First, there are certain aspects we have not touched upon in this series due to their complexity/extent. One of the main ones being increases or decreases in your assets. These must be taken into account from the Personal Income Tax (PIT) perspective if there have been variations during the fiscal year.
As we started the series with the beginning of the tax returns period, it must be remembered that the filing of your tax returns must be done between April and June. Specific dates are published in advance but usually you can assume that it will go from the first days of April until the last working day of June.
My experience with dealing with the tax returns period is positive, despite the fact that I would prefer to pay less Personal Income Taxes (PIT) – I am not however in favour of reducing them to marginal rates either. If your income is not coming from many sources, the draft tax filling (“borrador de la declaración”) that “Hacienda” (the Spanish Tax System) has prepared for you is pretty much ready to go and it can be submitted via internet, phone, at a tax agency office, or in bank office. In every case, within minutes you can access the information, review it, and accept its result.
It is a completely different situation if you have several income sources (and expenses related to them) or have had variations in your assets. Freelancers (“autónomos”) must also proceed more carefully throughout the whole process. In these cases, it is advisable to contract the services of a tax expert.
There are variations at a regional level that nevertheless do not impact dramatically on the final taxable amount, with perhaps the exception of País Vasco and Navarra, regions which have their own tax systems, and the Canary Islands, and Ceuta and Melilla (city regions in the coast of the North of Africa), that for geographical reasons get additional tax credits.
It must be pointed out that if your centre of economic or vital interests is in Spain, you must pay taxes as a resident. There are several criteria for which you might qualify for that (even if you are nor residing for more than 183 days), including having your spouse or children residing in this country, consuming utilities on a regular basis, or frequently using a Spanish bank account or a Spanish mobile phone.
If you are not residing in Spain, you will have to pay taxes on income generated in Spain.
PIT International Comparison
For a quick international comparison, I have looked at KPMG’s online tax rates tool. For personal/individual taxes, there is data and graphics showing the maximum tax rate per country (remember that for Spain it is 45% as of €60000). Considering that most tax systems are progressive, it is a convenient tool to give you an international overview.
In 2018, the North America maximum tax average is 35%, in South America it is 32.54%, and the OECD average is 41.96%. The EU average maximum tax rate is 37.47%, with the following distinctions:
- Some above average countries: Sweden (57%), Finland (54.25%), Netherlands (52%), Austria (50%), Luxembourg (48.78%), Ireland (48%), Portugal (48%), France (45%), Germany (45%), UK (45%), Italy (43%), Greece (42%)
- Some below average countries: Cyprus (35%) Poland (32%), Latvia (23%), Estonia (20%), Romania (16%), Hungary (16%). Czech Republic (15%), Bulgaria (10%).
Bear in mind that tax credits are not considered in that PIT-related raw analysis.
As an interesting international comparison, at a recent event I saw the IT Director of the Spanish Tax Agency explain that they are very efficient in terms of collecting taxes: it only costs them 68 cents per every €100 collected. The OECD average is 88 cents and the EU average is €1.
What do you think about the overall Personal Income Tax (PIT) system? Can any lessons be learnt from this series of posts? Has any information or subject been missed?
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
CEF – Fiscal e Impuestos, Ganancias y pérdidas patrimoniales (patrimony earnings and losses)
Cinco Días, ‘Otras’ rentas del trabajo: (‘Other’ working income)
Computing, “La Agencia Tributaria se rige por la gobernanza del dato” (The Spanish Tax Agency operates according to the Data governance)
El Confidencial, Renta 2017 y Vivienda (2017 Income Statement and Homes/Residencies)
Gestoría Orejana, Régimen Especial de Trabajadores Desplazados (“Ley Beckham”)
Infoautónomos, Deducción por inversión en empresas nuevas o recientes (deductions from investments in new or recently established companies)
Holded, Declaración de la Renta 2017, ¿cómo pagar menos? (2017 Income Statement, how to pay less?)
KPMG, Individual income tax rates tables
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)
Transferwise, Paying income tax in Spain
Photos: Lighthouse in the island of Menorca, Islas Baleares. Redin Street, Pamplona, Region of Navarra.