto sobre el Valor Añadido, IVA) applies instead. For residential properties, it is 10%, and for commercial properties and land, it is 21%. In addition to VAT, a Stamp Duty (AJD) is also levied on newly built homes, the rate of which varies depending on the region.
The annual Property Tax (Impuesto sobre Bienes Inmuebles, IBI) is charged at rates between 0.4% and 1.1% on the cadastral value of the property.
Inheritance Tax in Spain
Inheritance Tax (Impuesto sobre Sucesiones y Donaciones) in Spain depends on the value of the inheritance and the wealth of the inheritor, as well as the degree of kinship between the deceased and the heir. Close relatives pay lower tax rates and are entitled to higher exemptions, while more distant relatives and non-relatives must pay higher taxes.
How Are Tax Returns submitted?
In Spain, there are several ways to submit your tax return, making the process relatively flexible and accessible.
- Online Submission:
The most common and convenient method is electronic submission through the official website of the Agencia Tributaria. This option allows you to submit your tax return directly from your computer. - Mobile App:
Alternatively, you can also submit your tax return via the Agencia Tributaria’s smartphone app. - Telephone Submission:
For those who prefer to speak directly with a representative, there is the option to submit the tax return by phone. - In-Person Submission:
If you prefer direct contact, you can schedule an appointment at one of the local offices of the Agencia Tributaria. There, you can submit your tax return in person and receive advice from an official if needed.
Comprehensive service for moving to Spain
To get the most out of your move to Spain, professional support is invaluable. At Global Tax Saving, we are experts in international tax optimization and will guide you every step of the way during your relocation to Spain. With 30 years of experience in tax and legal consulting in Spain, we take the bureaucratic stress off your shoulders. We provide personalized advice tailored to your unique situation, focusing on all the potential tax benefits available to you in Spain.
Request a consultation with us now, and let’s plan your future in Spain together while saving on taxes!
