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TAXES

Why you should move to this region in Spain if you want to pay less tax

There's a region in Spain where residents pay less tax on their income, assets, inheritance and property transactions, with conditions that are especially beneficial for high-income earners.

Why you should move to this region in Spain if you want to pay less tax
Wealth tax in Madrid is zero whereas inheritance tax is very low as well. Photo: Gabriel BOUYS / AFP

Madrid, slap bang in the centre of the Iberian Peninsula, may not have the allure coastal towns and cities have for foreign residents, but it’s long been regarded as the best place to live in Spain if you want to pay less in taxes. 

Under the leadership of the divisive Isabel Díaz Ayuso – who during the Covid-19 pandemic has preferred to keep businesses open rather than impose restrictions in the face of rising infections – Spain’s capital has consolidated this image as the country’s less tax burdensome city and region. 

Since the late 90s, Spain’s regions have been able to modify their taxes by exerting influence on the central government; some such as Catalonia preferring to raise them, others like Madrid opting to lower them. 

Regional governments have consistently complained that Madrid has an unfair advantage in this regard as it houses all national governmental departments and around 3 million civil servants, labelling it a tax haven and a hotbed for fiscal dumping as many savvy Spaniards have opted to move their fiscal address to the capital.

Do people in Madrid really pay less in taxes?

This feeds into the debate over whether Madrid really is the region where residents pay less in taxes, and if it comes at the cost of being an underfunded region in terms of public spending.

The general consensus is that Madrid is among, if not the top region, with the most lenient tax system in the country. For high-income earners, Madrid’s tax laws can be particularly beneficial, as we’ll detail below. 

But for critics of Ayuso and her right-wing Popular Party, which has been in power in the capital for the last 25 years, lowering taxes has meant less investment in public services and greater inequality.

That doesn’t mean that Madrid’s preference for a more privatised and liberal economic model isn’t fiscally beneficial to low-income earners, but they may have to consider whether the higher cost of living in the capital and generally lower public spending is worth it overall.

Which taxes would I pay less of if I moved to Madrid?

Income tax (impuesto sobre la renta, IRPF): Madrid residents are the people with the most favourable income tax rates in Spain, especially those who earn more than €100,000 a year, according to stats by Spain’s General Council of Economists (Reaf).

However, because Madrileños generally earn more, more people fall into the higher tax salary brackets thus they end up paying more on average in IRPF than other workers in Spain.

Spain’s income tax is a state tax, 50 percent of which is ceded to the regions, who have the ability to fix half of the tax scale and establish some deductions. 

Ayuso’s government has agreed to lower the taxation rate further still for each salary bracket in 2022, although this will see those with yearly earnings between €12,500 and €17,700 save only €4 a year whilst for those earning €33K to €53K could save as much as €165 a year.

For self-employed people, the savings could be even greater, with mid-income autonómos to pay on average €300 to €500 less in taxes every year than the national average. 

Madrid regional president Isabel Diaz Ayuso has consistently opposed Spain's national government on the matter of raising taxes in the capital. Photo: Javier Soriano/AFP
Madrid regional president Isabel Diaz Ayuso has consistently opposed Spain’s national government on the matter of raising taxes in the capital. Photo: Javier Soriano/AFP
 

Inheritance tax (impuesto de sucesiones y donaciones): Contrary to popular belief, Madrid does have an inheritance tax, but it’s 99 percent deductible. 

That makes the capital by far the best region in Spain in terms of inheritance tax, as although there are other regions such as Cantabria and Galicia which have eliminated it in recent years, Madrid consistently keeps this tax very low.

Wealth tax: This, as is the case with inheritance tax, an impuesto (tax) that’s fully in the hands of the regions to decide. 

Spain’s wealth tax is a tax that both residents and non-residents must pay on their assets if they amount to more than €700,000. In Madrid, this tax is zero.

Tax the transfer of goods and rights (ITP y AJD): ITP is the acronym used to describe the tax that applies to the transfer of ownership of a second-hand property in Spain. It varies across Spain’s regions, ranging from 4 percent to 10 percent currently.

AJD is a tax that usually goes hand in hand with ITP, and corresponds to all the administrative and notarial processes that come with getting a mortgage in Spain.

These tax rates can change every year but in general Madrid’s are among the lowest in Spain.

Regional taxes: Impuestos propios (own taxes) are tariffs applied by regional governments to address matters pertaining to their community which they’re looking to solve. 

These can be taxes on anything from empty homes, to polluting vehicles or gambling.

On September 1st, Madrid’s regional president Isabel Díaz Ayuso made headlines by announcing she intended to scrap the remaining impuestos propios in the region (tax on slot and arcade machines in bars and restaurants and a tax on the storage of waste).

This won’t make a big difference to most people in the Spanish capital but it again represents the liberal attitude of Madrid’s government and its fiscal incentives.

Property tax (IBI): IBI stands for Impuesto sobre Bienes Inmuebles in Spanish, which translates to tax on property goods, but it also goes by the name SUMA.

It’s a local tax which has to be paid once a year by all property owners in Spain, and it serves as a benchmark to calculate all other Spanish property-related taxes. As the IBI amount is decided by the town hall in which your property is located, there can be big differences between municipalities.

Even though Madrid city’s IBI isn’t the lowest in Spain, it is among the ten lowest in the country and there are several deductions available.

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For members

PADRON

Can I get my padrón online in Spain?

The padrón certificate is a handy multipurpose document you receive when you register with your local town hall in Spain. It can often be frustrating having to apply for it in person, so are you able to apply online instead?

Can I get my padrón online in Spain?

Empadronamiento is a registration process which adds you to the census of your local area. The associated certificate – el padrón – provides you with official proof of your address.  

For your local town hall, or ayuntamiento in Spanish, it serves the purpose of knowing exactly how many people are living in the area, which in turn helps them receive adequate funding for public services.  

But your padrón certificate is very useful for you too, as many official processes in Spain require you to prove your address.

For example, you may need it to get your driving licence or to register as an autónomo (self-employed). 

READ ALSO: 16 things you should know about Spain’s padrón town hall registration. 

Technically, you should apply for your padrón within the first three months of moving to Spain, or if you move home to a different area within Spain.

You may also need to reapply for it if you need it for another official process and it is older than three months.

If you’ve already been living in Spain, you’ll know that getting documents such as your padrón can take longer than you probably hoped for. This can be very frustrating, particularly having to first get a prior appointment (cita previa) from your town hall, as this ends up stringing out the process.

Being able to apply online instead of in person could save you a lot of time and should make the whole process easier, but is it possible?

Can you apply for the padrón online in Spain?

The short answer is yes, it is often possible to apply for your padrón certificate online. However, it may depend on the area you live in.

For example, if you live in Barcelona or Madrid, you are able to apply for your certificate for the first time online or renew it online too.

Those in Barcelona should visit the relevant page of the Ajuntament website here where you can fill out and submit the online form.

Those in Madrid can fill out and apply for the form here, while in Valencia, you can apply via the following link here.

You will simply need to follow all the steps, filling out all your personal details as you go and then submitting it at the end. 

Remember, you will also need to have digital copies of your ID documents such as passport, TIE or other residency cards, the deeds if you own the property where you live or your rental contract if you are renting.

You may need a digital certificate or [email protected] to be able to officially identify yourself during online processes, but this may not be necessary for all town halls, it will depend on what type of system they have set up.

For example, if you live in Granada and have your digital certificate, you can apply online, but if you don’t, then you will need to apply for it in person.

In Madrid, those who don’t have a digital certificate can apply for the padrón via e-mail.

In some other areas, you may be able to apply to renew your certificate online, but if you’re applying for the first time then you will still need to go in person.

As is so often the case with official matters in Spain, there is no standard procedure which applies across the board for getting a padrón online.

You may ask one civil servant who tells you it is possible, then turn round and quiz another funcionario, who completely rules it out. Perhaps you’re better off first Googling “solicitar padrón a través de internet” (apply for padron online), plus the name of your town to see if it is an option.

‘Spain is different’, Spaniards often say in English when being critical about their country. When it comes to applying for a padrón online, Spain and its 8,131 town halls most certainly are different.

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