Spanish Tax- Good news for new expats, but residents could see their pensions taxed
Spain is one of the most popular places UK expats choose for retirement. It is also a favorite of transient workers who are considered digital nomads. Before you pack, it’s good to know a bit about the taxes you’ll be paying in Spain.
The best tax news for expats moving to Spain is the Beckham Law. It is called this, as the football player was one of the first to take advantage of this tax rule.
The Beckham Law allows expats to work and pay taxes as a non-resident for a 6-year period. Without the Beckham Law, expats are considered tax residents after spending 183 days in a year in Spain. (This article goes on to provide an overview of the differences in taxation between tax residents and tax non-residents.)
Non-residents pay income tax on money generated only in Spain. A flat-rate income tax is used for non-residents: 24% for labor income up to €600,000 and 47% above that amount.
New 2023 Beckham Law Rules
New rules from 2023 state that the Beckham Law will apply to entrepreneurs, investors, and professionals who perform a self-employed business activity.
From now on, the Beckham Law will apply to those with an employment relationship with a foreign company who are teleworking in Spain. This new system is designed for digital nomads.
The taxpayer’s spouse and children under 25 years of age (or of any age if they have disabilities) are eligible, if they are displaced with the taxpayer or within the first year of residence.
Additionally, the new law changes the required period of non-residence prior to the year of arrival in Spain from 10 years to 5 years.
It is essential to know there is a 6-month period to apply for the Beckham Law’s special tax regime, from the registration date the taxpayer registers with the Spanish Social security system.
Tax resident or non-resident
In Spain, you are taxed either as a resident or a non-resident for Spanish tax. But note: your tax status has nothing to do with the residence permit you may, or may not, have to live legally in the country. You will be considered a tax resident if you meet one of the following three requirements:
- You live in Spain more than 183 days per year (note that the days do not have to be consecutive to count as effective).
- You have economic interests in the country, which means that you carry out your professional activity in Spain, either working for a company or working as a self-employed person.
- Your spouse and/or children live in Spain.
Your income tax is calculated using your worldwide income if you’re a resident.
The tax you pay as a resident depends on the income you generate around the world. This means that this tax is progressive, according to your income:
- Below the first €12,450 you earn, you will pay 19% of the income tax.
- From €12,450 to €20,200, you owe the Spanish Tax Agency 24%.
- From €20,200 to €35,200, 30%.
- From €35,200 to €60,000, 37%.
- And above 60,000 €, 45%.
You can have personal deductions and allowances.
Wealth Tax now includes your UK pension
Not every country has a separate annual wealth tax, but Spain does. Your state pension income is taxed in the country in which you are a tax resident. Spain and some other countries also have regional taxes and interpretations of the laws, so you must work with your professional tax advisor to protect your assets while complying with the law.
New national legislation in Spain requires you to now pay Spanish wealth tax on your UK pension fund, from the age you’re eligible to access it, which is currently age 55. UK personal pension funds will be added to other worldwide assets to calculate your wealth tax liability each year. See more on worldwide assets below.
Since 2021, if your pension originates outside of Spain or the EU, and you transfer it to a EU-based scheme – a EU-based Qualifying Recognised Overseas Pension Scheme (QROPS), for instance – it is considered by Spain to be a transfer of a third country pension and the entire value of the pension will be taxed.
To avoid having your entire pension pot taxed under the wealth tax in Spain, the transfer to a QROPS must take place before you acquire residence in Spain.
If you’ve moved to Spain permanently and you’re a resident, you’ll pay wealth tax on your worldwide assets. Your pension is one part of your ‘worldwide assets’ on which you pay the wealth tax. Other items include:
- Real estate
- Bank deposits and investments
- Assets and rights owned by individuals related to professional or business activities
- Luxury assets such as jewellery, fur coats, boats, fast cars and other vehicles
- Art objects and antiques
- Life insurance, life annuities and temporary annuities
- Royal rights, administrative concessions and intellectual property rights
There are many exclusions your professional tax advisor can use to bring down the value of your wealth you’ll pay taxes on.
TAX NON-RESIDENT (Non-Beckham Law status)
If you live in Spain for less than six months (183 days) in a calendar year, you are classified as a non-resident.
You will only have to pay income tax on the income you have generated in Spain. Income tax includes wages earned as an employee and/or what you earn as a self-employed person through your invoices.
A flat-rate income tax, rather than the progressive model, is used for non-residents: 24% for labor income up to €600,000 and 47% above that amount.
If you’re a non-resident, you’ll pay wealth tax only on your Spanish assets.
There is also a 19% tax for capital gains and financial investment income derived from Spanish sources. Capital gains includes dividends and pension contributions and benefits.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
- Andalucia Eliminates Wealth Tax to Attract Investors
- How an expat has their UK pension taxed
- QROPS in Spain
- QROPS in Spain | QROPS Advice
- Portugal Non-Habitual Residency | Pension Advice
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