Spain ¿Pensioners’ paradise?

por | Nov 24, 2021 | Internacional, Personas y Patrimonio

During those golden years, when people finish their working life, or it is no longer intense, and the children already have their independent life, there is nobody left at home and there is a stable health condition. It is when countries like Spain, and specifically certain areas such as the Costa de la Luz, become highly attractive for European tourists who, if all goes well, will stop being tourists and become residents.

According to the recent analysis of the Real Instituto Elcano, there are currently around two and a half million non-Spanish Europeans living in Spain. About 525,000 residents do so as retirees, and settle mainly in Andalusia and the Balearic Islands, due to the wonderful landscapes and awesome weather conditions.

Why is it important to register?

The local town councils are delighted with this immigration, but they complain about the lack of registration of some of the European residents. That is why sometimes they do not calculate well the services, having a deficit of resources, as may be the case of primary care in hospitals.

The Spanish National Research Council (CSIC) realized a report that was the result of an extensive survey in which they asked the causes of the non-registration of resident tourists. The most recurrent answer being the fear of having to pay taxes in Spain, losing certain rights and benefits in their countries of origin. It is important to know that taxes will only be paid in Spain if the habitual residence of the person, also known as the taxpayer, is in this territory. This requirement is fulfilled if the person stays in Spain for a period of 183 days or more per year, or if the main nucleus or the base of his activities or economic interests is located in Spain (art 4 and 9 of the Spanish Personal Income Tax Law).

What taxes do you have to pay for obtaining the money from your retirement?

The tax to which both the obtaining of a retirement pension, as well as losses and capital gains, such as income from movable capital (e.g. dividends from stocks or shares) and income from real estate capital (e.g. income from renting a house),is subject to is the personal income tax (IRPF).

The IRFP is a tax for all individuals whose taxable event (reason for which the tax authorities require payment) is the obtaining of an income. It is a progressive tax, which means that not only one tax rate is applied (a specific %), if not a series of percentages are applied according to the table contained in the Spanish Personal Income Tax Law.

Base imponibleTipo a aplicar
Desde 0 € hasta 12.450 €19%
Desde 12.450 € hasta 20.200 € 24%
Desde 20.200 € hasta 35.200 € 30%
Desde 35.200 € hasta 60.000 € 37%
Desde 60.000 € hasta 300.000 € 45%
Más de 300.000 € 47%

For instance, if my salary is 20.000€ I will apply 19% to my 12.450€ and 24% to my 7.550€, being my maximum taxation of 20,88%, because I apply a different tax rate (%) to each bracket of what I receive, depending on what the table of the IRPF brackets mark/check.

Is there any way to reduce this taxation?

If you are over 65 years old, you have a child with special abilities under your care, or dependant parents, this section will interest to you. The law establishes some benefits for these people allowing them to subtract from their taxable base (total money you receive for income), “the minimums”, to reduce the amount you will be taxed on, being lower the result of applying the percentage to that base, and therefore the tax is lower.

The tax regulation also grants some reductions in cases such as contributions to social welfare funds, pension plans, contributions to protected estates of people with disabilities, or for compensatory pensions under certain requirements.

Another great way to reduce taxation is to set up tax residence in the neighboring country, Portugal.

Is taxation in Portugal a good option?

The tax there is called Impuesto sobre la Renta de las Personas Naturales (IRS), which is approved and delimited in Decree Law 442-A/88 of November 30. In recent years Portugal has become a tax haven for new residents, thus look for attract huge fortunes, promoting the economy of its territory. That way, in 2009, by the Decree Law 249/2009 of September 23, 2009, was created the figure of non-habitual resident which, in the case of pensions, allows retirees to be taxed only 10% of the taxable base, although this regime only lasts for 10 years, extendable if the concerned person complies with some requirements. If these requirements are not fulfilled, taxation will be in accordance with the table of brackets established in Portuguese law.

Conclusion

Portugal’s tax regime is very advantageous for non-habitual residents. The problem is that, as soon as the current regime ends, taxation in Portugal from 80,000€ per year is even higher than in Spain. So, if a person earns 350,000 euros in Spain and Portugal, he or she would be taxed by 10,197.28 euros more per year in Portugal than in Spain. Taking into account the discomfort of changing the tax residence from Spain to Portugal for those who want to reside in Spain without having to face its taxation, they should examine their specific situation to make sure about take the most convenient option. We will examine your situation and advise you on, by guaranteeing you to take the decision with all the necessary legal information, adapting to your case and your particular needs. Our team is here to provide you with further legal assistance.

Amelia Arbide Pozo (Colaboradora)

Jesús Bores BoleoLegalabogado especialista en derecho de Empresa e Inversión extranjera directa
Jesús Bores-Lazo,
Managing Partner
Head of International Dept.
Tiago Matos
Associate
Head of Portugal, Africa and Brazil

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