Those dreaming or contemplating a permanent move to Spain, would certainly want to compare the two tax systems as part of their decision process. There are also tax consequences when owning a property in Spain, whether you live here full time or not and differences between EU citizen and non-EU.
Here is a quick outline of the tax rates and rules. This is meant to be a basic overview only. I am not a Spanish tax professional. I have provided links to more thorough guides which can help you investigate your personal situation further.
Many countries like Canada, have a tax treaty with Spain which is in place to avoid double taxation. Here is the OECD list of these countries.
What that means is that whatever tax you pay to Spain is a tax credit in Canada for example and vice versa. Specifically, it allows the tax payer to use, as a credit, what they paid in Spain against the tax owed in Canada on that particular type of income.
The regular tax rates are somewhat similar to Canada’s. I am oversimplifying here because in Canada we also have many tax credits especially for older Canadians and I assume that Spain also has tax deductions and credits that can greatly change the resulting tax owing. You really have to do a proper comparison according to your own specific circumstances but I think it is fair to say that the tax on regular income in Spain is not much greater in general than it is in Canada.
The big difference however is the Wealth Tax which applies to individual who have a significant amount of wealth in Spain or worldwide. I have outlined the basics far below.
But first, let’s take a look at how much tax a retired person would pay in Spain.
General Income Taxes
I have tried several online tax calculators. Most are too basic to make a meaningful comparison. The calculator which I have linked below allows you to refine the type of income you have to determine the tax payable. This is still only a tool to use as a very general guide but it can give you a rough estimate of what you may have to pay as a resident.
The icalculator linked below shows that a retired person earning 50,000 Euros per year for example from a mix of pension and investment income would pay about 7000€ per year in taxes, an average tax rate of 14%. In Canada, the equivalent of 50,000 € is $75,000. The total tax for a British Columbia resident like us would pay $14,709 or an average tax rate of 19.61%. That is 5% more tax in this simple example. But if I factor in the age and pension credit and assume investment income which is more favorably taxed, it will bring this down closer to 14%. So, between Canada and Spain, the general income taxes are in most cases, I would assume, similar.
Here is the link to the Spain Tax calculator
Taxes on income from Real Estate
A non-resident of Spain, also has to pay taxes on income earned in Spain. This detailed Spain Tax Guide link shows the full list and rates. Many retirees in Spain own property in Spain.
As a property owner, you not only have to pay taxes on the rental income earned if any but also on the Deemed income tax (Modelo 210) for the days the property is not rented. It is similar to the Vacancy tax that we have in Vancouver but the rate and calculation is very different. Here is a link on how to calculate the tax on Modelo 210. In our case, for the 2019 tax year, our house was rented for 75 nights. We had to pay 509.73€ each for myself and my husband for the days not rented.
The rental income tax is 19% for EU residents and 24% for non-EU resident like us. The big drawback for non-EU persons is that we can not deduct any expenses here in Spain from the rental income earned. We have to pay tax on the full income earned, even if you have a company that manages your property. You only get to deduct the expenses in Canada. We never get the full benefit of these deductions unfortunately. I will explain that further in a future post on renting a property in Spain.
The Spanish Wealth Tax
The Wealth tax is called Patrimonio in Spain. It is a tax that can make it a very expensive place to live for wealthy individuals. It is a tax everyone who has assets in Spain (except Madrid residents) pays on assets over the thresholds shown below. It also applies to non-residents but only on their Spanish assets. Here are the rates and exemptions.
The first 700,000€ per person is exempt.
Full time residents have an extra 300,000€ exemption if they own a home.
Full time Residents follow the region rates for exemple Andalucia but non-resident follow the National rates. The Spain Tax Guide shows the rates.
The wealth tax National rates range from 0.2 to 2.5%. The guide provided above give the full rate grid. Andalucia’s rates were recently lowered to 2.5% as well.
If your excess wealth is let’s say 1,000,000€ above the 700,000€ threshold, you would pay about 1169€ cumulative tax. If your excess is 2,000,000€ you would pay 12,200€ per year! It adds up quickly if you have a large wealth.
Please note that there are exemptions which are mortgages, businesses, household items and importantly pensions rights. It is unclear to us at this time if RRSPs (Retired retirement savings Plans) like we have in Canada would be considered pension rights and excluded from the wealth tax. If you have lots of investments and properties, it is imperative that you contact a tax professional proficient with the Wealth Tax and International tax treaties.
Make sure to also read our post on Inheritance Tax in Spain here.
This summary was a very brief overview of the taxes in Spain. Please review the links provided and consult a tax expert to properly assess your personal situation.
As you can see, don’t be fooled by the numerous articles on the internet stating that Spain is a cheap place to live. It really depends on your situation. While it is true that food, restaurants and alcohol are inexpensive, some real estate, electricity, water, cars and taxes are not.
But like us, you may feel that Sunshine ☀️ is worth the potential extra taxes!