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MOVING TO SPAIN

Spain vs Portugal: Which country is better to move to?

Trying to decide to if you want to move to Spain or Portugal? Want to know which country is better for taxes, which one has a cheaper cost of living and which offers more diverse culture and landscapes? Here's everything you need to know.

Spain vs Portugal: Which country is better to move to?
Cádiz or Lisbon? Spain or Portugal? Here is a breakdown of some of the factors you may want to consider if you're trying to decide which country in the Iberian peninsula you should move to. Photo: Dkatana/Pixabay, Liam McKay/Unsplash

Ultimately the decision of whether you move to Spain or Portugal may come down to personal preferences – the areas you like, the language you want to learn and the types of cuisine you want to enjoy, but there are several factors that can make living somewhere more difficult than others, such as taxes, visas and cost of living.

So which one of these two countries that form the Iberian Peninsula (along with tiny Andorra) offers the most to newcomers – Spain or Portugal? Here’s everything you need to know. 

Taxes

The tax systems in both Spain and Portugal are complicated, so it will of course depend on your individual circumstances as to where you’d pay less tax. At first glance, it seems that whether you’re a low earner or a high earner, the tax brackets for 2022 are generally more favourable in Spain than in Portugal, where they are slightly higher. 

In Portugal the general income tax rates for 2022 are: 

28.5 percent for those earning €15,217 – €19,696
35 percent for those earning €19,676 – €25,076
37 percent for those earning €25,076 – €36,757
43.5 percent for those earning €36,758 – €48,033

While in Spain the tax rates for 2022 are: 

24 percent for those earning €12,450–€20,200 
30 percent for those earning €20,200–€35,200
37 percent for those earning €35,200–€60,000
45 percent for those earning €60,000–€300,000

However, if you plan on being self-employed, Spain may not be more beneficial to you. As a freelancer you will have to pay social security on top of your income tax in both Spain and Portugal.

Portuguese Social Security (Segurança Social) is generally 21.4 percent of your earnings and payments are made monthly. In Spain however, the minimum contribution is around 30.60 percent. Currently this is paid as a flat monthly fee of €294 per month, no matter what your earnings are. 

READ ALSO – Self-employed in Spain: What you should know about being ‘autónomo’

There are further benefits in Portugal when you look at the country’s ‘non-habitual residents’ (NHR) scheme. This allows new residents to access special tax benefits for their first ten years in the country. It also offers a lower income tax rate of 20 percent if you’re employed in Portugal in a ‘high value’ activity and allows you to earn some foreign income tax-free. 

Foreigners from any country can benefit from Portugal’s NHR scheme if they qualify as a tax resident in Portugal and have not been taxed as a Portuguese tax resident in the five previous years. 

Spain doesn’t offer any similar type of scheme for foreign residents. 

Sunset in the beautiful Portuguese city of Porto. Photo: Everaldo Coehlo/Unsplash

Golden visa

If you’re a non-EU citizen who wishes to move to either Spain or Portugal, one of the ways to be gain residency is through a sizeable investment.

Before 2022, you could qualify for residency in Portugal by investing €280,000 in one or more properties, one of the lowest investment thresholds in Europe. But the country’s golden visa rules were toughened on January 1st and now you have to buy a property worth €500,000 or invest €350,000 in a rehabilitation project, as well as other restrictions on “qualifying” areas where you can buy. 

That puts Portugal on a par with Spain, where you have to  you have to invest €500,000. Both countries offer other monetary investment residency options involving shares, bonds and donations.

It’s also worth noting that in Portugal you are eligible to apply for Portuguese citizenship in five years, while in Spain you also renew your residency status, but can only apply for citizenship after 10 years. 

READ ALSO – Pros and cons: What foreigners should be aware of before applying for Spain’s golden visa

Digital nomad visa

While Spain only just announced it would be introducing a digital nomad visa in 2021 and has yet to finalise all the details, Portugal currently offers the D7 visa for digital nomads. 

To be eligible you must prove you have an income of at least €8,424 a year, but they are more likely to grant you the visa if you earn more. You’ll also be required to have a minimum of €7,500 in a Portuguese bank account. 

Spain does offer a non lucrative visa (NLV) scheme, but it is a lot costlier than Portugal’s D7 visa and as the name suggests you are not allowed to work on the NLV.  For 2022 you need to prove you have an income of €27,792 for the year to be eligible for this visa. 

READ ALSO – Tax cuts and visas: Spain’s new law for startups, investors and digital nomads

Cost of living

The costs of living in Spain and Portugal vary considerably depending on where you choose to live in the country. Several cost of living comparison websites state that Portugal is slightly cheaper than Spain, but others state that it’s virtually the same. 

According to expat price comparison website Expatistan the cost of living in Madrid is seven percent higher than in Lisbon, while Barcelona is 10 percent higher than Lisbon.

Monthly rent for an 85 m2 (900 sqft) furnished flat in a standard area of Lisbon will cost an average of €970 per month, while in Barcelona a flat of the same size will cost an average of €1,040 per month. 

Eating out and grocery shopping are both slightly higher in Spain than in Portugal. Up until recently, you would usually pay more for electricity, gas and petrol in Portugal than in Spain, but energy costs are sky-high in both countries currently due to record inflation. 

In Spain, generally speaking the south and western parts of the country are cheaper than Madrid and northern regions, while in Portugal it’s generally the central and northern regions that are cheaper. The cost of living in both countries is a lot less if you stick to smaller towns and steer clear of the likes of Barcelona, Madrid and Lisbon. 

Even though Lisbon has a good nightlife and hospitality scene, Madrid (pictured) has the highest rate of bars per capita in the world. Photo: Josefina Di Battista/Unsplash

Lifestyle and culture

Both the Spanish and the Portuguese are friendly, easy-going people, and while it really depends on the area you visit and the people you meet, the Portuguese can be quieter and more reserved than the Spanish.

The Portuguese are also known to be more melancholic than the fun-loving passionate Spanish and you’ll notice this in the music and the way festivals are celebrated. While Portugal does celebrate a few events such as Easter and Carnival, as well as local festivals, nothing in Portugal can come close to Spain’s fiery Las Fallas festival, Catalonia’s human towers, the crazy Canary carnival and southern Spain’s Semana Santa parades. 

Culturally, Spain is also a lot more diverse than Portugal. While Portugal’s regions of course do have slight differences in their culture, it’s not as obvious as the differences between Spain’s 17 different regions. In Spain, five different languages are spoken and each region has its own cuisine, festivals, dances and traditions which differ greatly from one to the other.

Spain also has 49 UNESCO World Heritage Sites, while Portugal only has 17. While of course, Portugal’s two largest cities of Lisbon and Porto have plenty going on, many museums and cultural events, in Spain than are many more cultural centres than just Madrid and Barcelona. The likes of Valencia, Seville, Bilbao, San Sebastián, Málaga and Granada are also known for their great museums and cultural offerings too.

The bizarre rock formations of Bardenas Reales in Navarre, northern Spain. Photo: joannadal/Pixabay

Nature and landscapes

Both Spain and Portugal are great for nature lovers, especially those who love hiking, cycling and water sports.

Spain’s landscapes are more diverse than Portugal’s however. The country has a longer coastline, more mountain ranges and more national parks. Spain boasts a total of 16 National Parks, while Portugal only has one national park. Spain also offers more opportunities for winter sport lovers, with more ski resorts – there is only one place to do this in Portugal, while Spain offers many places throughout the Pyrenees and north of the country, as well as one in the Sierra Nevada. 

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TAXES

What’s the inheritance tax in each region of Spain?

Inheritance tax varies greatly in Spain depending on what region you or your relations live in. Find out what the rates are in your area in 2022.

What's the inheritance tax in each region of Spain?

Spain’s inheritance or succession tax, known as ‘impuesto de sucesiones‘ is both complex and controversial, but it’s important to understand how it works in order to avoid any unfortunate financial surprises when a loved one with a connection to Spain passes away. 

Spanish inheritance tax is decided by the Spanish State but all of the country’s 17 regions have the right to change these rules to make them more beneficial or detrimental to heirs, luckily the general trend is towards the former. 

The succession tax rates will differ depending on how much is inherited, ranging from 7.65 percent on the first €7,933 up to 34 percent on €797,555+. 

There are many factors to consider, such as which category heirs and other beneficiaries fall into, or the fact that in Spain the spouse of the deceased is also subject to inheritance tax, which is not the case in the UK and many other countries.

What are the different groups of heirs in Spain?

As mentioned above, there are several categories or groups that heirs can fall into and this will depend on how much allowance they can benefit from. The groups are the following:

Group 1: Children under 21 years of age

Group 2: Children over 21 years of age, spouses and parents

Group 3: Siblings, nieces, nephews, as well as aunts and uncles

Group 4: Cousins or more distant relations

EXPLAINED: How choosing the right region in Spain can save you thousands in inheritance tax

What are the inheritance rates in my region?

Andalusia

In Andalusia, the inheritance tax rate varies between 7 percent and 36 percent, depending on the value of the inheritance. However, recently the Andalusian government approved, through a Royal Decree, a reduction of 99 percent, both for inheritance and gift tax for those who are included in groups 1 and 2.

Aragón

In Aragón there is 100 percent discount on the tax base, with a limit of €3,000,000 for descendants under the age of 21 or for those that have a disability. In addition, the spouse, parents or descendants of the deceased may also benefit from a reduction of 100 percent of the tax base.

Asturias

In Asturias there is an allowance of €300,000 for those groups 1 and 2. For all other groups, it establishes various reductions included in the state regulations. In addition, in case of inheriting a home, the bonus will be between 95 and 99 percent, depending on its value.

Balearic Islands

In the Balearic Islands, for those in groups 1 and 2, deductions of €25,000 are applied, plus €6,250 per year that the taxpayer is under the age of 21, up to a maximum of €50,000. For those in group 3, a deduction of €8,000 is applied and for those in group 4, it’s €1,000. An allowance of €48,000 will also be made for those with disabilities.

Basque Country

For those in groups 1 and 2 in the Basque Country, inheritances with an amount less than €400,000 are not required to pay taxes. When the amount is greater than €400,000, a tax rate of 1.5 percent will be applied.

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

Canary Islands
Those in group 1 get an allowance of €47,859, while those in group 2 get an allowance of €15,957. Those in group 3 will get €7,993, while those in group 4 get no allowance at all. After the deduction, inheritance tax rates are calculated on the remaining balance which range between 7.65 percent and 34 percent on anything above €797,555.

Cantabria

For those in group 1, there is a reduction of €50,000 plus €5,000 for each year the taxpayer is under 21. For those in group 2, it’s also €50,000 and for those in group 3, it’s €25,000.

Castilla La-Mancha

In Castilla La-Mancha those in groups 1 and 2 will benefit from discounts ranging from 80 percent to 100 percent, depending on the amount of the payable base.

Castilla y León

Castilla y León allows reductions for children spouses and parents. Those in groups 1 and 2 will benefit from an allowance of €60,000. An additional reduction of €6,000 will be applied for each year the taxpayer is under the age of 21. A variable reduction will also be applied, which is calculated as the difference between €400,000, plus the sum of the previous amounts and the state deductions.

Catalonia

In Catalonia, spouses will receive a bonus of 99 percent and the rest of the heirs in groups 1 and 2 may apply a bonus that varies between 57 percent and 99 percent, depending on the tax base.

Extremadura

A bonus of 99 percent is applied for amounts of up to €300,000 euros between parents, children and spouses.  

Galicia

In Galicia, heirs in group 1 have an allowance on amounts up to €1,000,000, plus there is a reduction of €100,000 for each year the beneficiary is younger than 21, with a limit of €1,500,000. For those in group 2, the reduction varies between €900,000 and €400,000, depending on the taxpayer’s age. In the cases of groups 3 and 4, the bonus will be €16,000 or €8,000. The applicable rate in Galicia stands at between 5 and 18 percent, which is well below the rest of the regions. 

La Rioja

Those who inherit in La Rioja benefit from a deduction of 99 percent of the tax quota if the tax base is less than or equal to €500,000. The deduction will be 98 percent for amounts that exceed €500,000.

Madrid

Madrid applies a discount of 99 percent of the tax quota for taxpayers included in groups 1 and 2. In addition, for the heirs included in group 3, it establishes a discount of 15 percent or 10 percent, depending on what relation they are to the deceased.

Murcia

In the region of Murcia, the law includes a deduction of 99 percent for those in groups 1 and 2. Likewise, for the rest of the heirs, it also recognises different reductions depending when the money is inherited and the amount to be received.

Navarre

In Navarre no discounts are applied, but how much tax varies according to what group you fall under. Spouses for example have a rate of 0 percent up to €250,000, and 0.80 percent from there upwards. In the case of descents and parents, the applicable rate varies between 2 percent and 16 percent.

Valencia

In Valencia discounts of 75 percent are applied for those in group 1 or 50 percent for those in group 2. In case the of those with disabilities, the taxpayer will also receive a bonus of 75 percent.

Case study example

For example, in the case of a 30-year-old son who inherits assets worth €800,000 euros, the most amount of tax would be paid in Asturias, with at €103,135.48; followed by Castilla y León €81,018.76; Valencian €63,193.76; Aragon €55,466.81; La Rioja €32,342.86; Castilla-La Mancha €31,759.23 and the Canary Islands €31,748.63. 

These regions would be followed by Navarre €17,000; Catalonia €9,796.89; the Balearic Islands €5,950; the Basque Country €3,150; Murcia €1,640.49; Extremadura €1,587.96 and Madrid €1,586.04). Andalusia, Cantabria and Galicia have a net quota of 0.

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