Below you can find some of the most common questions you’ve asked us. We hope the answers will help you.
You’ve asked us
Tax Returns
I am non tax resident in Spain and bought a house in Spain that I am thinking in renting out. At the time of filing my Spanish Tax Return in respect of the rental income, what expenses can I claim as deductible against the rental income?
As non tax resident of Spain, you must file a tax return trough FORM 210, including the total rental income received. This form must be filed on a quarterly basis, by the month of April, July, October and January following the relevant quarter.
Only in the case that you are tax resident in a EU country, you will be able to claim some expenses as deductible from the rental income. Some of these deductible expenses could be the following:
- Agents’ fees
- Accountants’ fees
- Mortgage interests
- Council Tax which you pay (IBI)
- Insurance premiums
- Costs of any maintenance and/or repairs
- Utility bills, in case you pay for them with no reimbursement from the tenant.
- Additional services, such as cleaning and window cleaning
- The net amount resulting once the above expenses are deducted, would be subject to a 19% flat rate.
In case of non-EU tax resident, the total rental income will be subject to 24% tax.
Yes, non resident of Spain who are owners of a rented-out property in Spain, must file Form 210 on a quarterly basis. For the case that the property is not rented out, a FORM 210 must be filed on an annual basis.
The tax rate applicable will be 24% (19% for EU residents).
In Spain, there is no specific regulation about cryptocurrencies such as bitcoin. However, the “Dirección General de Tributos” (hereinafter, DGT), has ruled on the matter in some resolutions and has clearly established that cryptocurrency users must pay taxes in certain situations.
In relation to the Personal Income Tax, we can conclude, taking into account the resolutions from he DGT the following:
- The mining of cryptocurrencies is an economic activity, and therefore there will be an obligation for the “miner” to pay Personal Income Tax in respect of the income obtained through this activity, in addition to complying with the corresponding Social Security obligations.
- Operations carried out with cryptocurrencies give rise to capital gains and losses, which the taxpayer will have to integrate in the relevant Personal Income Tax Return, even if it has not been converted to fiat (that is, legal tender). For example, if we buy 100 btc at € 5,000 and exchange them for another cryptocurrency at a time when the valuation the 100 btc is € 7,000, we would have a capital gain of € 2,000, regardless of whether we have not made the change to “real” money.
- If no operation is carried out with cryptocurrencies, the mere increase in the valuation of the wallet will not give rise to any capital gain or loss. In other words, if a digital portfolio increases in value during the year, but it has not been operated with, there will be no capital gain to declare.
With regard to Net Wealth Tax, the valuation of the wallet on December 31 each year, must be taken into account to conclude whether, jointly with the with the value of the rest of the assets and rights, a person may be required to file a Net Wealth Tax Return.
This kind of situations require a detailed analysis to ensure compliance with all obligations. First of all it is necessary to determine if it is applicable the special tax regime for employees moving to Spanish territory. Depending on the conclusion, the tax obligations may be different.
In order to apply the exemption for work performed abroad, the fulfillment with certain requirements should be analyzed case by case.
The fact that the company has not applied the exemption does not imply that it cannot be requested by the taxpayer himself, although it can be a complex process for which it is necessary to provide specific documentation and prove compliance with each of the requirements.
Once the corresponding immigration procedures have been carried out, it must be taken into account that, in the case of a company that does not have headquarters or activity in Spain, it will be necessary for the British company (or based in any country except Spain) to register in this country in order to be able to comply with its obligations regarding Social Security, making the corresponding monthly contributions to Spanish Social Security.
If you have arrived in September 2021, this year you will be considered as non-tax resident in Spain.
As a non-tax resident, you will be subject to tax for the income obtained in this country (for example, for the income derived from work carried out in Spain). The tax rate will be the general rate provided for non-residents, which is 24% or 19% for residents in a UE member state.
It is necessary to check the withholding tax rate that the company has been deducting from your Spanish salary. If it is less than 24% (or 19% in your case as resident in a UE country), you must file a Non-Resident Income Tax return (form 210), to pay the difference between the withholding tax deducted by your company and the 24% or 19% tax as a non-resident in Spain.
The deadline for filing the tax return as a non-resident in Spain is quarterly. You must file form 210 in the months of April, July, October and December, in relation to the income obtained in the immediately preceding quarter.
This scenario can cause uncertainty in taxpayers and lead to the payment of fines and penalties.
The communication of the change of residence is an important procedure to be carried out by any person who moves to another country.
And, on the other hand, it is important to bear in mind that the fact of not being a tax resident in Spain does not imply that you do not have further tax obligation in Spain.
The capital gain from the sale of the habitual residence may benefit from a total or partial exemption as long as certain requirements are met.
Once the exemption has been determined, it will be necessary to analyze the offset with losses from previous years.
The inheritance tax is assigned to the Autonomous Communities. There is national framework legislation on which each Community can introduce the changes it deems appropriate.
This generates great differences between the different regions of Spain, having at one extreme those in which there are bonuses of up to 99%, when the heirs are family in direct ascending or descending line, to those in which the tax can even be higher than what the state standard establishes, which is already characterized by being quite burdensome.
If you move to Spain, take into account the Autonomous Community of residence, it is essential when establishing the obligations and the amount of taxes before an inheritance.
The mere fact of having a home in Spain can generate the following non-resident taxes:
- Income Tax: a taxable base is declared for the imputation of income, for an amount of 1.1% or 2% of the cadastral value to which in this case a tax rate of 24% is applied, being resident of a non-member state of the European Union.
- Wealth Tax: assuming that the home is the only asset in Spain, if its net value (acquisition value minus pending mortgage) is greater than 700,000 euros, there will be an obligation to present and pay this tax.
On the other hand, if you decide to rent the house, it must be taken into account that the Wealth Tax continues to apply, and also the amount received for the rent will be taxed, by the Income Tax, at a rate of 24% fixed, without the right to deduct any associated expenses. The presentation of the returns corresponding to the rental income, for non-resident taxpayers, is quarterly, so the tax is paid every three months.
Tax residents in Spain are subject to tax in respect of their worldwide income (no matter where that income has been obtained or who is the payer of that income).
There is a Special Tax Regime for individuals coming to Spain due to labour reasons, that allows them to be subject to tax according to the non resident rules (while keeping the status of residents), at the flat rate of 24% (up to 600.000 Euros) and 47% (form 600.000 onwards).
Personal Income Tax- Resident in Spain
Individuals who, under the Spanish internal tax law, should be considered as tax residents in Spain are subject to taxation on their worldwide income, that is, for all the income generated in the tax period, regardless of where it is generated or paid.
The calculation of the Personal Income Tax will depend on the amount of the general taxable and saving taxable base. These bases are subject to the following progressive rates:
General taxable base:
Taxable base (from) | Tax liability o lower limit | Remaining taxable base | Tax rate |
0,00 € | 0 | 12.450 € | 19,00% |
12.450 € | 2.365,50 € | 7.750 € | 24,00% |
20.200 € | 4.225,50 € | 15.000 € | 30,00 % |
35.200 € | 8.725,50 € | 24.800 € | 37,00% |
60.000 € | 17.901,50€ | 240.000 € | 45,00% |
300.000 € | 125.901,50€ | onwards | 47,00% |
(*) Personal Income Tax is in part regulated by each Autonomous Region in Spain and the above rates may vary depending on each Autonomics’ regulation.
Saving taxable base:
Taxable base | Tax liability o lower limit | Remaining taxable base | Tax rate |
0,00 € | 0 | 6.000 € | 19,00% |
6.000 € | 1.140 € | 44.000 € | 21,00% |
50.000 € | 10.380 | 150.000 € | 23,00% |
200.000 € | 44.880 € | Onwards | 26,00% |
The tax year is the calendar year and, in general terms, the personal tax is accrued on December, 31st of each year.
Personal Income Tax Return must be filed through Form 100. The deadline for filing is between April and June of the year following the year of assessment.
Personal Income Tax – Non-Residents in Spain
Individuals who are considered as non-tax resident of Spain, are subject to taxation in respect of their Spanish source income (i.e. income generated within Spain).
Non resident individuals must file a personal income tax return (Form 210) in respect of each type of income they may obtain and different deadlines will apply, as follows:
Tax returns showing a tax payment
- In general terms, the deadline for filing is by the 1st to the 20th of April, July, October, and January, in relation to the income occurred in the previous calendar quarter.
- Income derived from urban properties (excluding primary residence) not rented out. The deadline for filing is from January 1st to December 31st of the year following the year of assessment.
- Sale of properties located in Spain. The deadline for filing is four months from the date of sale, no matter that the return shows a payment or a refund.
Tax returns showing a tax refund.
Except for returns corresponding to the sale of a property located in Spain, the deadline for filing will be during four years from the date of assessment. It is mandatory a certificate of residence in the corresponding country.
Tax rates for individuals who are non-tax resident of Spain are the following:
- General: 24%
- Saving income and capital gains: 19%
Notwithstanding, different rates may apply for UE/EEA citizens or in case of International Tax Treaties.
If you are tax resident in Spain, you are obliged to submit an Annual Personal income tax form April to June of year following the year of assessment.
If you are non tax resident of Spain and you obtain any income within Spain, you will have to file a non resident return through Form 210.
For example, if you are non resident in Spain but you have a property there, you must file Form 210 (the deadline will be different depending on whether the property is rented out or not). Or in case you receive employment income during the days you spend in Spain, etc..
Net Wealth Tax
Individuals who are tax resident of Spain will be subject to the Net Wealth Tax in respect of their worldwide net worth (personal obligation), regardless of where it is located.
Non-tax residents in Spain, but residents of an EU or EEA Member
State, may choose to pay personal obligation.
Non-tax residents in Spain, unless they choose according to the preceding paragraph, as well as taxpayers under the Special Regime, will be taxed in respect of their worth located in Spain (that is, on the assets that are located, could be exercised, or had to be fulfilled in Spanish territory applying state law).
As a general rule, the is a reduction from the Tax Base that will differ depending on each Autonomous Region. If no specific reduction has been approved, the reduction will amount to 700.000 euros.
The taxable base will be subject to the progressive rates approved by the corresponding Autonomous Region. If no regional regulation has been approved, the following progressive rates will apply:
Tax Base | Tax liability on lower limit | Remaining taxable base | Tax rate |
0,00 | 0,00 | 167.129,45 | 0,2% |
167.129,45 | 334,26 | 167.123,43 | 0,3% |
334.252,88 | 835,63 | 334.246,87 | 0,5% |
668.499,75 | 2.506,86 | 668.499,76 | 0,9% |
1.336.999,51 | 8.523,36 | 1.336.999,50 | 1,3% |
2.673.999,01 | 25.904,35 | 2.673.999,02 | 1,7% |
5.347.998,03 | 71.362,33 | 5.347.998,03 | 2,1% |
10.695.996,06 | 183.670,29 | En adelante | 3,5% |
The Net Wealth Tax Return must be filed in the following scenarios:
- The tax return shows a tax payment.
- If there is no tax payment but the net valuation of the worth Euro 2.000.000.
The return is filed through Form 714 and the deadline for filing is from April to June of the year following the year of assessment. Electronic filing is mandatory for this tax return.
Special Tax Regime
Special Tax Regime (Beckham Law)
Individuals that will become tax resident of Spain may opt for the Special Tax Regime (“Ley Beckham” or Beckham law).
The application of this Regime is subject to the fulfilment of the following requirements:
- Not have been tax resident of Spain during the last 10 tax years preceding the year of arrival.
- The movement to Spain must be either:
- As a consequence of a local contract with a Spanish employer (or an international assignment to Spain).
- As a consequence of the acquisition of Administrator of a Company where the individual has no participation or 25% as the highest.
- The individual cannot obtain income that could be considered as derived though a Permanent Establishment in Spain.
Those taxpayers who have opted for the Special Tax Regime, will be subject to taxation in respect of their worldwide employment income generated upon the arrival in Spain, and in respect of other possible income they can obtain within the Spanish Territory. The tax rate applicable will the 24% for income up to Euro 600.000 and 47% for income exceeding Euro 600.000.
The tax return will be filed through Form 151, between April and June of the year following the year of assessment.
Under this scenario you will continue under the Special Tax Regime.
You must provide your new employer with a copy of the Certificate issued by the Spanish Tax Authorities confirming the Special Tax Regime.
This is in order to ensure that your new employer can correctly report and pay the corresponding withholding taxes before the Spanish tax Authorities.
The application of the special tax regime is subject to compliance with a series of requirements:
- Coming to Spain must be for work reasons (either through a contract with a company in Spain or an international assignment)
- You cannot have been a tax resident in Spain during the 10 years prior to the year of posting
- You cannot obtain income that would qualify as obtained through Permanent Residency.
If all the requirements are met, it is necessary to make a formal application to benefit from the special tax regime. This application must be submitted to the State Tax Administration Agency (Hacienda), within six months from the date of registration with Social Security in Spain, or the date of obtaining the certificate of Social Security coverage in the country of origin (in the case of international assignments).
Informative Returns
In respect of the obligation to report cryptocurrencies in the Informative Declaration of assets and rights located outside of Spain (Form 720), articles/studies that have been published conclude the following:
- Cryptocurrencies are based on cryptography and on the blockchain, which is a single record, agreed and distributed in several nodes of a network (that is, it would be like the accounting book in which transactions are recorded). Consequently it would be difficult to determine where the cryptocurrencies are located.
- Cryptocurrencies do not have a fit in any of the three blocks of assets/rights about which there could be a reporting obligation. Obviously they are not real estate.
- On the other hand, the wallet is not considered an account in a financial institution. And finally, even though there is a figure of exchange houses that can manage the exchange of cryptocurrencies, in no case is there a transfer of our funds to these exchangers.
Thus, in relation to Model 720, there will be no obligation to report on investments in cryptocurrencies.
One of the biggest issues around form 720 are the related sanctions that can be imposed by the Spanish tax authorities for failure to file or for late submission.
Despite being an informative return, as filing does not entail the payment of any amount, the penalties for failure to comply in case of being obliged can be 150% of the personal income tax and 5,000 Euros for each data or set of data, with a minimum of 10,000 Euros. In case of late filing, the penalties will be lower, but in any case, the taxpayer would be facing a minimum of 1,500 Euros.
RSU’s are considered a right to receive a number of shares of the Company, after a corresponding vesting period (in this case, the vesting period is 1/3 of the units every year).
There is no obligation to report RSU’s in the For 720 until shares are delivered and assuming this will be at a foreign bank.
Form 720
Resident taxpayers who have assets located outside of Spain may be subject to a reporting obligation (Form 720).
For the purpose of this reporting obligation, the return is divided into three different groups of information: (i) Bank Accounts (ii) Investments and (iii) Properties.
As a general rule, and individual is subject to this reporting obligation in the following situations:
- When the value at December 31st, of any of the three groups is more than 50.000 euros.
- After the first obligation, when there is a cancellation or an increase in the value of any of the groups of 20,000 euros or more, or if any of the groups not reported in previous years reaches the 50,000 euro threshold.
Among others, the following will be required to file this return:
- Individuals resident in Spanish territory, unless they have been granted with the Special Regime.
- Communities of assets and inheritances.
- Real owners of the assets at any time of the year to which the declaration refers.
- The holders, representatives, authorized, or beneficiaries of financial accounts located abroad, or
- those who have had disposition powers over them, or who have been real holders, at any time of the year to which the declaration refers.
This return is informative and no payment will arise at the time of filing. However, the penalty regime for not filing or late filing is very strict and may lead significant penalties.
In addition to the possible penalties for the not filing or late filing, all those assets and rights that the taxpayer is required to report, which are informed late, may be included as an unjustified capital gain for Personal Income tax purposes.
The deadline for submission is from January 1 to March 31 following the end of the corresponding year. Electronic filing is mandatory for this tax return.
Informative form of assets and rights located outside of Spain (Form 720)
This tax Form is an informative return that needs to be filed before the Spanish Tax Authorities and intends to control the assets located outside of Spain (properties, shares, insurances, bank accounts, etc), as having these assets may also have implications for personal income and net wealth tax obligations.
To determine the obligation to file or not this form, the assets and rights located outside of Spain are categorized into three groups:
- bank accounts and deposits in financial entities in entities located outside of Spain.
- securities, rights, insurances, or income, located, managed or obtained abroad.
- real estate located abroad or rights over that real estate.
National Spanish Bank (ETE) and other informative Forms before the Spanish Authorities
The ETE FORM (Survey of Foreign Transactions) is an informative declaration to be filed before the Bank of Spain.
Individual and corporate residents in Spain that carry out operations/transactions with non-residents, or maintain assets abroad for a value greater than 1,000,000 euros are required to submit this form.
It is necessary to inform about the values and variations of the value of assets, as well as the operations with non-residents regardless of their nature and regardless of how the operations take place.
Annual submission will be required and must be done no later than January 20 following the year of assessment, provided that the amount of the transactions during the immediately preceding year or the values of assets and liabilities at December 31st, were less than 100,000,000 euros. If this is not the case, the submission deadlines may vary and have a higher recurrence.
Finally, there is an obligation for Spanish residents when there are foreign partners or investments abroad, or also for holders of shares in foreign companies or branches, as well as for Spanish companies, in whose shareholders a foreigner participates and makes some foreign investment in Spain.
Such situations lead to the obligation to file forms D4, D6, D8, D5A, D5B, D1, etc. to the General Directorate of Trade and Investments.
The deadlines vary depending on the form that needs to be completed.
The Foreign investments form (Ds Form) must be filed to the “Foreign Investment department of the Ministry of Economy” for administrative, statistical, or economic purposes.
In general, investments will be informed once they have been made, to provide the Spanish Administration with knowledge of foreign investments in Spain or Spanish investment outside for statistical and administrative purposes.
However, there will be an obligation to file a prior form in the cases of investments from/in tax havens, in which investments themselves are not declared but investment projects. This declaration will be necessary except in the cases certainly excluded.
Foreign investments are classified in two groups:
Foreign investment in Spain
The cases of filing may be the following:
- Individuals not resident in Spain (Spanish or foreigners, domiciled abroad or who have their main residence outside of Spain).
- Corporations domiciled abroad, as well as public entities.
- The investment will be informed by the non-resident holder. Additionally, when the operation has been managed by a Spanish public notary, the latter will also inform it.
Depending on how and in which asset the investment is done, there will be different parties obliged to declared and the forms will be different.
Spanish investments abroad
This obligation may affect to the following holders of Spanish investments abroad:
- Individuals residing in Spain, understood as Spanish or foreigners with domicile or main residence in Spain.
- Corporations located in Spain.
Spanish investments abroad can be made through any of the following operations:
- Participation in foreign companies.
- The creation outside of Spain of branches of Spanish companies.
- Securities of non-Spanish companies.
- Participation in foreign investment funds.
- The acquisition of real estate located abroad when exceeding certain values or under certain requirements.
- Any other investments in foreign entities, corporations or similar.
There are a lot of different forms which will be used each one depending on the type of investment.
In the Foreign Transactions Turvey (ETE Form) the Bank of Spain must be informed of economic transactions and balances of financial assets and liabilities abroad and which at the end of the year exceed the value of 1 million Euros.
The obligation to file the ETE form is for individual or corporations residing in Spain whose value of financial balances (initial and final) and the amount total transactions carried out (revenues and payments) in the period exceed one million euros. This form is not applicable to certain financial entities which are registered in the official records of the Bank of Spain,
The filing deadlines of the ETE form will be of different frequency (monthly, quarterly or annually) depending on the amount of the total transactions with non-residents carried out during the previous year, or the final amount of financial balances as of December 31st. In general terms, if the amount of the transactions does not exceed 1,000,000 Euros in the corresponding tax year, the statement will be filed before January 20 of the year following the end in which the investments are made.
The information must be sent to the Statistics Department of the Bank of Spain, by electronic means so a “personal digital certificate” will be needed.
Form 720 has to be filed in March of the year following the year of assessment.
The purpose of this Form is to to report the assets and rights held overseas by Spanish Residents.
There are three different groups of assets: Bank accounts, investments, and properties.
In general, if the value of any of this group is higher that 50.000 Euros, an individual is obliged to file the Form 720.
For subsequent years, a filing obligation will arise in the case that the value of any previously reported group increases in more than 20.000 Euros, or if there is any cancelation/sold of any of the assets previously reported, or in case that the value of a unreported group reaches 50.000 Euros.
Tax residents in Spain will be required to file a Form 720 in the following cases:
- If the form has never been filed before, if the value of any of the groups of assets previously described exceeds the value of 50,000 Euros.
- If the form has been previously filed and there has been an increase of 20,000 Euros in any of the groups already informed, or if any of the groups have not been yet informed, when it happens to have a value greater than 50,000 Euros.
- The ownership of goods, assets or rights informed in a previous form is extinguished.
Individuals who are considered non-tax residents in Spain, nor those who, even though they are tax residents in Spain, have opted for the Special Tax Regime (known as the Beckham Law) will not be required to submit form 720.
The obligation to file form 720 must be fulfilled between January 1 and March 31 of the year following the end of the tax year to which the return refers.
Other Services to individuals
To be registered at City hall, is convenient. Even when it is not a criteria to be considered as tax resident of Spain, it can be useful for prove your residence in Spain.
This is a question often asked by those individuals who decide to move from Spain to other country. Normally, they understand that if they do not obtain any income in Spain, and have not rented out properties located in Spain they are not subject to Spanish Taxes. However, this is not correct.
Individuals who are non-tax resident in Spain will be subject to tax in respect to any property they may have in Spain, even when they are not rented out. Additionally as the Spanish Tax Authorities understand that it is not possible for an individual who is non-tax resident in Spain to have his/her principal residence in this country, this properties will be also considered for taxes. T
his is known as “imputed income” and the taxable base is calculated by applying the percentage of 1,1% or 2% to the correspondent cadastral value of the house (depending on whether or not the cadastral value has been revised by the Local Authorities in the last 10 preceding years). The tax rate applicable will be 19% (for resident in a EU countries) or 24%.
The Spanish Personal Income Tax Law provides with several requirements for the application of the exemption from the work performed abroad. One of these requirements, is that services must be rendered for the benefit of a non resident company or for a Permanent Establishment located outside of Spain.
To the extent that your role is looking for clients for the Spanish Company, the Spanish Tax Authorities would understand that the beneficiary of the work is neither a non-resident entity, nor a Permanent Establishment outside of Spain. Notwithstanding, this is a complex exemption, and a case by case analysis should be done.
The inheritance tax is assigned to the Autonomous Communities. There is national framework legislation on which each Community can introduce the changes it deems appropriate.
This generates great differences between the different regions of Spain, having at one extreme those in which there are bonuses of up to 99%, when the heirs are family in direct ascending or descending line, to those in which the tax can even be higher than what the state standard establishes, which is already characterized by being quite burdensome.
If you move to Spain, take into account the Autonomous Community of residence, it is essential when establishing the obligations and the amount of taxes before an inheritance.
In this case, the payment is made when the taxpayer is Spanish tax resident. However, taking into account that the bonus has been generated outside of Spain and for the benefit of a non-resident entity, the exemption for work performed outside of Spain (article 7.p) of the law) is applicable, with a maximum annual amount of 60,100 euros.
Same exemption is applicable to the part of income related to the stocks and which was generated before the move to Spain. If your employer has not applied this exemption or you have not considered it on your tax return, you will be paying more taxes. A claim of taxes could always be made, if necessary, during the following 4 years.
An individual is considered as tax resident of Spain when he/she meets one of the following criteria:
(i) presence in Spain for more than 183 days in a calendar year
(ii) if his/her centre of economic interests is located in Spain.
Global Mobility
In the case of employees with international mobility, the employee can change his/her residence status and one tax or another may be applicable.
In these situations, procedures to be carried out before the Social Security or the Tax Authorities may also change.
The Company must be prepared and know how to regularize the withholdings of taxes and Social Security, as well as the possible procedures to fulfilled by the employee at departure/arrival.
Many employees need to travel for professional reasons and companies generally have a reimbursement expense policy.
The Spanish Tax Administration is focusing on the revisions regarding meal allowances, travel and accommodation expenses, mobility premiums etc. For this reason, it is important to have a well-defined travel expense policy and to know the tax treatment that such expenses.
An international mobility policy is a document that defines the main lines of action to be followed by the company based on the international mobility scenarios that may arise.
The mobility of workers is a factor of utmost importance for the Companies. For this reason, they must be prepared and provided with the appropriate tools for a correct management of the international movements of their workers.
The different categories of employees for tax purposes implies the need to consider different regulations at the time performing the tax withholdings and report them in the corresponding forms (111/190 or 216/296 – tax resident, non tax resident and the expat regime).
Additionally, in the case of international employees, it is necessary to know the regulations of the International Agreements and the internal legislation of other countries.
Compensation Plans
The payment made due to a incentive plan can be considered as different types of income,with different tax treatment and value when it is included in the employee’s payroll.
Correctly reporting of such payments in payroll will have a direct impact on the company’s withholding tax forms (190/296).
The move of an employee from one country to another does not necessarily imply the end of their tax and social security obligations.
On the contrary, it is very common that when long-term incentives are paid (stock options, bonuses, etc.), new obligations arise in the countries where the employee is no longer. At the same time, it is possible that the company in Spain is obliged to make withholdings for the entire incentive payment.
Therefore, each case must be analyzed individually, taking into account the periods in which each employee could have been in each country, bearing in mind the Spanish regulations and the provisions of the International Agreements.
One of the main issues we need to consider when implementing an incentive plan is the tax treatment under the Personal Income Tax.
Certain tax benefits will help to achieve a more tax efficient remuneration and a higher retention of talent.
The 30% tax reduction or the exemption of 12,000 euros are some of the tax advantages under the Personal Income Tax Law.
The implementation of this type of compensation plans must consider a wide range of aspects that include, among others, communication to employees, the implications for tax purposes (personal and corporate taxes), social security implications, etc.
International Social Security
Once the corresponding immigration procedures have been carried out, it must be taken into account that, in the case of a company that does not have headquarters or activity in Spain, it will be necessary for the British company (or based in any country except Spain) to register in this country in order to be able to comply with its obligations regarding Social Security, making the corresponding monthly contributions to Spanish Social Security.
It is not possible to transfer contributions paid to the Social Security of a foreign country to the Spanish System.
The foreign contributions will be kept in your records. Spain will not pay a pension for such contributions.
However, at retirement, in case there is a Totalisation Agreement signed between Spain and the foreign country, the contribution periods in both Social Security systems will be taken into account for the purpose of meet the minimum requirements to access for a pension in both countries.
Spain and The United States have signed a Bilateral Agreement on Social Security, which will allow to meet the minimum requirements to be eligible to a pension in both States, by totalising (joining) the contributions period in each country.
In case you meet with the minimum requirements to access for a pension in both countries, both the Spanish and the US Social Security Systems will pay the corresponding portion of the pension in accordance with the period you have been paying Social Security in each State.
On the contrary, if you don´t meet with the minimum requirements to access for a pension, the Totalisation Agreement will help each country to pay the part of the pension that may correspond to you, considering the period you had been working and paying Social Security in each country. In this case, you must request for your pension under the terms of the Totalisation Agreement.
As far as there is not an international assignment from Switzerland to Spain, Social Security payments will be required in Spain.
To the extent that there is no Spanish Subsidiary/no PE in Spain, the Swiss Company must registered within the Spanish Social Security System to proceed with social tax payments.
7p exemption
We have several employees who will be travelling to different countries of the EU with the purpose of carrying out different duties.
Some of them have international roles within the Company and the travels will respond to their International duties. In addition, there will be employees who will be travelling with the purpose of making market research and a third group of individuals who will be travelling to different subsidiaries to give training sessions about new products and services provided in Spain.
These employees are asking to apply the exemption from taxation provided in article 7p of the Spanish Tax Law. What are the requirements for benefiting from this exemption? If the company does not apply the exemption at withholding tax level, would the employees be able to claim for the exemption at the time of filing their tax returns?
The exemption for services rendered abroad, provided in Article 7p of the Spanish Personal Income Tax Law, is subject to the fulfilment of the following requirements:
- The individual must be tax resident of Spain
- The individual must render services for the benefit of a non resident Entity, or a Permanent Establishment of the Spanish Company located abroad
- The work must be physically performed in a foreign county (work on remote from Spain is not considered)
- The country where the services are rendered cannot be considered as a Tax Haven
- In the relevant county, a personal tax like the Spanish Personal Income tax, must be applicable.
- There is a maximum amount of employment income that can benefit from this exemption: 60.000 Euros per year.
The application of this exemption requires a case-by-case analysis. Each different scenario should be analysed to conclude about the possibility of applying the exemption. And in any case, the Company should keep all the supporting documents to be able to prove the fulfilment of the requirements in case of a hypothetical inspection.
If the exemption is not applied by the Company at withholding tax level, the individuals could claim for its application either trough their Personal Income Tax Return or through a written communication to the Spanish Tax Authorities. However, it should be noted that this could be a length process until the Tax Authorities would accept the exemption.
If you have any more questions, don’t hesitate to let us know.