Is there any difference between my VISA status and Tax Residency Status?
Indeed.
Your VISA status is independent from your tax status.
You may be in Spain under a Digital Nomad Visa or a Non Lucrative Visa, but this is independent from your tax obligations in Spain, which depend on your tax residency status.
What are the rules around being classified as a tax resident in Spain?
A person is considered as a Spanish Tax Resident in a tax year if stays physically in Spain more than 183 days (from January 1st to December 31st) of the year, including sporadic absences (holidays and work travels).
Once you have been in Spain more than 183 days in a tax year, you become a Tax Resident for the whole tax year.
Also, Spain can consider you as a Spanish Tax Resident if your center of economic and vital interests is located in Spain (job and family) and you are not able to prove your tax residency somewhere else.
What are the differences between being a Tax Resident vs. Non-Tax Resident?
If you are considered a Spanish Tax Resident, you will be taxed on your worldwide income, independently on who is the payer, the currency paid (even payment in cryptocurrencies!), the bank account where the money is being paid and the nationality of the client.
Your employment income, pension income, social security income, distributions from passing-through entities, freelancing income and property income (rental income and sole ownership income) will be taxed at a progressive rate which can go up to a 56% in the highest bracket, in certain regions, such as Valencia. Progressive means that, the higher the income you perceive, the higher the tax rate will be.
Savings income (interest, dividends and capital gains, among others) will be taxed at a progressive rate that goes from 19% to 28%.
On the other hand, a Spanish Non-Tax Resident is taxed only on its Spanish Sourced income at a flat tax rate (19% if you are an EU tax resident; 24% if non-EU tax resident).
This would apply to employment income from work performed in Spain, rental income from properties in Spain, interests from Spanish Bank accounts, dividends from shares in Spanish companies, and capital gains from Spanish assets, among others.
No expenses would be deductible if you are a non-EU tax resident.
What happens if I already pay taxes on my foreign income in another country?
In case you perceive any income from abroad that is being taxed abroad too, we may have the possibility to apply the mechanism in the corresponding Double Tax Treaty to avoid being taxed twice.
In certain cases, this means that, from the amount of taxes you have to pay in Spain on your foreign income, we will deduct the amount of taxes already paid abroad on this income.
On others, this means that we will exclude the foreign sourced and taxed income from the table income, but will use it for the calculations of the tax rates.
In case you perceive any income from the US that is being taxed in the US too, we will have the possibility to apply in your US 1040 the mechanism in the corresponding Double Tax Treaty to avoid being taxed twice, and claim a tax credit in your US 1040.
Other taxes & tax obligations
Wealth Tax may apply if certain your net wealth is over certain thresholds.
Every Autonomous region has a different threshold, above which you will have to file in a Wealth Tax (Catalonia 500.000 Euros, Valencia 500.000 Euros, other regions, etc.).
Note that Madrid, Andalusia or the Balearic Islands do not have Wealth Tax.
Only for informative purposes (similar to FATCA), please be informed of Form 720, Informative Form on Goods and Assets Abroad. You will have to file in this form in case the aggregated value of all the goods under one of the following groups is over 50.000 Euros.
Bank accounts located outside of Spain.
Real Estate located outside of Spain.
Shares, investments, insurances, pension plans (non-disposed ones are excluded) located outside of Spain.
You will have to inform only on the group or groups that exceed the 50.000 Euros aggregated value. If any group meets this requirement, you will have to inform on all of the assets under the group.
How can someone qualify for the Beckham Law, and what are the benefits?
Firstly, bear in mind that the Beckham Law Regime is independent from the Digital Nomad VISA. You might be eligible for the DNV, but not for the Beckham Law Regime.
In order to apply for the Beckham Law Regime, the following requirements must be met:
The applicant must not have been a Spanish Tax Resident in the last 5 years.
The applicant must have arrived in Spain because of:
A new employment contract with a Spanish company.
An intercompany transfer between the company abroad and the Spanish entity.
Working remotely for a foreign company through the exclusive use of computer, telematic and telecommunication means and systems. In this case, the company will need to:
Register in Spain as an employer
Provide you with a Certificate of Coverage in the Social Security of the employer
Being appointed director of a Spanish company that carries a business activity.
Carrying out in Spain an economic activity qualified as an entrepreneurial activity (one that is of an innovative nature with special economic interest for Spain and for this purpose has a favorable report from the competent body of the General State Administration (ENISA)).
Being a highly qualified professional, who provides services in Spain to emerging companies or who carries out training, research, development and innovation activities, receiving a remuneration of more than 40% of the total salary.
The tax implications of the Beckham Law Regime would be the following:
The applicant will be taxed on the following sources of income, at the following tax rates:
On the worldwide employment income and worldwide freelancing income the tax rates will be 24% on the first 600.000 Euros and 48% on the income above 600.000 Euros.
On the Spanish sourced dividends, interests, and capital gains will be taxed at progressive tax rates that go from 19% to 28%. On the remaining Spanish sourced income, 24% will apply.
Those under the Special Expatriate Tax Regime will not have to submit the Informative Form on Goods and Assets Abroad or to pay the Wealth Tax Return (unless their Spanish wealth exceeds the regional thresholds).
The Spouse of the applicant is eligible for the Beckham Law Regime too. If they move to Spain at the same time as the applicant or within the first year of their stay, they have not resided in Spain in the five previous tax years and that their income is lower than that of the applicant's.
Applying for this regime is considered as beneficial when you will be perceiving employment income over 55.000 Euros or when you have foreign non-employment income (rental income, dividends, interest, capital gains) that you would like to avoid being taxed in Spain. Also, your assets abroad will not have to pay Wealth Tax.
This Special Expatriate Tax Regime lasts for the first year that you are a Spanish Tax Resident and the following 5 years, as long as you keep being employed by a Spanish company. This regime must be requested during the following 6 months to your registration in the Spanish social security as an employee, as a director, or as a freelancer.
How can one avoid paying double social security contributions in both countries?
Depending on the country, there is a Social Security international agreement which entitles the applicant to obtain a Certificate of Coverage.
This means that the employee will not have to register in the Spanish Social security system, and will keep paying contributions in his home country.
Based on the international Social Security agreement, if this individual, claims a pension in Spain, it will be calculated on the basis of the amounts contributed in the home country.
How do taxes differ if it’s a married couple moving to Spain? Are there additional considerations if they have children?
Married couples (Spanish Tax Authorities do not recognize domestic partnerships) are entitled, in case they file a joint tax return, to a 3.400 Euros reduction on the taxable income.
Also, there is a personal allowance of 5.550 Euros per tax return, and allowances for children (2.400 Euros for the 1st children, 2.700 Euros for the 2nd, 4.000 Euros for the third and 4.500 Euros for the following ones, plus an additional 2.800 Euros for any children under 3 years old).
What does it mean to register as an ‘autónomo’ in Spain?
Freelancers or contractors are considered autonomos. These are those who are not in an employment agreement (W2) but a 1099.
Please note that, as a freelancer, you will have to:
Obtain a digital certificate
Register before the Spanish Tax Authorities.
Register before the Spanish Social Security Authorities.
Pay Social Security contributions. For the first year you will only pay 86.66 Euros per month. Afterwards, you will pay a 31.5% of your net income (profit), capped to 1.500 Euros per month.
Keep VAT books on issued and received invoices.
Submit quarterly tax returns, that imply paying a 20% of your quarterly profit in advance of your final tax liability.
There are certain reductions on your taxable income for the first 2 years of activity; and certain business expenses are deductible from the taxable income.
What is the treatment of 401(k)s and IRAs in Spain?
401K is considered as a Pension Plan.
It is not included in the Wealth Tax or the Informative Form on Goods and Assets Abroad.
The income generated inside the 401K is not subject to taxes.
Withdrawals from 401Ks are considered taxable employment income, although there is a 40% reduction in the taxable income on the first withdrawal.
IRAs (both Roth and Traditional) are NOT considered Pension Plans:
They are included in the Wealth Tax and the Informative Form on Goods and Assets Abroad.
The income generated inside the IRA is subject to taxes as Savings Income (interests, distributions, dividends, capital gains)
Withdrawals from IRAs are NOT considered taxable income.
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