Spain Individual - Taxes on personal income
Individual - Taxes on personal income
The Spanish system for direct taxation of individuals is mainly comprised of two personal income taxes: Spanish personal income tax (PIT), for individuals who are resident in Spain for tax purposes, and Spanish non-residents' income tax (NRIT), for individuals who are not resident in Spain for tax purposes who obtain income in Spain. Therefore, persons who obtain income in Spain are either liable to pay Spanish PIT or Spanish NRIT.
Our recommendation is to always consult with a qualified accountant
Residents in Spain are generally subject to PIT on their worldwide income, regardless of where it is generated, which is taxed, following statutory reductions, at progressive rates.
Non-residents are subject to NRIT only on their Spanish-source income.
There are two types of taxable income for Spanish PIT purposes: general taxable income and savings taxable income.
Savings taxable income is basically composed of the following:
Dividends and other income generated from holding interests in companies.
Interest and other income generated from transferring the taxpayer’s own capital to third parties. As an exception, when capital transferred to a related company exceeds three times the latter’s equity, the interest corresponding to the excess is taxed as general taxable income.
Income generated from capitalisation transactions and life and disability income insurance.
Capital gains generated from transfers of assets.
General taxable income includes:
All income that is not savings taxable income.
Capital gains not generated from transfers of assets (such as lottery prizes).
Income allocations, attributions, or imputations, as established by law.
Interest and other income generated from transferring the taxpayer’s own capital to a related company when the capital exceeds three times the latter’s equity and for the part corresponding to the excess.
Regarding NRIT, income not obtained through a permanent establishment (PE) is taxed on each individual total or partial accrual of income subject to tax. This means that losses cannot be offset against gains.
Taxable income for non-residents without a PE is generally the gross income stipulated in Spanish PIT law, and no reductions are applicable. As a special rule, in the case of provisions of services, technical assistance, installation and assembly work resulting from engineering contracts and, in general, economic activities or operations carried out in Spain without a PE, taxable income is the difference between gross income and the expenses generated by staff, or for the procurement of materials incorporated in the works and supplies, in accordance with the requirements established in the regulations implemented under Spanish NRIT law.
When calculating the net income of taxpayers without a PE that are resident in other European Union (EU) member states, a distinction is made between individuals and companies. In each case, the tax deductible expenses are established in accordance with the PIT and CIT legislation, respectively. In both cases, the taxpayer will need to prove that taxable expenses are directly related to the income obtained in Spain and that they have a direct and indisputable economic link to the activity carried out in Spain.
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