One of the main concerns of many foreign workers and entrepreneurs when they come to Spain to set up in business has to do with the taxation they have to deal with. They have doubts about their tax burden, the taxes they have to pay in Spain, and whether they have been informed in advance, understanding of the documentation (such as the 720 form) and the requirements demanded.
But in order to talk about the IRPF of foreigners resident in Spain, we must first explain when an individual is considered to be legally resident in our country.
On this and other issues related to foreigners residing in our country, we will now take a closer look at our tax blog of JDV Asesores for Expats y Self-employed.
Context for foreign residents in Spain
According to the IRNR Law (Impuesto sobre la Renta de No Residentes) there are two main assumptions that define the residence of an individual in Spain. Logically, both are linked to the length of time spent in the country:
Prolonged stay
In order for a foreigner to be considered resident in Spain (i.e. not having accredited in advance that he/she has his/her tax residence in another country), he/she should stay in the country for at least 183 days of the calendar year. Any period of time in that calendar year that has not been spent in the country counts towards determining the total days of presence here.
The rule specifies that, if the person claims that their tax residence is in a country classified as a ‘tax haven’, the tax authorities may require them to prove that they have been in the country for at least 183 days.
Likewise, it is stressed that in calculating the exact number of days established in Spain, stays limited in time as a result of collaborative agreements of a cultural or humanitarian nature, free of charge, with Spanish public administrations, will not be taken into account.
Employment and economic activity
The other case where it makes sense to know the IRPF of foreigners resident in Spain is for those profiles that have in Spain their main and major economic activity, of whatever nature. Activity or interests, directly or indirectly.
Special rules and regulations for foreign residents
These are the two civil and legal contexts covered by the current regulations in relation to the figure of the resident in Spain, but there are also some nuances to be highlighted.
A person is considered to be a resident in the country, and is therefore defined as a taxpayer, when the spouse and/or their common minor children are regularly established here.
There are other assumptions in the regulation, but these are aimed at residents of Spanish nationality, which are not included in the text as they are not closely related to the main subject, which is the personal income tax of foreigners resident in Spain.
IRPF foreigners resident in Spain
As advisors specialising in income tax declarations for foreign residents in Barcelona and the rest of Spain, JDV Asesores for Expats y Self-employed are social collaborators of the Spanish Tax Agency. This means that we receive updated communications and the corresponding tax documents to help each client to comply with their tax obligations related to VAT and IRPF of foreign residents in Spain.
Those individuals or legal entities that own or hold real estate in Spain (Form 720) are also obliged to pay taxes in our country.
Elements to be taken into account in the declaration as a resident foreigner
Mainly:
- Pensions from other countries
- Dividends from other countries
- Income from work carried out abroad
- Worldwide income and its imputation
- International double taxation deductions
- Double taxation avoidance agreements
- Exempt income with progression
The dilemma of dual residence
The signing of agreements and conventions between countries are common in different areas such as tax and judicial matters, among others. In the case of personal income tax for foreigners resident in Spain, an important aspect must be clarified: a citizen can only have one tax residence. If someone has dual residence, it is necessary to pay attention to the domestic legislation of each country to decide where they should declare their taxes.
If two states agree to classify an individual as a resident person, as a general rule, certain criteria will have to be followed to determine which of the two will actually handle that person’s personal income tax and other taxes.
To make such a dissection easier (it is not always easy), we base ourselves on the following:
- A natural person is a resident of the State where he has a permanent dwelling at his disposal.
- If he has a permanent residence in both territories, he is considered to be a resident of the place with which he has the closest personal and economic relations (centre of vital interests).
- If, despite this, there is still reasonable doubt, the State where he habitually lives takes precedence.
- If he/she habitually lives in both States or in neither of them, he/she will be considered a resident of the State of which he/she is a national.
- And, finally, if he is a national of both States, or of neither, the competent authorities will decide the case by mutual agreement.
Conclusions
To ask about IRPF for foreigners residing in Spain is a common one among those foreigners intending to move to the country. Every year there are more and more of them, given that Spain is one of the world’s favourite destinations for settling down. It should be borne in mind that tax residence, whether in Spain or in any other country, is accredited by means of a certificate issued by the competent Tax Authority of that same country, which is valid for one year.
It should also be clarified that administrative resident and tax resident do not always have the same status. It is perfectly possible for a person to have a residence permit in one place, but not be considered a tax resident of that location.
If you have any doubts or queries regarding this article, please leave us a comment or contact the firm through the following channels of communication.
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