Living or investing in Spain: the first challenge is tax-related
More and more foreigners are choosing Spain to live, work, or invest in the real estate sector. However, one of the most frequent — and costly — mistakes is not related to the investment itself, but to a lack of understanding of how Spanish taxation works.
Two taxes are key in this context: Personal Income Tax, known in Spain as IRPF, and Wealth Tax. Understanding how they apply can make the difference between efficient planning and a significant tax contingency.
In this article, we explain clearly and practically what you should take into account if you are a foreigner with interests in Spain.
When do you become a tax resident in Spain?
This is the starting point for any planning.
According to Article 9 of Law 35/2006 on Personal Income Tax, you will be considered a tax resident in Spain if:
· You remain in Spanish territory for more than 183 days in a year, or
· Your centre of economic interests is located in Spain
This has a direct consequence: if you are a resident, you are taxed on your worldwide income, not only on income generated in Spain.
This change often occurs without many foreigners being fully aware of it, especially in cases involving remote work or extended stays.
Personal Income Tax for foreigners: what really matters
Once tax residence has been determined, the next step is to understand how you are taxed.
If you are a tax resident
You will be taxed under Personal Income Tax on:
· Salaries
· Rental income
· Dividends and investments
· Capital gains
All of this is subject to progressive tax rates, which may exceed 45% depending on the autonomous community.
If you are not a resident
Non-Resident Income Tax, known in Spain as IRNR, applies:
· You are taxed only on income generated in Spain
· The general tax rate is 19% for EU residents or 24% in other cases
A very common example is that of a foreigner who buys a property in Spain:
· If the property is rented out → tax is paid on the income
· If the property is not rented out → an imputed income must be declared
This obligation is frequently not complied with and often leads to tax regularisations by the Spanish Tax Agency.
The “Beckham Law”: an opportunity for expatriates
For certain international profiles, Spain offers a very attractive tax regime.
Article 93 of the Personal Income Tax Law allows individuals to be taxed as non-residents for 6 years, even while living in Spain:
· Fixed tax rate of 24% up to €600,000
· No taxation on worldwide income
It is particularly relevant for:
· Relocated executives
· Professionals in the technology sector
· Executives of multinational companies
Correct application of this regime can result in significant tax savings.
Wealth Tax: the great unknown
Unlike Personal Income Tax, this tax does not tax income, but the total value of your assets.
Who does it affect?
· Residents: on all their assets worldwide
· Non-residents: only on assets located in Spain
This includes real estate, bank accounts, or shareholdings in Spanish companies.
When is it paid?
Although the general tax-free allowance is €700,000, what is relevant is that:
· Each autonomous community may modify it
· Some apply very significant tax reliefs
Key example:
· In Madrid, there is a 100% tax relief
· In other autonomous communities, taxation can be significant
This turns the choice of place of residence into a strategic decision.
Solidarity Tax on Large Fortunes: what has changed recently
Since 2023, Spain has introduced the Temporary Solidarity Tax on Large Fortunes under Law 38/2022.
This tax:
· Affects high-value assets
· Applies even in autonomous communities where Wealth Tax relief is available
For many foreign investors, this has represented a significant change in tax planning, especially in real estate or wealth-holding structures.
Frequent risks we see among international clients
In daily practice, the most common mistakes are:
· Thinking that one is not a tax resident when one actually is
· Failing to declare assets abroad through Form 720
· Ignoring the taxation of properties in Spain as a non-resident
· Failing to analyse the combined impact of Personal Income Tax and Wealth Tax
These mistakes may lead to penalties, surcharges, and tax inspections.
How to optimise your taxation in Spain legally
Good tax planning does not simply mean “paying less”, but rather structuring your situation correctly from the outset.
The key points are usually:
· Correctly analysing tax residence
· Assessing the application of the Beckham Law
· Reviewing the real estate investment structure
· Taking double taxation treaties into account
Each case requires an individual analysis, especially for international profiles.
Conclusion: anticipating issues is key
Spain offers great opportunities to live and invest, but its tax system requires careful planning.
Personal Income Tax and Wealth Tax are two pillars that directly affect foreigners, and a misinterpretation can have a significant financial impact.
At CPG Abogados, we advise international clients on establishing themselves in Spain, combining tax law, real estate law, and immigration law to provide safe and efficient solutions.
