Ten handy ways to pay less tax in Spain
Whether it be related to work, investment, property or pensions, there are a number of different ways to pay less tax in Spain regardless of your circumstances.
The Spanish tax system can seem a little complicated at the best of times, even for Spaniards. This is even truer for foreigners, and even more so if your Spanish isn't the best.
For the self-employed in Spain, known as autónomos, paying quarterly tax returns (and doing the tax return itself) can be a bit of shock and usually works out to be a rather large chunk of cash.
But it's not just people who work for themselves that pay tax, virtually everyone in Spain has to contribute in one way or another.
Fortunately, there are a number of relatively simple ways to pay less tax in Spain whether your salaried, self-employed or simply live in Spain.
Investing in pension plans
One way of saving on taxes while also saving for the future is by investing in pension plans, or if you already do, increasing your contributions. This is because pension plans are taxed differently and most pension plans allow you to deduct personal income tax (known as IRPF in Spain).
The money you invest can therefore be subtracted from your tax base and saved. Let's take a look at an example.
Say you contributed €1,500 to your pension plan last year and earned €40,000 in salary. The Spanish treasury allows you to deduct that €1,500 so that it will be as if you had only earned €38,500.
Also, personal income tax is a progressive tax. That's why those with higher incomes save more when deducting pension plans.
Take advantage of regional deductions
As you're probably aware, Spain is an intensely regional country. Not only do many have their own languages and traditions, but many also have their own tax regimes.
As a result, many parts of Spain offer different possible deductions on IRPF ranging from childcare and educational expenses to rent and transport payments. Knowing what you're entitled to deduct depending on where you live can really help you save on tax.
READ ALSO - EXPLAINED: What are Spain’s new regional tax breaks?
You can find a fun breakdown of the regional tax deductions here on the Spanish tax office website.
Changes in family circumstances
If you have a child, or get divorced, or become disabled, make sure to communicate the change in circumstances to your employer and the tax office as personal income requirements and deductions can change depending on your home situation because there are plenty of tax breaks available for people like single parents or carers.
READ ALSO: How Spanish companies are helping their employees pay less tax
Take part of your salary in non-taxable benefits
Another useful option to save on taxes is taking part of your salary in benefits. Say you have to renegotiate your salary or change companies, many companies now offer certain tax-free benefits (think gym membership or travel cards) that mean your salary will instead go directly to these benefits rather than be taxed.
Wait until you turn 65 to sell your house
If you are close to 65 and you are considering selling your home, it's in your interest to wait because the transaction will be tax-free.
If the house is in the name of both spouses, both must be over 65 years old, since otherwise only the corresponding gain of the spouse who is of this age would be exempt. The exemption can be applied even if you it's a second home that you don't live in.
This is all stated in article 33.4 b of Spain's Personal Income Tax Law: people over 65 will be exempt from the tax on capital gains made from the transfer of their habitual residence.
READ ALSO: What does a 'gestor' do in Spain and why you'll need one
Self-employed deductions
Being autónomo (self-employed) in Spain can have its downsides, primarily the endless bureaucracy and monthly charges, but there are some tax positives, namely the long list of deductions you can make on your annual tax return, LA rent.
For foreigners in Spain, it's recommended to get a gestor, a kind of all in one accountant come administrator that can help you navigate the administrative hurdles and language barrier. If you Geta good one, they should be able to help you deduct part of your rent, your utility bills such as electricity and wifi, and even new office equipment.
Paying quarterly tax returns can feel like a big chunk of cash to pay at once, but effectively using the array of possible deductions available to self-employed in Spain can help you pay less tax.
READ ALSO: What items can you deduct on your Spanish tax return?
Donations
Another way to pay less tax in Spain is to make donations, whether it be to charities, NGOs or non-profits. In Spain these sorts of donations have income tax benefits because they are deductible up to 80 percent on the first €150.
After that, the deduction is 35 percent on everything that exceeds that amount. Likewise, in the fourth year in which it is donated to the same organization and the amount has been equal to or greater than the previous year, the percentage rises to 40 percent.
Housing deductions
The housing deduction is not quite as simple as self-employed deducting part of their rent from the tax return. It applies to properties that were bought before 2013, deducting 15 percent of what was paid, up to €9,040.
This amount is doubled if the house was purchased as a couple and declared separately.
On the other hand, for properties bought after 2013, deductions are possible for energy efficiency improvement work provided that some requirements, something that will allow you to save on both air conditioning and heating costs.
Deductions for entrepreneurs and start-ups
There are also tax deductions available for entrepreneurs and investments in start-ups (known as the 'RDI deduction'), benefits for reinvesting profits, and deductions for hiring staff if you're launching a start-up company.
READ ALSO: What are the penalties and prison sentences for tax evasion in Spain?
Pay less property tax
Spain’s property or council tax, usually referred to as just IBI, can vary considerably between municipalities, but there is a way to potentially reduce the cost of this annual tax.
In many cases there are discrepancies in the value assigned to your property by your local tax authorities and its actual value.
Using your cadastral reference number (20 digits) you will be able to check either in person at your local town hall or on this government website if your property has been overvalued and whether you are within your rights to pay less IBI tax.
READ MORE: How to pay less Spanish IBI property tax
Please note, we at The Local are not financial experts. What we’ve learned, we’ve learned the hard way — by getting on the phone or trawling through Spanish government websites. The article above is designed to help, but if you are in doubt or need further information, seek professional advice.
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The Spanish tax system can seem a little complicated at the best of times, even for Spaniards. This is even truer for foreigners, and even more so if your Spanish isn't the best.
For the self-employed in Spain, known as autónomos, paying quarterly tax returns (and doing the tax return itself) can be a bit of shock and usually works out to be a rather large chunk of cash.
But it's not just people who work for themselves that pay tax, virtually everyone in Spain has to contribute in one way or another.
Fortunately, there are a number of relatively simple ways to pay less tax in Spain whether your salaried, self-employed or simply live in Spain.
Investing in pension plans
One way of saving on taxes while also saving for the future is by investing in pension plans, or if you already do, increasing your contributions. This is because pension plans are taxed differently and most pension plans allow you to deduct personal income tax (known as IRPF in Spain).
The money you invest can therefore be subtracted from your tax base and saved. Let's take a look at an example.
Say you contributed €1,500 to your pension plan last year and earned €40,000 in salary. The Spanish treasury allows you to deduct that €1,500 so that it will be as if you had only earned €38,500.
Also, personal income tax is a progressive tax. That's why those with higher incomes save more when deducting pension plans.
Take advantage of regional deductions
As you're probably aware, Spain is an intensely regional country. Not only do many have their own languages and traditions, but many also have their own tax regimes.
As a result, many parts of Spain offer different possible deductions on IRPF ranging from childcare and educational expenses to rent and transport payments. Knowing what you're entitled to deduct depending on where you live can really help you save on tax.
READ ALSO - EXPLAINED: What are Spain’s new regional tax breaks?
You can find a fun breakdown of the regional tax deductions here on the Spanish tax office website.
Changes in family circumstances
If you have a child, or get divorced, or become disabled, make sure to communicate the change in circumstances to your employer and the tax office as personal income requirements and deductions can change depending on your home situation because there are plenty of tax breaks available for people like single parents or carers.
READ ALSO: How Spanish companies are helping their employees pay less tax
Take part of your salary in non-taxable benefits
Another useful option to save on taxes is taking part of your salary in benefits. Say you have to renegotiate your salary or change companies, many companies now offer certain tax-free benefits (think gym membership or travel cards) that mean your salary will instead go directly to these benefits rather than be taxed.
Wait until you turn 65 to sell your house
If you are close to 65 and you are considering selling your home, it's in your interest to wait because the transaction will be tax-free.
If the house is in the name of both spouses, both must be over 65 years old, since otherwise only the corresponding gain of the spouse who is of this age would be exempt. The exemption can be applied even if you it's a second home that you don't live in.
This is all stated in article 33.4 b of Spain's Personal Income Tax Law: people over 65 will be exempt from the tax on capital gains made from the transfer of their habitual residence.
READ ALSO: What does a 'gestor' do in Spain and why you'll need one
Self-employed deductions
Being autónomo (self-employed) in Spain can have its downsides, primarily the endless bureaucracy and monthly charges, but there are some tax positives, namely the long list of deductions you can make on your annual tax return, LA rent.
For foreigners in Spain, it's recommended to get a gestor, a kind of all in one accountant come administrator that can help you navigate the administrative hurdles and language barrier. If you Geta good one, they should be able to help you deduct part of your rent, your utility bills such as electricity and wifi, and even new office equipment.
Paying quarterly tax returns can feel like a big chunk of cash to pay at once, but effectively using the array of possible deductions available to self-employed in Spain can help you pay less tax.
READ ALSO: What items can you deduct on your Spanish tax return?
Donations
Another way to pay less tax in Spain is to make donations, whether it be to charities, NGOs or non-profits. In Spain these sorts of donations have income tax benefits because they are deductible up to 80 percent on the first €150.
After that, the deduction is 35 percent on everything that exceeds that amount. Likewise, in the fourth year in which it is donated to the same organization and the amount has been equal to or greater than the previous year, the percentage rises to 40 percent.
Housing deductions
The housing deduction is not quite as simple as self-employed deducting part of their rent from the tax return. It applies to properties that were bought before 2013, deducting 15 percent of what was paid, up to €9,040.
This amount is doubled if the house was purchased as a couple and declared separately.
On the other hand, for properties bought after 2013, deductions are possible for energy efficiency improvement work provided that some requirements, something that will allow you to save on both air conditioning and heating costs.
Deductions for entrepreneurs and start-ups
There are also tax deductions available for entrepreneurs and investments in start-ups (known as the 'RDI deduction'), benefits for reinvesting profits, and deductions for hiring staff if you're launching a start-up company.
READ ALSO: What are the penalties and prison sentences for tax evasion in Spain?
Pay less property tax
Spain’s property or council tax, usually referred to as just IBI, can vary considerably between municipalities, but there is a way to potentially reduce the cost of this annual tax.
In many cases there are discrepancies in the value assigned to your property by your local tax authorities and its actual value.
Using your cadastral reference number (20 digits) you will be able to check either in person at your local town hall or on this government website if your property has been overvalued and whether you are within your rights to pay less IBI tax.
READ MORE: How to pay less Spanish IBI property tax
Please note, we at The Local are not financial experts. What we’ve learned, we’ve learned the hard way — by getting on the phone or trawling through Spanish government websites. The article above is designed to help, but if you are in doubt or need further information, seek professional advice.
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