Why Spanish Income Tax is not as bad as it sounds

If you move to Spain from abroad it's probably for the weather, the lifestyle or for the opportunity to start again. Almost certainly not to get up close and personal with the Spanish tax system. But it's almost unavoidable: if you live in Spain you almost certainly will have to declare your income to the Tax Office and pay your tax here. There are exceptions and this guide will help clarify things:

Do I need to do a Spanish tax return?

So if you are like most of us and have to declare Spanish taxes then is it going to hurt? Well it depends on how much you earn of course but there are some reasons to be cheerful:

Exemptions:

Us foreigners have a few exemptions we may be able to call on. For example there is a 60,000€ tax free allowance for income earned and taxed abroad and another exemption for new arrivals who want to be taxed as non-residents. See details here.

Crown pensions (those paid by the government to for example civil servants, army, police) are exempt from Spanish tax and don't have to be declared.

Allowances:

You get personal allowances where no tax is payable in Spain as you do in the UK. The allowances for 2009 are:

Everyone €5.151 (€6.069 for over 65s and €6.273 for over 75s)

Disability allowance - up to €6.900

1st child €1.836 2nd child €2.036 3rd child €3.636 4th child €4.182 (plus maternity allowance of €2.244 for children under three)

Earnings related allowance - €4.080 for earnings up to €9.180 reducing to €2.652 for earnings above €13.260.

(pensions count as earned income for this purpose)

Deductions:

• * Credit is given for all tax deducted at source whether this be in Spain (e.g. “retenciones” deducted by banks on interest or employers on salaries) or abroad, if there is a tax treaty in force.
• * Any payments into the Social Security system are deductible.
• * There are important deductions allowable in the calculation of rental income – for residents but not non residents – and capital gains on property sales.
• * Homeowners can deduct 15% of their mortgage costs (subject to limits)
• * Pension contributions are tax deductible (subject to limits)
• * The first €1.500 of dividend income is tax exempt.
• * As a crisis measure the government introduced a €400 tax credit for all employees and self-employed persons in 2009. This is to be abolished from 2010.

If you want to learn how you can make your Spanish tax filing as painless as possible please come and talk to Advoco. If you like send me a private email at jb@advoco.es