Expatriate Executive: Spain

Summary of local taxation situation

A foreign national working in Spain or based there will be taxed in Spain either as a resident or as a non-resident.

Residence applies to individuals who:

• spend more than 183 days in the country;
• possess a permanent home in the country;
• make Spain their main base or center of economic activities, directly or indirectly; or
• have a spouse and/or dependent children who are permanent residents in Spain.

In order to lose tax residence it is simply necessary to stop fulfilling any of the above criteria in a given tax year.

Resident individuals are taxed on their worldwide income; non-resident individuals are taxed only on their local-source income.

For residents, the basic tax rate for of 15.66% applies to the first EUR17,707 of taxable income; higher rates are 18.27%, 24.14% and 27.13%, which applies to income above EUR53,407.

For non-residents, the tax rate is normally 24%. Foreign nationals who become residents of Spain under an employment contract may pay non-resident income tax for the first five years provided that they were non-resident for at least 10 years before beginning residence.

There are local taxes, applying only to residents, usually at 15.87%.

The withholding tax on interest is generally 19% (18% prior to 2010.)

There is personal allowances of EUR5,151 and additional allowances for dependants.

Employed individuals pay social security taxes of 4.7%; the employer pays 23.6%.

There are some domestic Spanish tax-privileged savings and investment instruments which are worth following up, and usually these can simply be discontinued on leaving without serious tax penalties. Contributions made to pension plans are deductible expenses for tax purposes.

There is no Alternative Minimum Tax in Spain.

Capital gains tax applies to a wide range of investment assets at a rate of 19% on gains up to EUR6,000 and 21% thereafter. Prior to January 1, 2010, capital gains were taxed at a flat rate of 18%.

There used to be a wealth tax, but it was abolished in 2008.

Inheritance tax applies at rates up to 34%; there are exemptions and lower rates for family members. There is a real estate transfer tax, usually applied at 6%.

NB: The Spanish tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

Although some revenue protection measures apply to countries having "preferential" tax regimes, general anti-avoidance legislation has not progressed far in Spain, and offshore trusts are generally speaking quite effective at sheltering many types of asset. Inheritance tax does not apply to trust assets, which pass directly to family heirs without the need for probate.

It follows that before taking on Spanish residence, there is a case for placing income- or growth-generating assets into trust.

Needless to say, it is essential to take professional advice.

Once Spanish residence has been terminated, and if non-residence is expected to be permanent, then an ex-Spanish resident is free to invest offshore in order to obtain the best possible returns.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 35 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.