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TAXES

EXPLAINED: The key changes to Spain’s 2023/2024 annual tax return

Spain's annual tax return period kicks off on Wednesday April 3rd, and there are several changes you should know about for the 2023/24 tax return, known as 'la renta' in Spanish.

Published: 2 April 2024 12:57 CEST
Updated: 6 April 2024 10:59 CEST
EXPLAINED: The key changes to Spain's 2023/2024 annual tax return
Photo: charlesdeluvio/Unsplash.

It’s that time of year again in Spain – tax season!

Personal income tax is known as IRPF in Spain (Impuesto sobre la Renta de las Personas Físicas) but most Spaniards simply refer to it as la renta because the  tax return itself is called la declaración de la renta.

This year, you must file your taxes for the previous financial year – that is to say, 2023. The campaign starts on Wednesday 3 April 2024.

From that date, you can present your taxes for 2023 online, and the campaign this year runs until July 1st.

Key dates for Spain’s 2023/24 tax return

For the 2023 fiscal year, you must file your tax return between April 3rd-July 1st 2024.

The key dates are as follows:

April 3rd – July 1st 2024: online filing
May 7th – July 1st 2024: by telephone (appointment request from 29 April-28 June)
June 3rd – July 1st 2024: in person at its offices (appointment request from 29 May-28 June)

Key changes to Spain’s 2023/24 tax return

Self-employed

As of 2024 all self-employed people (known as autónomos in Spanish) are now obliged to file a tax return, regardless of their income level. Previously, only those who earned more than €1,000 a year had to make an IRPF declaration.

Self-employed workers who are taxed in the module regime will see the reduction on net returns increase from 5 percent to 10 percent, and those who work from home can make a deduction of up to 30 percent on expenses related to their work activities.

Self-employed people taxed under the estimation system, which you can read more about here, will now be able to make an additional deduction of 2 percent, raised to 7 percent.

The types of tax deductions those on this type of regime can apply include:

  • Monthly Social Security contributions
  • Deductions for the vehicle usage (if it applies to your business)
  • Deductions for business-related training expenses
  • Special deductions, such as research and development expenses
  • Tax relief at a regional level

READ ALSO:

Electric vehicles

Taxpayers who bought (and registered) an electric vehicle in Spain in 2023 will be able to deduct 15 percent of the total purchase value, including expenses and taxes. They can also exclude any public subsidies they have received to aid the purchase with a maximum base of €20,000.

They can also deduct 15 percent up to a maximum base of €4,000 for the installation of a charging point.

Maternity deduction

Previously, only working mothers could benefit from a deduction (€1,200 per year for each child under the age of three) when making their tax return.

Now, even if the mother was not working but collecting unemployment benefits at the time of the birth, or if she subsequently paid social security contributions for 30 days or more, she will be able to benefit from this deduction and even apply for an advance payment of €100 per month.

READ MORE: The tax deductions you get in Spain for having a child

Capital gains increases

The tax rate on capital gains income has been raised by a percentage point to 27 percent for income over €200,000.

For capital gains over €300,000, it’s been raised to 28 percent.

READ ALSO: Spain’s plusvalía tax on property sales: What you need to know

Startup companies

From 2023 onwards, deductions for new and startup companies in Spain have improved. Taxpayers may deduct from their tax liability up to 50 percent of the amounts paid for shares or holdings in new or recently created companies, the maximum deduction base being €100,000 per year.

READ ALSO: Which startups succeed in Spain (and which ones fail)?

Our journalists at The Local are not tax experts. This article is intended to be informative, but you should always seek the advice of a tax or legal expert before making decisions.

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TAXES

How foreigners in Spain’s capital can pay less tax with the new Mbappé Law

The regional government of Madrid is finalising the approval of the so-called Mbappé Law, a very favourable new personal income tax regime for foreigners who settle and invest in the Spanish capital.

Published: 23 April 2024 16:44 CEST
Updated: 27 April 2024 08:19 CEST
How foreigners in Spain's capital can pay less tax with the new Mbappé Law

Similar to Spain’s Beckham Law, introduced in 2005, this piece of legislation is named after a famous footballer who will be the first to benefit from lower tax rates, as will other foreigners in Madrid.

Kylian Mbappé is a French footballer who currently plays for Paris Saint-Germain, but looks set to sign for Real Madrid this summer.

The objective of the right-wing Madrid government of Isabel Díaz Ayuso is to attract more foreign investment to the region with beneficial fiscal rates.

READ ALSO – Beckham Law: What foreigners need to know about Spain’s special tax regime

Unlike the Beckham though, the Mbappé Law is only designed to benefit foreigners who move to the region of Madrid, it’s not open to those who want to move elsewhere in Spain.

Also unlike the Beckham law, foreigners will only be able to reap the rewards of the Mbappé Law if they invest money into the region. This could be in the form of investments in companies or in vehicles, but it cannot include investments in property.

Specifically, applicants will be able to deduct 20 percent of all the money they invest in the Madrid region.

The law applies to regional personal income tax, which accounts for approximately half of entire tax payments in Spain, since the other part corresponds to the State’s collection.

Normally, a foreigner like Mbappé will be taxed in the highest income bracket, as they will earn well over €300,000 gross per year.

When the law is finally approved however, Mbappé could avoid paying the regional income tax entirely, in the event that 20 percent of his Madrid investments represent the same amount that he would have had to pay in taxes on his salary.

READ ALSO: Why you should move to this region in Spain if you want to pay less tax

How will the Mbappé Law work?

For example, if Mbappé earned €40 million gross (not his actual salary), he would normally be charged €18 million in personal income tax.

Of this, 24.5 percent would correspond to the state tax, and this would have to be paid as normal. This means the state would collect €9.8 million from him in tax.

The change happens with the rest of the tax – the regional tranche. If he doesn’t make any investments, which now seems unlikely, he would have to pay €8.2 million in tax to Madrid.

If on the other hand the French superstar invested €40 million in Spanish companies or state bonds – he could deduct €8 million, which represents 20 percent of that amount.

This would mean that Mbappé’s tax rate would remain at 24.5 percent, a marginal rate that is slightly higher than the personal income tax for a worker who earns €20,000 and receives around €1,300 net per month.

As a percentage, of course, the amounts in Mbappé’s case are going to be huge. So, instead of paying €18 million in total, he would only pay €9.8 million.

Overall, this legislation signals that Madrid will become even more attractive to foreign investors.

By contrast, those who move to Catalonia will have to pay 25.50 percent in regional income tax, which added to the 24.5 percent of the state tax would increase personal income tax by half. So as a Real Madrid player Mbappé would earn €30.2 million, but if he signed for Barça he would pocket €20 million.

What’s the catch?

There are a few caveats to the new law, which primarily depend on how long you stay in Madrid. The new regulations establish that you have to stay and live in Madrid for a total of six years. If you leave before those six years are up, then you will be forced to return part of the tax savings you made.

What does this mean for Madrid?

The regional government of Madrid estimates that 30,000 foreign investors could choose to move to the region specifically in order to benefit from the new law and that it will cost the public coffers €60 million per year.

The idea is that Madrid will continue to attract foreign investment. Madrid’s leader Isabel Díaz Ayuso recently claimed that: “Two out of every three euros that arrive in Spain as an investment from abroad do so in projects that are developed within the Community of Madrid. In the last decade, the flow of investments has doubled”.

Madrid already has some of the best tax incentives in Spain. Residents pay less tax on their income, assets, inheritance and property transactions and conditions are beneficial to high-income earners in particular.

Financial experts agree that Madrid is among, if not the top region, with the most lenient tax system in the country, and when the Mbappé law comes into force, the region will benefit from even more incentives.

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