Individuals and entities not resident in Spain are liable for non-resident income tax on the income and/or gains they obtain in Spain. The key to ascertaining how non-residents will be taxed in Spain lies in whether or not the non-resident has a permanent establishment (PE) in Spain:

• With a permanent establishment : taxpayers obtaining income and/or gains through a PE in Spain are taxed on all the income and/or gains attributable to the PE. Broadly speaking, the PEs in Spain of non-resident individuals or entities are taxed on their net income just like companies resident in Spain, and are subject to the same tax rate (in general, 30%). There is an additional 19% tax on amounts transferred abroad out of income obtained by PEs of non-resident entities, although there are relevant exceptions.
• Without a permanent establishment: taxpayers obtaining income and/or gains without the intermediation of a PE are taxed separately on each full or partial accrual of income and/or gains obtained in Spain.

There are certain exemptions, including among others:

• Interest and other income from the transfer of own capital to third parties, as well as capital gains from real estate, obtained without the intermediation of a PE by residents of other EU Member States (except tax havens).
• Dividends distributed by a Spanish subsidiary to its EU parent company in certain cases.
• Income paid as a result of the international sale of goods.
• Royalties paid by a Spanish resident company (or by a permanent establishment in Spain of a company resident in another EU Member State) to an “associated” company resident in another EU Member State (or to a permanent establishment of an EU resident company in another Member State^)1.

The tax rates applicable to non-residents without a PE are as follows (notwithstanding the tax treaties signed by Spain and certain special rules where the non-resident resides in an EU country):

TYPE OF INCOME	RATE (%)
General (including royalties)	24
Dividends	19
Interest	19
Gains from transfer or redemption of units/shares in the capital or equity of collective investment institutions	19
Income from reinsurance transactions	1.5
Income from air or maritime shipping entities	4
Capital gains	19
Seasonal foreign workers	2

 

Non-residents must appoint a Spanish-resident individual or legal entity as their tax representative in certain cases.

Spain has signed tax treaties with numerous countries. You can see them at www.aeat.es under the "Fiscalidad Internacional" section.

Tax regime for inbound expatriates:

Spanish personal income tax legislation contains a highly attractive regime for personnel assigned to Spain by multinational enterprises, since it allows individuals who become tax resident in Spain as a result of their assignment there to elect to be taxed either under the personal income tax rules or under the non-resident income tax rules during the tax period in which their tax residence changes and for the next five tax periods. If they choose the latter, expatriates are only taxed on income and/or gains considered to have been obtained in Spain, at a standard rate of 24%.

The requirements to qualify for this regime are:

• The inbound expatriate must not have been resident in Spain during the 10 years prior to his or her assignment to Spain.
• The assignment to Spain must be the result of an employment contract.
• The work must actually be done in Spain.
• The work must be done for a company or entity resident in Spain or for a PE in Spain of a non-resident entity.
• The salary income from the work must not be exempt from non-resident income tax.
• The foreseeable compensation under the employment contract in each of the tax periods in which this special regime applies must not exceed €600,000 per year².

^{1 This exemption applies as of July 1st, 2011.}

^{2 Amendment inserted by 2010 General State Budget Law 26/2009, of December 23, not applicable if the expatriate came to Spain before January 1, 2010.}

For further information, visit the extended version of our online Guide to Business:

Tax system

 

Prepared by Garrigues

 

Last updated: 27|06|2011