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PELLICER HEREDIA Issues a Comprehensive Guide to Taxes for Non-Residents in Spain

Alicante, Spain, November 23, 2023 – As every year, before 31 December, all non-resident tax in Spain has to be filled in: such as the Non-Resident Income Tax or Wealth Tax. These are an important part of the Spanish tax system and apply to people who are not tax resident in Spain.

Generally speaking, tax residency in Spain is determined by the amount of time a person spends in the country and other factors such as place of habitual residence and center of economic interests. But what taxes can affect you if you are a non-resident?

Income Tax Form: the Spanish tax on assets

This tax applies to any person who is not legally resident in Spain, but who has assets in Spain, such as real estate, rental income from real estate, income from bank deposits where applicable, intellectual property royalties, etc.

Tax rates vary according to the nature of the income. Below are some examples of rates applicable in 2022:

  • Employment and professional income: it is taxed at a rate of 24%.
  • Capital income: Taxed at 24%.
  • Property rental income: Generally taxed at 24%. However, if there is a double taxation agreement between Spain and the non-resident’s country of residence, it is possible to apply a reduced rate of 19% instead of 24%. This helps to avoid double taxation, as the non-resident may also have tax obligations in his/her country of residence.

But what happens if I don’t file this tax when selling a property?

Yes, the tax office will automatically withhold 3% of the value of the sale. In addition, it can impose a penalty for non-filing or late filing. In most cases, the 3% sale value will be higher than the capital gains tax due, so you may be able to reclaim a substantial amount.

Some types of income may be exempt or may be subject to deductions under tax law and international treaties. It is important to consult a tax advisor to determine if there are any exemptions or deductions applicable to your particular situation.

Spanish Wealth Tax: don’t be caught by surprise

Wealth tax is a tax levied in Spain at the autonomous community level that affects non-residents who own assets and rights in the country that exceed a certain threshold, which may vary depending on the autonomous community in which the assets are located. This tax aims to tax the net value of the taxpayer’s assets, i.e. the difference between the value of his assets and the value of his debts.

Assets subject to this tax include a wide range of property and rights, such as real estate, financial investments, bank accounts, luxury vehicles, works of art and other valuable assets. This means that real estate as well as financial and personal assets are subject to this tax:

–          Real estate

–          Bank deposits and investments

–          Assets and rights owned by individuals related to professional or business activities

–          Luxury assets such as jewelry, fur coats, boats, luxury cars and other vehicles

–          Art objects and antiques

–          Life insurance, life annuities and temporary annuities

Non-residents must make a specific declaration of their assets in Spain and calculate the net value of their wealth in accordance with the regulations of the Autonomous Community in which they are located.

In calculating the amount of wealth tax payable by non-residents, the net value of their wealth is taken into account and a progressive rate is applied, which increases as the value of the wealth increases. The rates can be significant, especially for high net worth individuals, and can represent a considerable tax burden.

How these two taxes are different?

The main distinction between these two taxes is that income tax is levied on annual income, covering all money earned during a specific year, such as income from real estate (rents), interest, salaries or dividends, to mention a few examples.

In contrast, Wealth Tax is levied on personal wealth or assets, i.e. the totality of assets and rights of economic value in a person’s possession, net of charges and encumbrances that diminish their value, as well as personal debts and obligations for which the holder is liable.

Now that you know if you have to file these two taxes, it is very important to seek professional advice in order to file them on time and correctly. We hope this article has been useful for you!

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