In order to determine exactly what specific taxes are payable in Spain as a foreigner, it is first necessary to know whether you are a resident in tax terms or not.
This distinction is of a purely fiscal nature and has nothing to do with the residence permit you have to live legally in the country.
It is possible to be the holder of a residence permit but for tax purposes be considered a non-resident.
These are the requirements to be considered a tax resident:
– To live in Spain for more than 183 days.
– That the main nucleus or the base of their activities or economic interests is located in Spain, either directly or indirectly.
– That the spouse not legally separated and the minor children who depend on this individual habitually reside in Spain. This third assumption admits proof to the contrary.
Residents in Spain must pay taxes.
When being considered a tax resident in Spain, income tax must be declared for all the income and gains that the resident has generated in ALL OVER THE WORLD (not only in Spain).
This is where the Double Taxation Agreements appear.
Double taxation treaties are agreements between two States that establish a series of tax rules to avoid that residents and companies present in both -normally, with headquarters in one and business in the other- have to pay twice for the same taxable event.
They provide legal certainty and the taxes to be paid are known in advance.
It also represents a significant tax saving as it avoids duplicity in the tax bill.
The treaties list certain types of income and provide, with respect to each of them, the taxation powers corresponding to each signatory State:
– in some cases, exclusive power for the country of residence of the taxpayer,
– in others, exclusive power for the country of origin of the income and, finally, in some cases, exclusive power for the country of residence of the taxpayer,
– finally, in some cases, shared authority between the two countries, with both being able to tax the same income but with the obligation for the country of residence of the taxpayer to take measures to avoid double taxation.
In general, in the event of double taxation, it will be up to Spain as the country of residence to arbitrate these measures, which normally consist of the application of a deduction. In certain cases, the Convention may provide for an exemption of income in the country of residence, albeit with application of progressivity, which means that the exempt income is added to the rest of the income to calculate the tax rate applicable to the rest of the income.
If there is no agreement to avoid international double taxation, such income is taxed in Spain.
Double taxation treaties can be consulted directly at the Tax Agency.