Relocating to Spain opens up a world of new experiences—whether it’s enjoying long lunches with new friends, exploring pretty white-washed villages, or the more relaxed way of life. But before you get too comfortable, there’s one important aspect to consider—your taxes. Moving abroad comes with its own set of financial responsibilities, and Spain’s tax system can be tricky to navigate. In this fourth installment of our How to Move to Spain series, created with IberianTax, we’ll highlight the common tax mistakes expats make, the latest legal changes, and practical tips to keep your finances in order without the stress.

To help you avoid common pitfalls and make sure you’re on the right track, we’ve partnered with IberianTax. They’ve put together the following expert advice to guide you through the key tax considerations for anyone moving to Spain.

Common Tax Mistakes Made by Expats Moving to Spain

When moving to Spain, expats often make avoidable tax mistakes that can lead to hefty fines or other consequences:

• Misunderstanding Residency Rules: A common error is not fully understanding Spain’s tax residency rules. If you spend more than 183 days in the country during a calendar year, you’re considered a tax resident for the entire year. For instance, if you move to Spain in April 2024 and stay more than 183 days, you’ll be taxed on your worldwide income starting from January 1, 2024, not just from the date you arrived.
• Non-Resident Property Owners Failing to File: Non-residents who own property in Spain must file the annual non-resident income tax return (Modelo 210), even if they don’t rent out their property. Spain taxes imputed or deemed income—a notional income based on the administrative value of the property—even if you’re not earning actual rental income. Non-resident property owners often overlook this obligation, which can lead to fines.
• Failing to Declare Worldwide Income: As a tax resident, you’re required to declare all worldwide income, including foreign salaries, pensions, rental income, and investment returns. Expats sometimes assume they only need to declare Spanish-sourced income, which can result in underreporting and penalties.
• Overlooking Tax Consequences of Pension Withdrawals: Expats often forget that pension withdrawals may be taxed differently in Spain than in their home countries. For instance, while some countries like the UK allow tax-free lump-sum withdrawals, Spain taxes pension withdrawals—including lump sums—at progressive income tax rates. Poor planning in this area can lead to unexpectedly high tax bills.
• Ignoring the Requirement to File Modelo 720 for Foreign Assets: For tax residents, failing to declare foreign assets (bank accounts, investments, properties) valued over €50,000 through Modelo 720 can result in severe penalties, although this doesn’t apply to non-residents.

Recent Changes to Tax Laws Expats Should Be Aware Of

Spain’s tax laws are complex and have seen recent updates that may benefit expats:

• Updated Beckham Law: The Beckham Law has been revised, reducing the prior non-residency requirement from 10 years to 5 years, making it more accessible. This law allows expats to benefit from a flat tax rate of 24% on Spanish income, while foreign income and assets are exempt from tax obligations in Spain. For expats and remote workers, this law can offer significant tax savings if they qualify.
• New Reporting Requirements for Non-Residents: Starting in 2024, non-residents who rent out property in Spain are no longer required to report rental income quarterly. Instead, they can report it annually, simplifying the process for non-resident property owners.
• SEPA Accounts for Direct Debit: The Spanish tax authorities (Agencia Tributaria) now accept SEPA accounts for direct debit payments, allowing expats with bank accounts in any SEPA (Single Euro Payments Area) country to easily manage their tax obligations in Spain

Key Differences Between the Spanish Tax System and Other Countries

It’s important to be aware of how Spain’s tax system differs from others, particularly for non-residents and property owners:

• Tax Year Difference: Spain’s tax year follows the calendar year (January 1 to December 31), while in countries like the UK, the tax year runs from April 6 to April 5. This discrepancy can cause confusion for those transitioning between the two systems.
• Non-Resident Property Tax (Modelo 210): Even if you’re classified as a non-resident, owning property in Spain means you must submit an annual Modelo 210 return. This return applies to both rental income and imputed income, even if the property is not being rented out.
• Double Taxation Treaties (DTTs): Spain has double taxation treaties with many countries to prevent income from being taxed twice. For instance, non-residents who invest in Spanish shares face a 19% withholding tax on dividends, but under many DTTs (e.g., with the UK), this can be reduced to 10%, allowing for a refund of the excess tax paid.

Effective Tax Planning Strategies for Expats

Expats moving to Spain can reduce their tax burden with the right strategies. Here’s how:

• Maximize the Beckham Law: If you qualify, the Beckham Law allows you to benefit from a flat tax rate and exemptions on foreign income. This can be particularly beneficial for remote workers and other highly skilled professionals who meet the eligibility requirements.
• Realize Capital Gains Before Moving: If you have investments or assets that have appreciated in value, it may be advantageous to realize capital gains before you move to Spain and become a tax resident. Spain’s tax system can impose higher capital gains tax rates, especially compared to other countries. By selling assets or cashing out investments before your tax residency status changes, you can often reduce your exposure to Spanish taxes on these gains.
• Plan Pension Withdrawals Strategically: Expats nearing retirement should carefully plan how and when they withdraw funds from their pensions. In countries like the UK, some pension withdrawals may be tax-free or taxed at a lower rate, but in Spain, pension withdrawals (whether lump-sum or regular payments) are generally taxed at progressive income tax rates. If possible, consider withdrawing a portion of your pension before becoming a Spanish tax resident to take advantage of tax-free or lower tax rates in your home country.
• Use Double Taxation Treaties: Double taxation treaties between Spain and your home country ensure that you won’t be taxed twice on the same income. Understanding how these treaties work can significantly lower your tax obligations.
• Plan for Wealth and Property Taxes: Wealth tax applies to residents with global assets exceeding certain thresholds, and property owners must remember to file Modelo 210 annually for imputed income, even if their property isn’t rented. Planning ahead helps manage these obligations smoothly.

Ensuring Compliance with Spanish Tax Laws

Staying compliant with Spanish tax laws is crucial for avoiding financial penalties. Here are the key tax forms expats should be aware of:

• Modelo 100 – La Renta: Tax residents in Spain are required to file Modelo 100, the annual income tax return, to report all worldwide income. This includes salaries, pensions, rental income, and other earnings.
• Modelo 210 for Non-Residents: Non-resident property owners must submit Modelo 210 annually to declare the non-resident income tax, which applies to both rental income earned in Spain and deemed rental income.
• Modelo 720 for Foreign Assets: Tax residents in Spain with foreign assets exceeding €50,000 must declare them using Modelo 720. Failing to comply can result in severe penalties, although this obligation does not apply to non-residents.

Consequences of Non-Compliance with Spanish Tax Laws

Failure to comply with Spanish tax laws can result in serious consequences, ranging from fines to legal action. It’s essential to stay on top of your tax obligations:

• Fines and Penalties: In Spain, fines for non-compliance generally range from 50% to 150% of the tax due. However, if you voluntarily submit your tax return before the tax authorities request it, surcharges are typically much lower—capped at 15% of the tax due for late filings.
• Legal and Financial Consequences: Persistent non-compliance can lead to more severe outcomes, including asset seizures.

Whether you’re an expat living in Spain or a non-resident property owner, it’s crucial to understand your tax obligations. From ensuring you file Modelo 210 for non-resident property taxes to handling more complex cross-border tax issues, proper planning can help you avoid costly penalties. At IberianTax.com, we specialize in assisting non-residents with Modelo 210 and other non-resident tax matters, ensuring you meet your obligations smoothly and efficiently. Contact us today for expert assistance tailored to your needs.

Navigating Spain’s tax system doesn’t have to be overwhelming. With the right information and expert guidance, you can ensure that your move is as smooth financially as it is personally. A big thanks to the team at IberianTax for sharing their insights in this guide. If you’re looking for more information about your tax situation, be sure to check out their website and follow them on social media for more tips and updates. They’ve got the expertise to make managing your taxes in Spain a whole lot easier.

IberianTax website: Click Here

Instagram: Click Here

Facebook: Click Here

Image:Pexels/Nataliya Vaitkevich

Let us know what you think in the comments…

Thank you so much for your support! Reach out to us on Facebook and Instagram

For those interested in relocating to Spain we have created a Facebook Group How to Move to Spain to help you throughout the process. We will provide helpful free printables to keep you on track, online events to inform and support your journey, and above all create a community where you can ask questions and get advice. Please feel free to join!

Join Facebook Group