Abogados Alicante

Wealth Tax in Spain

Income and wealth tax for non resident in Spain

Are you living in Spain and do you wonder if you have to pay wealth tax? The answer is probably yes, but let’s start from the begining.

What is the Spanish Wealth Tax?

The Wealth Tax in Spain is an annual tax, payable on the total net value of your assets held on 31st December. The total net value is understood as: All assets and rights of economic content owned by a natural person deducting charges and encumbrances which diminish its value, as well as personal debts and obligations.

Who pays Wealth Tax?

Wealth tax may catch you by surprise, as Spain is one of the few countries in which this extra tax is approved. Both residents and non-residents are subject to paying Spanish wealth tax. This tax does come with a series of Allowances, which means that many people are exempt from this tax, however, for wealthier individuals, it can have a significant impact.

The rules vary depending on your residency status in Spain and the region you are in, as several Spanish autonomous regions, including the Comunidad Valenciana, have their own tax laws in force, which allow them to set their own tax-free allowances and deductions or establish the levied tax rate they see fit.

Wealth Tax for residents

  • Pay tax on worldwide assets.
  • Have ample tax allowances.
  • Are entitled to a 500,000 € deduction per person in the C. Valenciana (700.000 € in Murcia).
  • Are entitled to a deduction of 300,000 € per owner on your main home.
  • Are required to submit the wealth tax declaration:
    • If after applying these allowances, the net result is positive.
    • If the total gross value of your goods exceeds 2 million euros.

Wealth Tax for non-residents

  • Pay tax on Spanish assets only.
  • From this year, with the introduction of the Law 11/2021, it includes the possibility of applying regional wealth tax regulations to non-residents in third countries (outside the European Union or the European Economic Area). It shall be the autonomous region in which your assets with greatest value are located.
  • Otherwise, you are entitled to a 700,000 € deduction per person.
  • Are required to submit a wealth tax declaration:
    • If after applying these allowances, the net result is positive.
    • If the total gross value of goods in Spain exceeds 2 million euros.
Taxable persons not resident in Spanish territory, when they operate through a permanent establishment or when the tax authorities requires it due to the amount and characteristics of the taxpayer’s assets located in Spain, have the obligation to appoint a representative before the tax authorities in relation to their obligations for this tax.

What is included in your Estate?

Main assets levied by the Wealth Tax

  • Real estate
  • Bank deposits and investments
  • Assets and rights owned by individuals related to professional or business activities
  • Luxury assets such as jewellery, fur coats, boats, fast cars and other vehicles
  • Art objects and antiques
  • Life insurance, life annuities and temporary annuities
  • Royal rights, administrative concessions and intellectual property rights

Spanish Wealth Tax exemptions

  • Household contents (excluding those above)
  • Works of art and antiques
  • Economic rights in some instruments such as pension rights
  • Business assets when they derive from a professional activity that must constitute your main source of income and must be carried out your own account and on a habitual basis.
  • Intellectual property rights in the author’s ownership
  • Shares in entities, listed or unlisted, with the following requirements:
    1. You own at least 5% of the share capital (or at least 20% including shareholdings belonging to a spouse or other family members)
    2. You carry out managerial duties for the company, perceiving a salary for such activities which is at least 50% of your total net earnings.
    3. Can´t have as its principal activity the management of movable or immovable property.

How is Wealth Tax calculated in Spain?

A taxpayer’s wealth takes into account the total net value of all assets. However, there are different rules that apply to calculate each individual value, depending on the type of asset. For example, homes are valued at the highest value between the purchase price, cadastral value or value set by the administration, whereas bank accounts will be valued by the highest balance between the 31st December and the average balance of the last quarter.

Once the assets have been valued, the allowances are applied. Also, Spanish Wealth tax is a progressive tax, so the higher the wealth the higher the tax.

Below you will find two tables comparing the National tax rate, which ranges between 0.20% and 3.50%, and the tax rate in the Comunidad Valenciana which varies very slightly ranging between 0.25% and 3.50%.

Spanish wealth tax rates

spanish wealth tax rates

Comunidad Valenciana wealth tax rates

comunidad valenciana wealth tax rates

How to reduce my Wealth Tax rate: The 60% limitation rule

As mentioned above, there are certain assets that are not subject to Wealth Tax. There are not many, but it is an aspect that can be taken into consideration before making any purchase or investment in order to reduce the amount of Wealth Tax payable.

However, if we want to reduce the amount of Wealth Tax payable, we can opt for another way of doing so, it is more complicated but also more effective.

This option consists of restructuring our investments. What is this specifically? There are some assets that can be taken into consideration within a period of time under the Spanish Wealth Tax laws. This implies that the sum of the full Wealth Tax liability together with the Personal Income Tax liability may not exceed 60% of the sum of the general and savings taxable bases for Personal Income Tax.

This limit is exclusive for all those taxpayers who are subject to the tax by personal obligation. Taking this into account we can play with our investments to reduce the cost of our Wealth Tax.

When do I have to submit my Wealth Tax Declaration?

Those required to submit a wealth tax declaration form in Spain will have from April to June 30th of each year, coinciding with the income tax period.

The IP is a strictly individual tax, so a married couple must submit one form each and for example the ownership of the property and rights which are common to both, shall be attributed in half to each of them. The form to be sent is the form 714.

Please note that tax rates, scope and reliefs may change and we advise that you to seek professional advice from Tax advisors who can take care of the Wealth Tax for you.

Frequently Asked Questions

Before answering this question, we must point out that there is no single answer, as the Autonomous Communities have the power to establish their own wealth taxes. One thing that is the same in any part of Spain is that the higher the wealth, the higher the percentage to be paid, as it is a progressive tax. If we take as an example the national rate, which is applied in those Communities that do not have their own tax, the wealth tax ranges between 0.2% and 3.5%.

Yes, wealth tax in Spain is payable annually and is levied on the total net value of the assets registered on 31 December. Therefore, it is a tax that must be paid in the scheduled period each year as long as we are within the established scales.

Although there are similarities between the two taxes, such as the fact that both are paid annually, they are not the same. While the property tax only accounts for real estate, the wealth tax accounts for all assets: Real estate, bank deposits, investments, all type of assets and rights, etc.

The main difference between these two taxes is that Income Tax is levied on annual income, all the money that has been earned in that particular year; income from real estate (rents), interest, salaries or dividend payments, for example.

Whereas Wealth Tax is levied on the personal fortune or wealth; i.e. the net wealth of individuals, the set of assets and rights of economic content of which they are the owner, minus the charges and encumbrances that reduce their value, as well as the debts and personal obligations for which the owner is liable.

Apart from Spain, Wealth Tax is also paid in other countries such as Liechtenstein, Norway, Switzerland and France, among others.