UK traders living and working in Spain are liable to pay tax on income and assets there. Make sure that you don’t mistakenly become liable for taxation in both countries, by understanding tax residency in Spain.
90 Day Rule for Visitors to Spain
Spain remains a popular destination for many UK traders to live and work. Brexit has made little difference for most people visiting Spain or other EU member states. If you spend less than 90 days in Spain during a 6 month period then you will not be affected by requirements for entrance or exit visas and you can continue to enjoy visiting Spain as usual. Within the group of European Economic Area (EEA) countries known as the Schengen Area, any nationals from EU member states can enjoy travelling throughout this region without any visa restrictions or a time limit. Since the UK left the EU, UK nationals are now classed as third-country nationals in this region. This means that visa requirements DO apply to us. Due to this, UK nationals are subject to the 90 day rule, meaning that we are limited to spending a maximum of 90 days in any EU country in any 12-month period. This includes all the member nations in the Schengen region, so even if you have spent time in different countries you still only have a maximum 90 days anywhere in the region and you cannot return in until the 6-month period is completed. Most EU nations are part of Schengen, with the exception of Cyprus and Ireland. Bulgaria, Croatia and Romania are outside of the Schengen Area, but are in the process of joining. Other non-EU nations in Schengen are the EEA states of Iceland, Liechtenstein, Norway and Switzerland. Non-EU residents will not be barred from owning property, or investing in a holiday home in Spain. However the 90 day rule still applies to individuals who own second homes in Spain. Provided you stay within this limit, by spending less than 90 days in Spain in each 180 day period, you will still enter and leave the country in the same way as you always have, besides queuing for Non-EU Arrivals instead of EU Arrivals, as it has been ever since 31st January 2020.
New ETIAS Visa Waiver
All visitors who currently do not need a visa to enter Europe will be expected to apply for an ETIAS travel authorisation by the end of 2022. ETIAS stands for European Travel Information and Authorisation System. The European Union came up with the ETIAS visa waiver program to strengthen its borders. It works to identify possible threats or risks from visitors travelling to any of the Schengen Area countries. Visitors to Schengen are required to have had their ETIAS visa waiver granted before travelling. This will be obligatory from the end of 2022. ETIAS applies to visits for transit, tourism, and business. It is possible to study or work, but only a maximum stay of 90 days. If you are planning to study in a Schengen country for a period of over 90 days, you must apply for a long-stay study visa for that country and a fee will be applicable. Consult the relevant embassy, Consulate or Visa Application Centre of your Schengen destination country.
Right to Work in Spain
In the past UK nationals could move, live, work, study, or retire freely in any EU country. But since 2021, all we are classified as non-European, making us third-country nationals. This affects not only the duration you can stay, it also dictates what activities you’re legally allowed to do. Third-country nationals are required to secure employment before they can apply for a work visa and they also need a confirmed residence. This makes it much harder for young people to travel and work in such countries legally, because those recruiting for jobs like bartending, event planning, or office assistant are unlikely to sponsor a visa for a third-country national, when hiring Spanish nationals comes without any such red tape. There is no Schengen work visa. Each of the Schengen member countries has their own visa policies which differ from one other. The employment visa policies in Europe are established to cover the labour needs of the respective countries to fill job shortages. Nationals of the USA, Australia, Canada, Israel, Japan, New Zealand, Switzerland, as well as EU citizens do not need to apply for a work visa to Europe. These nationalities need to apply for residence and their work permit on arrival.
Other nationalities must apply for an employment visa before entering the Schengen nations for the purpose of work. Find out more about employment visa requirements here. For the many UK nationals with business interests in Spain, the 90 day rule is too restrictive and incompatible with the way they have been doing business and spending time abroad prior to Brexit. One option is to apply for residency in Spain. Anyone who has legally lived in Spain for a period of five years uninterrupted, is eligible to apply for residency. If granted this gives you the right to live in Spain for the rest of your life. This allows you to work, retire or invest in the country. This would also qualify you for tax residency in Spain.
Taxation in Spain
Residents of Spain are expected to pay tax to the Spanish authorities on your worldwide income, meaning income generated in any other country. If you are a non-resident in Spain, you will only owe tax on Spanish income typically at a flat rate. However this includes potential income on Spanish property. Furthermore your residency status is separate from your tax residency status. Tax in Spain is split across state and regional governments. This means tax rates will vary across the country. The tax year in Spain runs from 1 January to 31 December. The window to file a tax return in Spain is between 6 April and 30 June of the year following the tax year. The flat income tax rate for non-residents is 24%, or 19% for EU and EEA nationals. Before the visa restrictions for third-country nationals applied to UK nationals, you were considered to have tax residency in Spain by default if you have been living in Spain for over 183 days, which is six months, or more of the calendar year, either consecutively or not. Alternatively if you have your main vital interests in Spain, say your family or business is based in Spain, then you are classed as a tax resident there. Residents of Spain must submit a Spanish tax return and pay income tax on your worldwide income, in these conditions:
- Annual income from employment is more than €22,000
- Run your own business in Spain
- Rental income of over €1,000 per year
- Capital gains and savings income of more over €1,600 per year
- First year declaring tax residency in Spain
Your taxable income is your income after deductions for contributions to social security in Spain, pension, personal allowance, and professional costs. Spanish tax uses progressive tax rates, meaning they scale according to your income. Plus you are required to declare all your assets abroad worth more than €50,000.
Filing Your Tax Return in Spain
All tax residents in Spain are required to file a Spanish tax return that covers the first year. Following this, you only have to file a Spanish tax return if your income from all sources exceeds €8,000 and you have under €1,600 in bank interest or investment income. This is also the case for under €1,000 in rental income.
VAT in Spain
Spanish authorities charge Impuesto sobre el Valor Añadido (IVA) on goods and services, which is their form of Value Added Tax (VAT). This is charged at three rates.
General is 21% on goods and service
Reducido is 10% on passenger transport, toll roads, amateur sporting events, exhibitions, health products, non-basic foods, rubbish collection, pest control, and wastewater treatment
Superreducido is 4% on essential foods, medicine, books, and newspapers
The government increased IVA from 10% to 21% on alcoholic drinks and drinks containing sweeteners. Excluded from the rise was baby milk and drinks considered as food supplements for special dietary needs.
All IVA payers, who are primarily freelancers, are required to submit all invoice data online within four days of the date of issue.
Double Taxation Liability
Each country has its own set of tax laws. As a business owner living and working in Spain you run the risk of dual residency tax disputes, whereby an innocent tax mistake leads to expensive legal consequences. If you qualify for tax residency in Spain, as well as the UK you may be liable to pay tax on the same income in both countries, known as ‘double taxation’. This may apply to you if you are resident in two countries at the same time. If for part of the tax year you are classed as a UK resident and non-UK resident for the remainder, then the tax year will be split. Non residents may also be liable to pay tax on cash or investments located in Spain. If you live abroad for a short period of time, or you have a home in more than one country you need to understand how this affects your tax residence status. This defines which nation can collect tax on your income, and at which residence they will contact you to collect payment. If you qualify for tax residency in Spain, you will be liable to pay tax on your worldwide income, meaning any income or gains you make in the UK. Fortunately the UK has a double taxation agreement with Spain. Double taxation agreements exist between the UK and many other countries to help those with foreign interests avoid paying tax twice on the same income. The rules within these agreements set out which country has the right to collect tax on different types of income. The statutory residency test (SRT) is used to define for how many days in the year a taxpayer is resident in the UK, for tax purposes. Most consider UKs SRT rules adequate to determine the tax residence status of a UK national. However Spanish tax authorities have ample capacity to challenge this under the double tax treaty rules. If you have spent more than 183 days per calendar year in Spain, then you are considered a tax resident in Spain by default. Prestige Business Management can help you define your tax residence status and plan your business activities to remain tax efficient.
Perhaps you earn rental income from a property abroad, this makes it likely that you will be classed as having tax residency in Spain and the UK. For example, an individual who is resident in the UK, but has rental income from a property in another country, will probably have to pay tax on the rental income in both the UK and that other country. If you are resident in the UK and you want to rent out your Spanish property, you’ll pay the non-resident tax of 24% rental income in Spain. Both residents and non-residents who own property in Spain and are living in it on 1 January in any given year, you must pay a local property tax a refuse collection tax. Property owners who are non-resident also need to pay income tax at a flat rate on potential rental income. You are obliged to pay local property and services and you could also be liable to Capital Gains Tax (CGT) on the sale or disposal of property in Spain.
Remote Working in Spain
If you spend time remote working in Spain you need to take care that you can prove that you are not a tax resident there. This means at the time of making the income statement, the remote worker must have a record of the calculation of days resident in each country during the previous tax year. It is advisable to have this record to determine whether or not the person was a resident in Spain that year. Even if you have not overstayed your allowed number of days in Spain, if the bulk of your business activity or economic interests is located in Spain, you may still be considered to have tax residency in Spain, according to Spanish tax authorities. Tax residency in Spain is also assumed for those who have their habitual residence in Spain or when their spouse and the children who depend on them reside in Spain, and the couple is not legally separated. If you qualify for tax residency in Spain you will be required to pay taxes in Spain for all your income, including any generated abroad. Any remote worker, working from inside Spain for a foreign company, must declare all the income they obtain regardless of whether it comes from Spain or from elsewhere. Spanish law does not recognise the fragmentation of tax periods due to change of residence. They will consider that you either have tax residency in Spain for the entire tax year, or not. In order for you to stop being a tax resident in Spain and to pay taxes in another country, you must provide the certificate of tax residence from the country.
Digital Nomad Visa
Spain is expected to launch its digital nomad visa program during 2022. This scheme will permit non-residents to stay in Spain while working remotely for businesses based in other countries without needing a full work visa. Expectations are that this scheme will grant workers the right to spend between 6 – 12 months living and working in Spain without the right to residency, with the option to extend the visas for a specified period, if conditions are met.
Prestige Business Management Works for You
At Prestige Business Management can help you define your tax residence status and plan your business activities to remain tax efficient. Find out what we can do for you. Call us today on 0203 773 2927.