Further to my Social Security and Taxes and Personal Income and VAD Taxes for freelancers posts, in this article we will dig into Personal Income Tax for the general population, taking into consideration the tax return period we are currently in. It is named as “Impuesto sobre la Renta de las Personas Físicas”, more commonly known as “IRPF”.
Essentially, it is calculated as of your income and two types of tax credits:
- Reductions on your income base.
- Deductions on your final amount to pay which is calculated after deductions are made from the income base.
If you receive a salary, a percentage will be automatically applied monthly that will also vary depending on your year to date earnings from that base.
Calculations are then made at the end of the year (see also the posts mentioned at the beginning) and when you file your tax return the result will either be positive (“positiva” o “a ingresar”, meaning you will have to pay additional taxes) or negative (“negativa” o “a devolver”, meaning the Tax agency will have to give you money back). In the case of the latter, you will have to be careful because there is an option for you to renounce this income for the benefit of the Public Treasury.
Overall, the “IRPF” must be filed by those making more than the following amounts an annual basis:
- €22000 from salaries or pensions (or over €12000 if you have two or more sources of those types);
- €1600 from financial investments (stocks dividends or deposits interests); or
- €1000 from real estate (rents).
With certain restrictions, income coming from government subsidies, scholarships, social security benefits, or compensation payments might not be added to your total income base calculations and are therefore tax exempt.
Other exemptions: daily allowances paid by your employer when you are working away from your office or residence inside/outside Spain:
- €53/€91 per day (when spending the night away from home).
- €26/€48 per day (when you return that day).
Under certain circumstances which we will not go into, families have the option to present a joint tax statement if it is in their favour. By default, tax statements are individual.
If your employer is paying for your accommodation, you will have to declare that as an income and it will be between 5% and 10% of the estimated registered value (“valor catastral”) of the property, which usually is lower than the market one (“valor de mercado”). There are certain limits for taxation based on the salary you receive from your employer.
If you are provided with a company vehicle that you also use for personal purposes, it also adds to your total income to declare, again applying certain percentages depending on the value of the vehicle, whether it is considered ecologically efficient, and the amount of time you use it for yourself.
In this table, the income tax rates can be seen. Like in most of the world, it is a progressive system, meaning that if you present 45000 taxable euros, 19% rate will be applied up until €12450, 24% from €12450 to €20200, 30% from €20200 to €35200, and 37% from €35200 to €45000.
In case it is your first time working in Spain or you have not lived in this country in the last 10 years, you might get more favourable tax rates in your first 5 years, having a flat tax rate of 24% up until €600000 and 46% as of that figure.
These tax rates are applied to the income base. They are obtained after calculating your total income and deducting the first type of tax credits we will be explained further in the next post: reductions (“reducciones”).
What do you think of the overall “IRPF” structure? What is your experience of the percentages applied to the income base? Were you aware of the favourable taxation rates for newcomers or long-time expats returning home?
Please be aware that I am not an expert in taxes and therefore you should always seek professional advice. Please also bear in mind that, as with any tax code, there are many rules and variations from one individual to another.
Links of Interest:
Agencia Tributaria, Personal Income Tax
Agencia Tributaria, Manual Práctico Renta 2017
Cinco Días, ‘Otras’ rentas del trabajo: (‘Other’ working income)
Gestoría Orejana, Régimen Especial de Trabajadores Desplazados (“Ley Beckham”)
Rankia, ¿Cuáles son los tramos del IRPF 2017? Campaña 2018 (Income tax rates)
Super Contable, Tratamiento fiscal de los gastos de viaje y dietas (Taxation on travel expenses and daily allowances)