Look before you Leap!
Whether you are thinking of moving to Spain or are already living here, make sure you research and speak with an expert tax advisor or accountant. In general, there are not that many disadvantages, and there may even be several advantages, depending on your situation. However, you need to know how to navigate the system, avoid some pitfalls and, perhaps also, base your job and career plans on the potential tax benefits. In other words, it may work best for you to work freelance than as a company employee. Additionally, one thing to consider is that you are considered a resident for tax purposes, even if you are living in the country undocumented, starting on the calendar year you live six months and one day in Spain. In other words, if you move to Spain on June 30 or earlier this year, then this will be your first year as a Spanish resident. However, if you arrive on July 1 or later, you will not be considered a Spanish resident until 2021, and your first tax return will not be due until the Spring of 2022.
Some of the pitfalls that I did not consider before we moved, is a type of “wealth tax” if you a) have bank deposits abroad totaling 50,000 € or more; 2) own property, even collectively, outside of Spain that totals more than 500,000 € or more; and 3) own stocks, bonds or shares abroad totaling more than 50,000 €. Personally, the one that surprised me is item 2. As some of you may know, property in the U.S. can easily cost more than 500,000 €, which will generate a yearly tax as long as you live in Spain, even if you inherited the house, also if it sits empty, even if it was a gift. The tax is based on the value of the property when it became yours. Now, I understand taxing you on income from rental properties, even if that property is outside of Spain, but taxing you just for owning property seems extreme to me.
Also, as in most things in life, never assume anything is going to be approximately the same in your country as it is in Spain regarding taxes. For example, in the U.S., there is a tax advantage to having a child. You can claim the dependent deduction every year. Similarly, in Germany, there is a tax advantage to being married and filing jointly. However, in Spain, neither of these are options. Therefore, it is always best to ask as many questions as you can form a tax expert, as well as never expect that the tax break you received in your home country will automatically occur in Spain.
On the plus side, there are advantages as well, such as a huge tax break and payments to the social security office, which includes medical insurance within the national health system. This reduction is good for the first two years, or so from the date, you register yourself as a freelancer. The tax break is meant to encourage entrepreneurship and keep the economy going. Additionally, there is a 20% reduction in the tax burden if you change professions. For example, if you decide, you want to be a plumber after having been an accountant for many years. This tax break is also suitable for about two years, and then you are expected to pay the standard tax based on your income level and other factors.
Although we moved from Berlin to Barcelona without delving deeply into the tax system, and there have been some surprises, in general, the tax benefits and a decrease in the cost of living have been a plus. However, I would still encourage anyone thinking of migrating to Spain to talk to an expert in the areas of tax law, as well as professional moving consultants such as us. The average fee for an accountant that will explain things to you take care of your quarterly income reports and tax payments, as well as prepare the yearly tax return is approximately 500€ a year, which is quite a bargain. That said, however, make sure you get a referral from a trusted source. Good, honest tax advisors are not easy to find, and you do not want to get into trouble for not abiding by the law. Even though a tax expert may give you advice, and also steer you in a particular direction, that will not exempt you from criminal charges and fines if the tax office thinks you tried to commit fraud.
At City Writeups, we strive to provide you with as much information as possible to help you make a decision about moving to Spain, as well as use that information once here. However, our articles are general in scope and may not apply precisely to your situation. Therefore, feel free to contact us should you have any questions or comments, or if you would like to receive personalized consulting services.
Taxes in Spain for Expats
The above is for informational purposes only and not intended as tax advice – if you have questions about matters relating to taxation, please consult with a professional tax advisor.