Spanish Income Tax
Our tax guide for freelance contractors working in Spain
Individuals who spend more than 183 days in a calendar year in Spain, or whose centre of vital interests (economic interests or business or professional activities) is in Spain, are resident for tax purposes in Spain. Residence is assumed if an individual’s family lives in Spain in the absence of proof to the contrary. Residents are taxed on worldwide income. Non-residents are taxed on Spanish-source income and on capital gains realised in Spain only.
Taxable employment income includes all compensation received for personal services, including salaries and wages, payments for certain business-related expenses, pensions, housing allowances and other allowances paid in cash or in kind. The following deductions may be made from taxable income for tax residents only: social security contributions, a personal allowance of EUR 5’050 per year, an employment allowance between EUR 2’600 and 4’000 per year (for 2007) depending on the net salary and contributions to Spanish pension plans made by employer and employee up to certain limits. For tax residents, expenses related to employment are generally not deductible, although certain travel allowances paid by the employer to the employee may be exempt in certain circumstances.
The rates of income tax for residents are progressive, ranging from 0% to 43% on the taxable income over EUR 52’360 per annum. A new tax rule for expatriates in Spain who are employed by a Spanish company or by a foreign company with a permanent establishment in Spain came into force on 1 January 2004. These expatriates may choose to be subject to tax either at progressive rates with deduction of certain expenses and allowances, or as non-resident taxpayers at a flat tax rate of 24% with no deduction of expenses or allowances. The Spanish tax system operates through self-assessment and returns are usually filed from 1 May to 30 June following the end of the calendar year. Resident taxpayers may elect to file a single or joint tax return: a joint tax return does not allow splitting of income.