Understanding Personal Taxation

Personal taxation is complicated at the best of times. Also, as you would expect, the tax system is constantly changing. Most taxes in Spain are based on self-assessment where the individual is liable to report and calculate any tax due. Since we all have difficulty doing this, the average new resident or non resident, grappling with the language of the Spanish tax system has little chance of getting this correct. Enter the gestor who will not only perform these administrative tasks but may even suggest legitimate methods of tax avoidance.

A gestor acts as an intermediary between Spanish officialdom and the general public, being a registered agent dealing with government departments. It says much about the Spanish way of life that such a person is necessary to deal with its wearisome bureaucracy. Gestors are well respected. They are competent, highly qualified administrators.

What do they do? For the Spanish they simply deal with the complicated mass of paperwork. For foreigners they do the same, particularly with taxation. It is important to note that a resident with only one Spanish property may make a declaration personally but if they own two or more properties then a qualified tax adviser, such as a gestor, has to make the declaration on the owner’s behalf.

Spain is not a tax haven. Its level of taxation is, however, generally low. The Agencia Estatal de Administracion Tributaria collects government taxes but it is commonly called by its old name, Hacienda. The Spanish tax year is 1 January to 31 December. Tax returns must be presented between the 1 May and the 20 June.

A non resident spends less than six months per year in Spain. A Spanish resident is one who spends more than six months per year in the country, who has a Residencia and has notified the tax authorities back home of his or her departure on form P85. This triggers entry into the Spanish tax system, which has a treaty with other European countries designed to ensure income already taxed in one country is not taxed again in another.

To complete a full tax return, some documentation is necessary.

• Details of an Número de Identificación de Extranjero (NIE) number, address, age and marital status.
• Proof of income.
• A year-end bank statement showing interest paid and average balance.
• A recent Impuesto sobre Bienes Inmuebles statement (known as IBI – local rates).
• Details of mortgages, sale or purchase of any property, the cost of any home extension.
• Receipts for any tax paid in another country.
• Details of any changes in stocks, shares, investments, insurance policies, major assets and artefacts.

There are five main taxes administered by the Hacienda which a resident and non resident will have to deal with:

• Property taxes.
• Income tax (Impusto sobre la renta de las personas fisicas).
• Capital gains tax.
• Wealth tax (impuesto sobre el patrimonio).
• Inheritance tax (impuesto sobre sucesiones y donaciones).

Is It Better To Form A Company?

A buy-to-let investor with more than one letting property in Spain would do well to consider the benefits of forming a company. Make sure the company is legally registered and is paying all the correct taxes for being engaged in a multi-site activity or providing hotel-type services.

This moves the investor into a new legal area. It is now a business, which opens the door to IVA (value added tax) and more importantly the deduction of expenses, such as maintenance and depreciation. Put another way, taxes are paid on the profit made rather than on the income of the individual.