Retirement in Spain is still a very popular choice. When better to take advantage of Spain’s beautiful climate and perfect pace of life than when you have the time to really enjoy it?
What you don’t want whilst you are enjoying your new lifestyle are worries about tax or documentation in a foreign country. That’s where this article comes in.
Are you a resident?
If you live in Spain for more than 183 days then you are a resident. These 183 days need not be sequential. Going back to your home country for a couple of days does not mean that you can start clocking up your time in Spain again. It’s how many days you spend in each country over the course of a year that counts.
What is fiscal residency?
The Spanish government does not rely on the civil residency certificate alone to decide if someone is a resident in Spain or not. The problem is that people obtain residency and then sometimes return to their home country without cancelling it. This makes them an unreliable means of determining who is a resident.
Fiscal residency, on the other hand, requires more ongoing proof that you are living in Spain. In order to prove fiscal residency in Spain you need a certificate of fiscal residency which is a white, printed-off certificate obtained from the Agencia Tributaria (Spanish Tax Office). In order to obtain one of these it is beneficial to have a copy of your Spanish tax return or tax declaration for the last three years.
Proof of fiscal residency is particularly important when it comes to selling a house or bequeathing it. There are concessions for those who are resident in Spain that include lower Spanish inheritance tax and avoiding the 3% retention of the sale price that applies to non-residents.
Who has to make a resident tax declaration?
The vast majority of residents are required to make a resident tax declaration. It does vary, however, according to the level of personal allowances and the number of sources of income.
The actual thresholds are shown in the table below.
Residents required to complete an annual tax declaration in Spain
|Pensioners||Receiving one or more pension from abroad that total more than 12,000€ a year*|
|Early retirees||With an income through:
*some other conditions apply
We do recommend that you make an annual tax declaration whether this table suggests you should or not. It will help you to prove your fiscal residency – a status which can save you money.
It is difficult to obtain a fiscal residency certificate without having presented a tax declaration. We are aware of people who have classed themselves as residents finding that they haven’t the necessary proof to avoid being designated a non-resident for tax purposes.
How do you make a resident tax declaration?
The annual resident tax declaration must be completed and presented before the 30th June each year and is retrospective. So, in June 2018 you are completing a declaration for the tax year, January to December 2017. A fiscal representative like Ábaco submits these every year on behalf of its clients and can give you the advice you need about the documents to bring to the appointment.
The appointment at Ábaco usually takes about hour and the form is completed online. This means that we can tell people straight away if there is anything to pay or not, if there is a nil return or even if there is overpaid tax to collect.
If you are in the fortunate position of having overpaid tax and are due a refund, the Spanish Tax Authority is required to return it within 6 months. If they do not they will have to pay you interest on the amount owed.Any refunds are paid directly into your bank account and, can happen quite quickly.
What is the 720 and should I complete one?
The 720 asset declaration form is for information only. It is not a tax in itself.
The form is issued by the Spanish Tax Authority in line with European Union requirements.
Every resident who has assets outside of Spain that total over 50,000€ within any one group, must complete the asset declaration form or risk incurring a substantial fine.
The three groups referring to assets held outside of Spain are:
- bank accounts (group 1)
- pension plans and investments (group 2)
- property (group 3)
The deadline for completion of the form each year for the previous tax year is the 31st March. New residents in Spain as well as those whose circumstances have changed will need to complete one before the next deadline has expired. Changing circumstances include:
- you have purchased or sold property
- investments have matured
- you have changed account numbers
- you have cancelled, closed or sold previously declared assets
You will also need to complete a new form if one of these applies:
- Your assets haveincreased by 20,000€or more of total assets in any of the groups previously declared
- You declared last year, but this year have reached more than 50,000€ in apreviously undeclared category
The penalties for not completing the form or completing one incorrectly are steep. People have generally chosen to engage a fiscal representative on their behalf to complete it.
What taxes must I pay on my property?
If you are a resident, you have to pay IBI on the home which is your main residence. IBI (Impuesto Sobre Bienes Inmuebles) is a council tax in Spain that must be paid by every home owner whether they are a resident or a non-resident. It is a local tax and is payable directly to the town hall or via the SUMA offices in some regions.
This tax goes towards paying for local services such as the maintenance of facilities, parks and leisure areas and all kinds of infrastructure provided by the Town Hall. It is collected annually and the period during which it is collected depends on where your house is located. Rubbish collection is charged for separately either as part of your water bill or as a separate service charge issued by the Town Hall or SUMA.
Staying on the right side of the law
For your own piece of mind it is important to ensure that you have completed the tasks that will make your residency – both civil and fiscal - complete. It can seem a little overwhelming at first but taking one step at a time and with advice from the professionals and you will soon feel as at home in Spain as you have felt anywhere in the world.