The Spanish tax system


Before starting a business in Spain or starting work there, it’s important to find out what your tax liabilities are. Before you make any decisions, and certainly before you move to Spain, it’s advisable to consult a tax adviser who’s familiar with taxation laws both in your home country and in Spain.

That way you can prepare well in advance for the move and hopefully reduce your tax liability in both countries. You should also inform the tax office in your home country of intended your move abroad, as you may be entitled to a tax refund, although this will depend on a number of factors.

In the UK, the Inland Revenue has a Centre for Non-Residents ( ), which can provide the necessary information. They will need evidence that you’re moving abroad and should give you a form P85 to complete. It’s a good idea to do this with the help of your tax adviser, as the form will be used to decide where you will be resident in Spain for tax purposes. The Inland Revenue can also advise you about your tax situation in general and any double-taxation agreement that your country has with Spain. Double-taxation agreements have been set up so that you don’t have to pay tax in two countries at once, so it’s important to check this.

Two good sources of information on tax issues, both personal and corporate, are the website for the Spanish Ministry for Industry, Tourism and Trade (  – available in English) and the website of the Spanish Commercial Offices in the US ( ), which is also available in English. Both these sites are useful when you’re initially looking at the tax implications of your venture and subsequently.

Tax levels in Spain

Back in the ’60s and the ’70s, taxes were very low in Spain and tax evasion almost a way of life. Although there have been increases over recent years, Spanish income tax rates are still among the lowest in Europe and there are a myriad of tax concessions and allowances both for companies and individuals, depending on your circumstances. The tax authorities have also begun to realise that inefficient and complicated tax collection is costing them money!

Consequently, there have been some major tax reforms in the last few years, which are designed to make things easier for the taxpayer as well as to cut down on fraud: along with it being easier for you to declare your income correctly, you’re more likely to incur heavy penalties if you don’t. Large fines are incurred for serious breaches of tax law and tax evasion. Although there are still many ‘fiscal nomads’ (those who manage to avoid being resident in any country for tax purposes) in Spain, they’re beginning to find it more difficult to avoid paying Spanish taxes. If you think you can escape the taxman by moving to Spain, forget it!

Accountants and financial advisors

Nevertheless, Spain is no different from any other country in the sense that there are ways of taking advantage of the system legally. Once you begin to move ahead with your plans, and even after you’ve started a business, you will also need to check that you’re up to date with the ever-changing tax requirements. For these reasons, you should engage a reputable financial adviser or accountant. Your lawyer may be able to recommend an accountant or you can ask people you trust for their recommendations; this is always a good bet in Spain.

Many foreigners hand over all their tax affairs to their adviser or accountant, and this makes sense, especially if your Spanish isn’t fluent. He can deal with your own and your employees’ income tax and social security contributions, your VAT returns and your end of year tax returns. However, as with so many areas of your new life in Spain, it’s vitally important that you’re always aware of what other people are doing on your behalf and in your name (or company name). Specialist legal and financial procedures must always be left to qualified professionals, but try and be as informed as you can and make sure you have a rough idea of what your accounting obligations are right from the word go.

Complicated taxation system

Despite recent reforms, the Spanish taxation system is still complicated. It’s important to understand that the country as a whole operates on three levels: national, regional and local or municipal – particularly when it comes to taxation. National taxes are levied by the Spanish central government tax agency, the Agencia Estatal de Administración Tributaria, whose website ( ) has some useful information, but most of it only in Spanish. Its headquarters are in Madrid, but its assessment and tax collection centres are in provincial capital cities. Regional taxes levied by autonomous community governments and local taxes by municipal authorities.

If you’re lucky enough to live in Alicante province, you can obtain lots of help and advice (in English, French or German) on all kinds of local and regional tax issues, including payment of the local council tax ( IBI), the tax on economic activities ( IAE) and the vehicle registration tax ( IVTM), from an organisation called SUMA, which is part of the Alicante Provincial Council. SUMA calls itself the ‘autonomous organisation for tax management in Alicante’ and aims to make tax paying a simpler business! Even if you don’t live in Alicante, you can find a lot of useful general information on the SUMA website (  – in English, Spanish and Valenciano), but check that it applies in your area. SUMA also runs a telephone enquiry service (965 148 561), which is available from 9am to noon on Mondays, Wednesdays and Fridays in English, French and German.

This article is an extract from Making a Living in Spain. Click here to get a copy now.

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