By Pablo de Ronda, 4 October 2022
If you are a foreigner who spends more than 183 days a year in Spain you are, with a few exceptions, required to pay your taxes on worldwide income in Spain, to the Agencia Tributaria, commonly known as Hacienda.
Two recent announcements, one by the national government and the other by the regional assembly, are of particular interest to many foreigners, in that together they represent a significant tax break.
Whilst tax rules are set by central government, the autonomous communities, ie regions, have the right to vary them.
First things first, on Thursday last, 29 September, the Spanish government led by prime minister Pedro Sánchez (PSOE – socialist), approved a new two-year fiscal package, which will come into force in 2023.
The measures include a reduction in personal income tax for those earning less than 21,000 euros a year. This applies to all who pay their taxes in Spain, ie Spanish citizens and foreign residents.
This change will take effect from 1 January 2023 and last until the end of 2024. The government estimates that the reduction in personal income tax will save taxpayers a total of 1.8 billion euros over the two years.
Finance Minister María Jesús Montero explained that until now the reduced rate of income tax (IRPF – Impuesto sobre renta de personas físicas) has only applied to people with an annual income of less than 18,000 euros. Now the limit is to rise to 21,000 euros and those whose income is under 15,000 euros will be exempt from this tax altogether.
The second tax break, announced by the recently elected Gobierno Regional de Andalucía (Partido Popular – the People’s Party – conservative) has announced a significant change which is specifically aimed at foreign non-residents who own property in Andalucía.
The so-called Wealth Tax, Impuesto de Patrimonio, whereby non-resident property owners are liable to pay an annual tax on their property, is to be abolished completely, or to be more precise, will be subject to a 100% discount.
The Junta de Andalucía and President Juanma Moreno hope that the abolition of this tax will encourage 100,000 foreigners to make Andalucía their official home and will be decisive in attracting foreign talent and investment.
The Junta has set a target of getting 100,000 foreigners who reside in Andalucía for more than six months a year to register on the padrón (electoral roll).
Sources at the regional government say the decision to get rid of the tax was made after considering the results of several studies into the potential impact of the move.
These studies indicated that a large number of wealthy foreigners who spend most of the year in Andalucía are not empadronados, ie they are still officially registered as resident in their home countries.
The Junta also has information which shows that during the pandemic there was an influx of wealthy foreigners to Andalucía because they were able to work remotely. Many company directors were among those who made the Andalucían coast their second home.
Now that they no longer have to worry about the Wealth Tax, the Junta believes these people can be convinced to change their status and become officially resident in Andalucía and to register on the padrón.
The Junta also expects the measure to dissuade people from moving to Portugal, where an attractive tax scheme for foreign residents has already been introduced.
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So, in fiscal terms, September has turned out to be a very good month for foreigners. These measures, introduced in the wake of the cost-of-living crisis brought about by a combination of the pandemic, the war in Ukraine and the energy price hike, will make many a guiri rub his hands with glee. This resident will be happy about the increase in the personal allowance and many of his non-resident property-owning friends will be delighted about the 100% discount on their Wealth Tax.
Sources: DiarioSUR, SUR in English