Taxes in Spain: what is IRPF?

There are different taxes in Spain that you should take into account if you are thinking of establishing your company in this country. Among the main direct taxes applicable in Spain, we find the Personal Income Tax (IRPF). In this article we are going to see what this tax consists of and in which cases it should be applied.

Understanding IRPF

According to the Agencia Tributaria, IRPF is a direct tax levied on income as an immediate manifestation of the economic capacity of citizens, in accordance with the principles of equality, generality and progressivity and in accordance with the personal and family circumstances of individuals.

This tax, which is one of the pillars of Spain’s tax system, is currently governed by Law 35/2006, of November 28, on Personal Income Tax, which has been amended by Law 26/2014, of November 27, 2014, and by Royal Decree 439/2007, of March 30, 2007, approving the Personal Income Tax Regulations.

Persons subject to the tax

Personal Income Tax (IRPF) applies to individuals who are tax resident in Spain. They are taxed on their worldwide income.

The following persons are subject to personal income tax (PIT):

  • Individuals habitually resident in Spanish territory.
  • Individuals of Spanish nationality who are habitually resident abroad but fulfill any of the conditions laid down in the law (e.g. diplomatic and consular services, etc.).
  • Moreover, any Spanish national who establishes his residence for tax purposes in a tax haven will remain subject to PIT (for the year in which residence is changed and for the following four years).

When is a taxpayer considered to be resident in Spanish territory?

A taxpayer is considered to reside in Spanish territory when he spends more than 183 days in Spain in a calendar year or when the main base of his business or professional activities or economic interests is in Spain.

Workers assigned abroad: Personal Income Tax legislation establishes a very large exemption on income earned by workers who are tax resident in Spain but work abroad for a non-resident company or entity, or a permanent establishment abroad. This exemption applies to up to 60,100 euros a year, provided certain requirements are met.

If you are thinking of setting up your business in Spain and need more information about taxes in Spain, do not hesitate to contact us.

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