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TAXES

How much will you save with Spain’s income tax cut?

How much do contract workers, self-employed workers, small businesses and pensioners stand to save with the government’s new income tax reductions?

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A delivery worker in Ronda, southern Spain. how much will ordinary hard-working Spaniards and foreign residents benefit from the national government’s new tax measures? (Photo by JORGE GUERRERO / AFP)

On Thursday September 29th, Spain’s Budget Minister María Jesús Montero announced that her administration will reduce the personal income tax on people earning up to €21,000 gross ($20,200) per year.

At the same time, she confirmed the government will slap a new tax in 2023 and 2024 on residents whose wealth exceeds €3 million to help pay for inflation relief measures.

In this article, our focus will be on contract workers, self-employed workers, small business owners and pensioners who are lower earners.

The announcement of the tax changes comes as Spain is gearing up for local elections in May 2023 and a general election expected at the end of next year, which has led right-wing regional governments and the left-wing national government to engage in a tax war to sway the voting balance in their favour.

But how much will ordinary hard-working Spaniards and foreign residents actually benefit from the national government’s new tax measures?

Contract workers and pensioners:

The Spanish government has offered four cases with different incomes and personal conditions, serving as examples of how they will calculate how much each one stands to save.

The tax reductions apply to rendimientos del trabajo (earned income), with more earners in the lower-pay grade set to gain as deductions will now apply to those who earn up to €21,000 gross a year rather than up to €18,000 as it was previously. 

  • A worker who is married, has children, earns €19,000 (gross) a year and does a joint tax declaration stands to save €331 on their annual income tax return. 
  • A pensioner who is over the age of 65 and has a pension of €16,500 will save €689.
  • A single parent who has two children and who earns €18,500 (gross) will save €516 on their income tax return. 
  • A worker with no children with an annual income of €18,000 (gross) will save €746 on their income tax return.

The change in tax conditions means that workers on Spain’s minimum wage (€14,000) will not have to pay income tax if they don’t earn above €15,000, which is the new threshold.

Self-employed workers 

Some of the reforms approved by Spain’s national government also seek more favourable tax conditions for the country’s self-employed workers and small businesses in terms of income tax (IRPF) and corporate tax (impuesto de sociedades). 

According to Spanish tax agency Hacienda, 1.6 million autónomos (as self-employed workers are called) stand to benefit from the IRPF cut, and up to a quarter of small businesses (500,000 micropymes) will gain from the corporate tax reduction. 

The changes for autónomos are that those who use the módulos system to estimate their earnings will get an additional 5 percent tax reduction on their net income.

Módulos (modules) is the name used to refer to the tax settlement system that allows some self-employed workers to pay the Spanish taxman based on their estimated benefits rather than their exact monthly earnings, thus simplifying the declaration process.

Autónomos will also get an increase in the margin of expenses that are difficult to justify (Gastos de Difícil Justificación) on their income tax return, from 5 to 7 percent. 

However, Spain’s main autónomo association ATA has criticised the reduction as “stingy” given that on average self-employed workers will only save €115 on average on next year’s annual tax return.

Small businesses that invoice less than €1 million will get the promised tax reduction from 25 to 23 percent on their nominal corporate tax.

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For members

WORKING IN SPAIN

Your questions answered about Spain’s digital nomad visa

Spain's long-awaited digital nomad visa is finally available, but there is still much confusion about it, so we've answered all your burning questions.

Your questions answered about Spain's digital nomad visa

Spain’s Startups Law, which also introduced a new digital nomad visa, was approved at the end of 2022, but didn’t come into force until January 2023 and all the details are only just now being revealed. 

From how much money you need to your tax obligations and if you can bring family, members, here are all your questions answered. 

What are the financial requirements to apply for the visa?

You must prove that you earn 200 percent of the SMI or Minimum Interprofessional Salary. The current minimum wage in Spain is €1,000 per month (across 14 payments) or €1,166.67 across 12 payments.

Keep in mind though that the minimum wage is currently being re-evaluated and is likely to go up to €1,082 (across 14 payments) per month in the near future.

This means that currently, you must be able to show that you will have an income of at least €2,333.34 per month or €28,000 per year, but it is likely this will increase. You can prove this amount either with job contracts, invoices or bank statements.

Can I bring family members with me on the visa?

Yes, you are permitted to bring partners and children with you to Spain on the digital nomad visa.

In order to add a family member, however, you must prove that you have an extra 75 percent of the SMI or minimum wage. This currently equates to an extra €875. For each additional family member after this, such as children, you will have to prove you have an extra 25 percent of the SMI, currently €291.66.

READ ALSO: Ten of the best cities for digital nomads to move to in Spain

Do I need private health care?

You must also make sure that you have either private or public health insurance, simply getting travel insurance with health coverage is not enough.

The Spanish government mentions the option of getting public health insurance instead of private cover, but it is not yet clear whether this means that you will have to contribute to the social security system or be eligible for the convenio especial – the public pay-in scheme.

Do I have to have any professional qualifications? 

You must prove that you either have professional qualifications or a degree relating to your job or that you have at least 3 years’ experience working in your field. 

How long is the visa valid for?

The visa will be valid for an initial period of one year, however, it can be renewed for up to five years. After that, if you want to continue living in Spain, you will be able to apply for permanent residency.

Does the visa give me access to travel around the EU?

Yes, once you have your visa and you’re in Spain, you will be able to apply for a residency card. This will allow you to travel throughout the EU during the time that you’re living in Spain.

Keep in mind though, it won’t give you the right to work or live in other EU countries, but you will be able to go for short breaks. 

How long do I have to stay in Spain for the visa to be valid?

Many digital nomads choose to split their time between different countries. If this is your case, and you want to split your time between back home in the US or the UK for example, you must make sure you stay in Spain for a maximum of 6 months per year for your visa to remain valid.

Do I have to pay tax in Spain?

Yes. If you stay longer than 183 days, then you will be considered a tax resident in Spain. This means that any money you earn while working in Spain, even if it comes from clients or companies abroad will be taxable.

However, the digital nomad visa grants you tax benefits, such as being able to pay the Non-Residents Tax Rate (IRNR) rather than the regular progressive income tax (IRPF) that Spain’s resident workers pay.

Non-Resident Tax was previously only applicable to non-residents such as second-home owners, but an exception has been made for digital nomad visa holders even if they spend more than 183 days a year in Spain and are therefore technically fiscal residents.

IRNR is generally 24 percent in Spain but this will be reduced to 15 percent for digital nomads and remote workers, as long as you earn below €600,000 a year.

This favourable tax rate will be available for four years, if you choose to renew your visa. 

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