Spain Taxes On Income?

Spain Taxes On Income
2020 income tax rates

Taxable income band € National income tax rates
0 to 12,450 19%
12,451 to 20,200 24%
20,201 to 35,200 30%
35,201 to 60,000 37%

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Does Spain have high taxes?

Last year’s election of Spain’s conservative People’s Party opened up an opportunity to implement much needed fiscal and structural reforms. However, merely a week following the December 21, 2011, inauguration of Prime Minister Mariano Rajoy, the government announced a significant tax hike that will have pernicious effects on the Spanish economy.

  1. The main reason for the tax hikes, according to Spain’s new leadership, was that the government would miss its budget deficit target for 2011;
  2. While the previous Socialist Party government had promised the figure would be 6 percent of GDP, the revised data showed a budget deficit of 8 percent, a difference of approximately 20 billion euros ($26;

3 billion). 1 That change makes it more challenging for the government to fulfill its deficit pledge of 4. 4 percent by the end of 2012. While the government claimed that missing the target for 2011 was unexpected, few if any independent analysts believed the previous administration’s official estimates.

Nonetheless, the Rajoy administration seized the opportunity to announce one of the largest tax increases in recent Spanish history — which aims to raise 6 billion euros ($7. 9 billion) — along with a spending cut of nearly 9 billion euros ($11.

8 billion). The measure mainly consists of a so‐​called solidarity surtax to come on top of tax rates on income and capital gains; it also includes an increase in real estate taxes. The government announced the tax hike as “temporary” and “inevitable. ” In fact, the measure demonstrates nothing more than a lack of political will to cut excessive and unsustainable public spending.

Spanish Income Taxes among the Highest in Europe Following the tax increase, Spanish individuals will be paying one of the highest personal income tax rates in Europe. 2 For instance, from 2012 onwards, only Sweden and Belgium, with 56.

4 percent and 53. 7 percent, respectively, will have a higher top marginal income tax rate than Spain, which stands at 52 percent. 3 However, if one takes into account local surcharges imposed by some Spanish regional governments, the top marginal rates rise further.

In Catalonia, for example, the top tax rate is 56 percent. It is important to also consider the structure of personal income tax brackets and compare Spain with other major European countries, such as France, Germany, Italy and the United Kingdom.

As we can see in Figure 1, personal income tax rates in Spain will be among the highest for any income bracket in the countries considered. As for the tax on capital gains, the rates will no longer remain low and competitive, relative to other European countries.

Before the tax increase, capital gains were taxed at a progressive rate of 19 percent for the first 6,000 euros and 21 percent for gains above that amount. Now, there will be three different rates: 21 percent for the first 6,000 euros, 25 percent from 6,000 to 24,000 euros, and 27 percent for capital gains above 24,000 euros.

Thus, the rates will now be as high as in Germany and considerably higher than those of Italy, and the top rate will almost match those of Finland and Norway. All of those countries enjoy a considerably higher income per capita than Spain and thus can more easily withstand higher taxes than a poorer country. The tax increase is especially harmful given the 1. 5 percent economic contraction expected for 2012. The new measures are going to further hinder the economic recovery in two ways. First, the higher income taxes will take away a portion of the disposable income that many over‐​indebted families need to repay their debts.

  1. 4 With Rajoy’s tax hike, Spain suffers from the worst of both worlds: very high taxes combined with decreasing income and employment levels;
  2. At 23 percent, Spain has the highest unemployment rate in the European Union;
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Second, the tax hike on capital gains will reduce the incentive for Spanish individuals to save. Similarly, the tax increase will diminish the appeal for foreigners to invest in Spain. By decreasing the availability of capital — which is essential to finance the restructuring of the productive and banking sectors — higher taxes on capital gains will only worsen the country’s economic prospects.

  • The Problem Is Too Much Spending The Rajoy administration claims that the tax increase represents an essential and inevitable policy change to reduce the deficit and fulfill the budget target for 2012;

However, given the anti‐​growth bias of these tax hikes, the taxes can hardly be expected to generate substantial revenues to significantly reduce the deficit. The real problem behind Spain’s dire public finances is not an insufficient level of government revenues; rather, it is a problem of excessive spending.

  • This becomes evident by looking at the evolution of both government spending and revenue from 2001 to 2007 in absolute (nominal) terms in a set of European countries;
  • The data show that while government revenues increased substantially in Ireland and Spain due to a period of unsustainable credit‐​induced growth, government spending also increased the most in Ireland, followed by Spain and Greece (see Figure 2);

The picture is somewhat different if one pays attention to the ratio of government spending to GDP from 2001 to 2007. This figure increased slightly from 38. 6 percent to 39. 2 percent in Spain. But the data should be interpreted with caution, given that GDP was growing at an artificially high rate.

(It is notable that the Spanish trend contrasts with that of Germany where spending fell from 47. 8 percent of GDP in 2001 to 43. 6 percent in 2007. 5 ) Instead of looking at the recorded budget balance — which shows a surplus of around 2 percent in 2006 and 2007 — consider the structural budget balance, that is, the budget balance adjusted for cyclical factors, 6 which shows that there was not a single surplus year from 2001 to 2007.

This lack of surplus is caused by the government financing a large volume of long‐​term spending, such as social benefits or public sector wages, with short‐​term and temporary revenues — mainly produced by the housing bubble. It should come as no surprise that the deficit soared when the bubble burst.

  • In other policy areas, the Rajoy administration has been somewhat more sensible;
  • For instance, the recently approved labor reform is a step in the right direction;
  • It addresses an important cause of rigidity in the labor market by establishing the primacy of individual agreements — between firms and workers — over collective agreements in which labor unions have much weight;

The effect of this reform on job growth, however, is uncertain because such growth also depends on other factors — such as the rate of credit expansion or the international context — that are independent of the labor market. The financial reform, on the other hand, postpones the day of reckoning without addressing the root of the problem, because not all bank losses have been recognized and the financial sector will continue to be far from well‐​capitalized. 7 The Case for Cutting Spending Is Clear It appears that Spain’s new conservative government considers raising taxes to near Scandinavian levels its most urgent policy action. 8 Rajoy’s priorities should instead be to implement measures to increase productivity, employment, and entrepreneurship, and put public finances in order. Raising taxes will only put an additional drag on private sector recovery by reducing workers’ disposable income — and consequently, their ability to consume, save, or repay their large amounts of outstanding debt — and by decreasing foreign investment.

Thus, the reform leaves the door open for a further injection of public funds into the banking sector. In addition, very little is known about forthcoming reforms to remove obstacles to entrepreneurial activity that make starting a business extremely burdensome.

Moreover, high taxes and high public spending are negatively correlated with economic growth and entrepreneurship. 9 To reduce the deficit, cutting government spending substantially would be a better alternative than raising taxes. (The Spanish government could even fulfill its deficit pledge of 3 percent in 2013 and keep basic social services through a deficit reduction policy that relies solely on spending cuts.

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) 10 That public spending should adjust downward to more reasonable levels — as is the case in the private sector — is supported by recent empirical work that shows that the impact of tax hikes on short‐​term growth is worse than that of spending cuts.


Do expats pay income tax in Spain?

Spanish taxes – what you need to know – Foreigners who spend more than 183 days a year in Spain, or for whom Spain is their main base or center of economic activities or interests, are considered resident for tax purposes. Expats who earn over 22,000 Euros a year from just one employer must file a Spanish tax return. Those who earn less, but from either more than one source, or not from employment (e. from rental income), also have to file a return. The Spanish filing deadline is June 30th, however if you wish to pay your tax by direct debit in installments you must file by June 25th.

There are several deductions available, including a personal deduction, a deduction for married couples, and for those with children. The Spanish tax authority is called the Agencia Tributaria , and the tax return form is called Modelo 100.

Spanish residents must also declare assets outside Spain using form Modelo 720 if the assets have a combined total value of more than 50,000 Euros. Spanish income tax rates are relatively high compared to in the US, so for many people it will make sense to claim the Foreign Tax Credit.

What is the Spanish tax allowance?

What are tax allowances for Spanish Residents? – Tax deductions are available to residents of Spain. The basic personal allowance is €5,550 for those under the age of 65, €6,700 for those over 65, and €8,100 for those over 75. You can claim an additional allowance of €2,400 if you have children under the age of 25 living with you.

How is foreign income taxed in Spain?

Non-residents – In general, non-resident taxpayers are taxed at the rate of 24 percent on income obtained in Spanish territory or which arises from Spanish sources, and at the rate of 19 percent on capital gains and financial investment income arising from Spanish sources.

Are taxes higher in France or Spain?

Spain has a top tax rate of 45. 0% as of 2016. In France, the top tax rate is 50. 2% as of 2016.

Are taxes higher in Germany or Spain?

Taxes – In Spain, you would be required to pay income tax on any money you earn from working. The rate for income tax in Spain is between 19% and 47%. The tax rates for Germany are slightly lower. Additionally, you can earn a tax-free income by making below €9,744 per year.

How much does it cost to live in Spain?

Low Cost Living in Western Europe – Cost of living in Spain is one of the lowest in Western Europe , even in the cities. (And the famous Spanish sunshine you get for free. ) Leaving aside rent or mortgage payments—and depending on your lifestyle—a couple could easily live on $20,000 to $22,000 a year and still eat out regularly.

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Once you know where to go, a meal for two with wine or beer can cost as little as $30. For the best value, choose the lunchtime menú del día (the menu of the day, or lunch special). Lunch is the big meal of the day, a sit-down affair of at least an hour, and it’s filling and well-balanced.

In most places, the menú del día usually costs between $12 to $20, with about $15) being the norm these days. For that price, you get a first course (generally a salad, soup, paella, or vegetable dish), a main course (usually meat or fish, though vegetarian options are increasingly common), a beverage (which can be beer or wine), bread, and often either dessert or coffee.

A local beer and a free tapa (a little snack that can be anything from a small dish of olives to a couple of rings of fried squid) costs around $2. In bars that charge for their generously sized tapas (very common in Andalucia), a filling meal of a drink plus a couple of tapas can run you $6.

75 to $8. Even dining in classier restaurants isn’t overly costly. For a couple, the bill is usually somewhere between $45 and $80, wine included. Though individual grocery bills can be hard to estimate, $100 per couple per week is ample. In fact, if you like to eat out (and many people do), your in-home grocery budget will likely be below this amount.

Because of the warm climate, many basic food items are inexpensive here— Spain produces a variety of fruits and vegetables both for domestic consumption and for export. In season—and Spain has a long growing season—many produce items cost €1 a kilo (around 60 cents a pound).

In addition, many fruits and vegetables that are relatively gourmet items in North America—baby artichokes, cherimoya, and doughnut peaches, for example—are locally grown in Spain. Typically, meat and fish are good value—local lamb can run about $10 a pound, and in coastal regions fish and shellfish are $2 to $7 a pound, depending on the variety.

Mediterranean specialties like olive oil and wine are abundant and inexpensive—starting at $4 a liter for olive oil and $3. 75 a bottle for local wine. Jamón serrano, Spain’s answer to Italy’s cured ham, prosciutto, is also readily available.

Because of these prices and availability, it’s easy to eat very well, but healthily, if you choose. Having a car is truly optional in Spain, saving you purchase and maintenance costs. Spanish cities and villages are designed for walking, with most shopping centers easily accessible on foot.

  1. For longer distances (or bigger shopping trips), public transportation is readily available;
  2. Excellent bus and train service gets you quickly around town or around the country;
  3. In many cities you can buy either a monthly transport pass or a 10-ride ticket for buses and metros;

And from age 60 on, you begin qualifying for retiree fares, which cut long-distance travel costs substantially. Accommodation, traditionally the single largest item in any budget, doesn’t have to break the bank in Spain. In many small to mid-sized cities, you can find cozy one-bedroom apartments starting in the €400 (about $492) a month range.

And it’s still possible to find apartments like these for sale for under $100,000 in some locations. Keep in mind that Spaniards, like many Europeans, are used to smaller living spaces than North Americans are used to.

It’s not unusual in Spain for a 1,000-square-foot apartment to house a family of four, or for a couple to live in a two-bedroom apartment of just 550 square feet or so. Large apartments are always available if you want them…but with Spain’s warm climate and outdoor lifestyle, you may find yourself spending much of your time out…sitting at cafés with friends, enjoying the beach, or exploring the vast interior.