There are a few exceptions to this rule. For example, you don’t need to declare if you’re a salaried employee earning less than a certain maximum. However, you should still keep detailed records of all earnings and check with the tax office or a financial adviser that you don’t need to declare.
If your earnings are above these levels, you must make a declaration – and the responsibility lies with you and your advisers. No one will send you a form; you must obtain one from the tax office or from a tobacconist’s ( estanco), where they’re sold for a few cents.
Different types of tax forms
There are three types of form; an abbreviated declaration ( declaración abreviada), Form 103, which is used if you need to declare earnings from pensions or investments that have already been subject to withholding tax; a simple declaration ( declaración simplificada), Form 101, which must be used if you have income from letting, certain business and agricultural income or capital gains from the sale of a permanent home where the total gain is to be reinvested in another property in Spain; an ‘ordinary’ declaration ( declaración ordinaria), Form 100, which is for all sources of income other than the above and covers all business and professional activities and capital gains.
Unfortunately, for most people trying to make a living in Spain, this form – 13 pages long and the most complicated of the three – is the one that’s required!
Help from the tax office
However, help is at hand, either from your tax adviser or from the tax office in the form of an innovative computer programme called the Personal Income Tax Return Help Progamme ( Programa de Ayuda a la Declaración del Impuesto sobre la Renta de las Personas Fisicas/PADRE), which is the result of a major effort on the part of the tax authorities to help you declare your tax correctly. (They claim that it’s “a simple, secure and trustworthy system, because it was written by the Tax Agency itself”!)
To use the PADRE system, you can go to the tax office, where staff will help you to enter your information into the computer programme, which runs on the Windows operating system. Because the tax office is keen to promote the system, if you use it for your declaration, you will be first to receive any refunds that are owing to you. However, don’t just turn up at the tax office. You must phone 901 223 344 and make an appointment to see a specific member of staff. In areas where there are large numbers of foreign residents, there may be a member of staff who speaks English, but don’t depend on it.
When you go to the tax office for your appointment, you should take along your bank statements showing interest received and your average balance; any papers relating to stocks, shares, bonds and any property that you own in Spain or abroad; any declarations and receipts for taxes paid in another country; and, of course, those vital documents, your passport, residence permit and NIE certificate You can find a fuller explanation of the PADRE system in English on www.aeat.es/agencia/memorias/02/ingles.
If you can’t face the tax office, you may find that your bank has the PADRE programme and can enter your information via their computer, in which case a member of their staff should help you to make your declaration. However, if your tax position is complicated or if you prefer expert and independent help, it’s best to consult a tax adviser. Many of them have access to the PADRE programme and charge around €35 for a simple tax return and around €60 for a more complicated one.
Deadlines for tax declarations
The Spanish tax year runs from 1st January to 31st December, and employees must submit their declarations between 1st May and 20th June of the following year, although if you think you’re entitled to a refund, this deadline is extended to 30th June. You pay your income tax in arrears, so for income earned in 2005, you would declare between those dates in 2006. The self-employed must make quarterly declarations.
Late payment, even by a day, will incur a surcharge, usually of 20 per cent, although you can officially request a payment deferral. If you have an adviser taking care of your tax affairs for you, check that he pays on time and gets receipts for payments. If he doesn’t do this, it will be you that’s liable for the penalty.
You should keep copies of your tax returns for at least five years, which is the maximum period that returns are liable to be audited by the tax authorities. After five years, any unpaid tax cannot be collected.
If you’re a salaried worker, your personal income tax situation is relatively simple. There’s a ‘pay-as-you-earn’ system and your employer deducts the relevant tax contribution (called withholding tax) throughout the tax year, so that you should have nothing more to pay. Recent improvements in the system mean that this amount is calculated so that it matches as closely as possible your tax liability and allowances. Normally, even if you work for an employer, although income tax is deducted from your salary, you’re responsible for filing your tax returns, not your employer. The national tax agency calculates what you owe or what’s due to you and sends you a form (105) to check, sign and return; any refunds due to you are made before the end of April.
If you’re self-employed, you have different accounting and tax obligations from those of an employee. There are two types of self-employed tax ‘regime’. Go to the tax office nearest to where you plan to work and complete and hand in Form 037. This form is stamped by the tax office and will confirm how you pay your taxes.
If you’re a sole trader operating without a specific business entity (such as an SL or SA), you may have to begin paying taxes under the modulos system (this is decided for you by the tax office, and you have no say in the matter!). Under this system, the tax office assesses what your business income is likely to be and you pay tax on this amount each quarter, irrespective of your actual earnings, even if they amount to zero. The advantage of this system is that you don’t need to keep accounts or prepare VAT invoices and you simply submit an ordinary return at the end of the financial year.
Otherwise, you will make payments according to the standard system, known as direct estimation ( estimación directa), but this means you must make quarterly tax and VAT declarations and either operate a double-entry book-keeping system yourself or engage an accountant to do so on your behalf. At least with the direct estimation system, if you earn less you pay less. You can change from the modulos system to the direct estimation system after a year if you think it would be better for you.
Either way, you must pay the balance of the income tax you think you owe at the same time as you make your declaration. You can either pay the whole amount when you submit your form or 60 per cent with the declaration and the remainder by the following 5th November. You can take your returns to the tax office where you’re resident for tax purposes and pay there or file your return and pay direct from your account at any of the designated banks in the area. If you pay at the tax office, payment must be made in cash (watch out for muggers!). If no payment is due, you must still file a return.
Most self-employed people end up paying too much tax, as their quarterly payments are set at 20 per cent of earnings, and are due a rebate. If you think this will be the case, you can apply for a rebate at the same time as you submit your tax return. If you haven’t paid enough, you will be sent a bill for the difference!
Known as Impuesto Extraordinario sobre El Patrimonio but usually referred to simply as patrimonio, this is a regional tax, which must be paid in addition to income tax (and at the same time) and is levied on residents and non-residents alike, although it affects non-residents differently.
- Residents: If you’re resident in Spain, your liability is based on the value of all your worldwide assets, including property, vehicles, business assets, cash deposited in bank accounts, jewellery, stocks and shares and anything else which might contribute to your wealth. You must produce your year-end bank statements, showing any interest received and an average balance.
- Non-Residents: Non-residents only have to declare their property and any assets in Spain butaren’t entitled to an allowance against wealth tax. The above tax rates apply.
This article is an extract from Making a Living in Spain. Click here to get a copy now.