Anyone who earns income in Spain, whether through employment or passive sources, is likely to be liable for Spanish income tax – known as IPRF (Impuesto sobre la Renta de las Personas Físicas).
The amount of tax you must pay depends on how much you earn, your tax residency status, and where you live/work in Spain, as some regions have different tax rates and allowances.
Tax residents are also charged progressively on global income, with rates increasing along with earnings, while non-tax residents are charged a flat rate on income within Spain only.
To calculate the personal income tax you owe, you must complete a tax return (Declaración de la Renta) compiling your total taxable income, then subtract any deductions you may be entitled to before applying the relevant tax rate.
If you aren’t familiar with taxes in Spain, this process can be confusing, which is why it’s helpful to get assistance from local experts who speak both Spanish and English, like Manzanares Lawyers.
To give you an idea of ways you could potentially reduce your taxable income in Spain, here are some of the allowances and deductions available and who can claim them.
Tax reductions for tax residents
The Spanish tax agency will consider you a tax resident if you live in Spain for more than 183 days out of the calendar year (whether consecutively or non-consecutively), or if your primary economic interests are in Spain.
This means you would be liable for tax on global income and assets, at higher progressive rates. There are six income tax brackets, which start from 19% and go up to 47% for annual income over 300,000€.
However, with greater tax liability comes greater deductible expenses. Tax residents can benefit from a range of allowances and cost deductions that aren’t available to non-tax residents, including the following:
Personal allowances
Resident taxpayers are entitled to a tax-free personal allowance, which is 5,550€ for residents under 65 years old. The basic allowance increases to 6,700€ from this age, then increases again to 8,100€ from 75 years old.
If a resident taxpayer is disabled, they may also be entitled to an additional disability allowance. This increases the personal allowance by 3,000€, or up to 9,000€ depending on the level of disability. If the taxpayer needs care assistance, they can claim a further 3,000€ allowance for necessary care expenses.
Family allowances
If you are married, you can claim the married couple allowance, which is 5,550€ for the first taxpayer and 3,400€ for their spouse. It’s also worth considering whether you should file a joint return as a couple or file separately as individuals, depending on which would have the most favourable tax conditions.
Taxpayers with children can also claim the child allowance for up to four children under 25 years old living with them. This allows a parent to make the following deductions from their taxable income:
- ⦿ 2,400€ for the first child
- ⦿ 2,700€ for the second child
- ⦿ 4,000€ for the third child
- ⦿ 4,500€ for the fourth child
- ⦿ 2,800€ for every additional child under 3 years old
Similarly, if an elderly relative lives with you and has an annual income below 8,000€, you can claim the dependent relative allowance if they are dependent on you. This is available at 1,150€ for dependent parents or grandparents over 65 years old, or 2,550€ if the dependent relative is over 75 years old.
Housing costs
Some property owners may be able to make deductions for housing expense relating to the purchase and/or improvement of their primary residence in Spain, but this is limited.
Homeowners who purchased a property and obtained a mortgage prior to 1st January 2013 could access a 15% tax benefit, while renters who signed a tenancy agreement before 1st January 2015 could also claim this tax credit, but these declarations must have already been included in previous returns.
Some regions may offer tax deductions for the purchase of a home in a rural area or place at risk of depopulation, or for purchasing a residence for a group of people, such as victims of domestic violence or young people in need.
Until the end of 2024, property owners may also be able to claim significant tax deductions for renovation works carried out between 6th October 2021–31st December 2022, as long as they improve the residence’s energy efficiency or accessibility.
Rental property expenses
If you own a property in Spain that you let out to earn rental income, these earnings will be included in your taxable income, with rates ranging from 19%–47% for tax residents and a flat rate of 24% for non-tax residents.
However, there are plenty of opportunities to reduce this taxable income by deducting eligible expenses, which include:
- ⦿ Municipal taxes (e.g. IBI property tax)
- ⦿ Mortgage interest (3% deprecation allowance)
- ⦿ Estate agent/property management fees
- ⦿ Utility and insurance costs
- ⦿ Maintenance and repair costs
- ⦿ Cleaning and laundry costs
- ⦿ Community fees
- ⦿ Marketing costs
Ineligible expenses include upgrades to the property, such as adding an extension or pool.
For long-term rentals, where the tenant uses your property as their permanent residence, you could also deduct up to 50%–60% from your taxable income (total income minus deductions).
For short-term lets like holiday rentals, or part-time lets where you use the property yourself the rest of the year, you must deduct expenses proportionally for the duration of the rental periods.
Professional expenses
If you are an employee with a Spanish employer, your social security contributions should be deducted from your wages or salary. The social security contribution rate is 6.47% for the employee (and 30.48% for the employer).
However, if you are self-employed or a freelancer, you must pay into the Spanish social security system directly yourself if you want to access state support for loss of income. The rate will be a percentage of your monthly income, but there are several reductions available in different areas, from 25%–50% for the first 3 years to 0% for the first 12 months.
Additionally, workers can reduce their taxable income by deducting certain expenses related to their profession. For example, those who work from home could subtract a portion of their utility bills, while a self-employed individual could deduct accounting or training costs.
Pension contributions
If you make pension contributions to private or personal pension plans, you can also deduct these contributions from your taxable income for the year – providing both a tax benefit and future savings for retirement.
While the annual limit for deductible pension contributions was previously 2,000€, this was reduced to 1,500€ or 30% of net income (whichever amount is lowest) from 1st January 2022.
However, this deductible expense can be increased by up to 8,500€ through employee pension contributions matching employer contributions, creating a maximum of 10,000€.
The 1,500€ limit also applies to freelancer workers, but there is another limit of 4,250€ for contributions to Simplified Employee Pension (SEP) plans, setting a maximum of 5,750€ for deducting self-employed pension contributions.
Donations
Donations to registered foundations or organisations in Spain can also be deducted as tax relief, whether the donation is made to a charity, cultural institution, or a scientific, technological, or environmental research group.
An individual taxpayer can deduct up to 80% of the first 150€ in donations from their taxable income, then 35% of any amount beyond this threshold. After donating the same amount or higher to charity for three years consecutively, you can claim 40% of donations over 150€.
However, the total deduction for donations cannot exceed 10% of your ‘liquidable base’ (taxable income).
Investments
If you invest in a start-up company in Spain, you can deduct a maximum of 100,000€ or 50% of your investment amount, which was increased from 60,000€ and 30% as of 1st January 2023.
To be eligible, the company must be commercial and not publicly traded, and you must keep the investment as part of your assets for a minimum of 3–5 years while owning no more than 40% of the company shares.
This is one of the measures introduced by the Startup Law to encourage investment in Spain.
Income tax for non-tax residents
As mentioned, the above tax deductions are only available for tax residents – those who have lived in Spain for at least half of the calendar year (183 days, not necessarily consecutively).
Anyone who lives in Spain for less than 183 days but still earns income in Spain is considered a non-tax resident, and will therefore not be entitled to claim the allowances of a tax resident.
However, it’s important to remember that tax residents are liable for tax in Spain on their total global income at progressively higher rates, while non-tax residents are only liable for tax on income earned within Spain.
A flat rate of 19% will apply for EU (European Union) and EEA (European Economic Area) residents, while non-EU and non-EEA residents must pay a flat rate of 24%.
When it comes to rental income, EU citizens are eligible to deduct maintain costs, but non-EU citizens aren’t. Non-resident property owners also must file and pay taxes in Spain quarterly on rental profits.
One tax reduction scheme that foreigners may be eligible for is the Special Regime for Displaced Workers, which allows certain highly qualified workers to pay tax at the lower fixed rate for non-tax residents if they move to Spain for work.
Which Spanish tax deductions are you eligible for?
One of the confusing things about tax allowances and deductions in Spain is that they can vary from one autonomous region to another. For example, educational and health expenses can be deducted in some areas, but not in others, and Andalucia is the only region that allows taxpayers to deduct legal costs.
This is why it’s so beneficial to consult a local tax advisor if you need help understanding which allowances and deductions you’re eligible for, to legally reduce your taxable income in Spain.
Here at Manzanares Abogados, we can help with tax in Andalucia and Ibiza, ensuring you make the most of opportunities to reduce your Spanish income tax liabilities whilst complying with all tax legislation.
For help with taxes in Spain, send us an email at clientservices@manzanareslawyers.com, or call us at the nearest office to your residence in Spain to set up a tax consultation.
