Tax planning for residents of Spain

Spain- a beautiful country with high taxes

Today we are in beautiful Marbella and we will be talking about taxes in Spain.

Marbella is a tourist haven of Spain, one of the most attractive areas in Europe for retirement. It’s sunny and warm even in October and real estate is remarkably cheap, so it doesn’t surprise why many people choose it for a second home.

It also feels quite upscale, you can immediately notice that there are plenty of well off people in this city.

The only problem in here? Spanish taxes, of course!

For personal taxes, the highest marginal rate is 48%, which is pretty high. Dividends and capital gains are taxed at a slightly better rate but are still quite high.

Corporate tax rate in Spain is 25%

How to reduce my taxes in Spain?

How to structure when in Spain?

You could be in a situation where you can take the advantage of the special tax system called ‘’La ley Beckham’’ or the ‘’Beckham law’’.

This law can make it possible that you only pay taxes on locally earned income. Most people who would qualify for lowered taxes under this regime would need to employ themselves, and pay themselves a salary of 100 000 EUR on which they would need to pay taxes, at the rate of 37%. This means that you’ll need to pay 37 000 EUR in taxes, and the rest of the income you will be able to receive tax-free if you have a real foreign business going on abroad.

This is a great opportunity for people who have genuine business and operations outside of Spain.

What if you can’t take advantage of this law?

Well, first of all, management and control is the name of the game in this case. Rules are very tight and it is not easy to go around them. You will need to have a company with real and effective management and control outside of Spain.

Besides this, to trigger their CFC rules you’d need to own as little as 25% of shares in a foreign company.

You could play around with trusts to make your situation better, even though Spain as a country doesn’t have trust in its jurisdiction.

There is also participation exemption. You could have a Spanish company that would bring money from a foreign company into Spain tax-free. However, there are plenty of rules around this. They will require to pay taxes abroad at a fair rate, at least 10%, they will also be looking for substance.

There are some exemptions if you come from another EU country, and also if your company is in a country with which Spain has concluded a tax treaty.

So to sum it up:

  1. You will need a real foreign company with substance abroad
  2. That company will need to be in the country with a favorable tax rate

You will still need to pay taxes on dividends received from abroad, but at least you can defer. This will not bring your taxes down to zero but will improve your current situation.