Spanish Non-Resident Income Tax: Key Regulations and Taxation

Spanish Non-Resident Income Tax (IRNR)

Applicable Regulations

• Royal Decree 5/2004 of March 5, approving the Revised Law on Income Tax for Non-Residents.
• Royal Decree 1776/2004 of July 30, which approves the Regulations of the Income Tax for Non-Residents.

Defining Tax Residency

Resident Individuals

Those who reside in Spanish territory for more than 183 days (six months). Also considered resident in Spain are individuals who have their seat of economic activity here. Therefore, they will be taxed under Personal Income Tax (IRPF).

Resident Legal Entities

Article 8 of the TRLIS states three assumptions for a legal entity to be considered resident:

1. Incorporated under Spanish law.
2. Having their registered office in Spanish territory.
3. Having their place of effective management in Spanish territory.

Taxable Income for Non-Residents

Taxable income is that obtained in Spanish territory by a non-resident entity or individual. The non-resident may be a legal entity or a natural person. A connection to Spanish territory is required, and this connection varies depending on whether the income is from investments, capital gains, or economic activity/employment.

The regulation distinguishes between non-residents acting through a permanent establishment (PE) and non-residents operating in Spanish territory without a permanent establishment (non-PE).

Non-Residents Without a Permanent Establishment (Non-PE)

This is regulated in Articles 24 to 30 of the TRLIRnR. Income subject to tax is taxed separately for each accrual. To determine the taxable income, we distinguish between types of returns:

Employment Income

For employment income, the taxable income will be the full amount; no expenses can be deducted. Regarding the tax rate, a general rate and a specific rate for pensions are distinguished. Accrual occurs upon the enforceability of performance.

Capital Income

For capital income, the taxable amount is the full amount; no expenses can be deducted. Regarding the tax rate, distinctions are made for dividends, interest, life insurance, and fees. Accrual occurs upon the enforceability of performance.

Capital Gains

For capital gains, the same rules as for Personal Income Tax capital gains apply. Regarding the tax rate, distinctions are made based on the nature of the capital gain, such as from the transmission or disposal of assets. Accrual occurs upon the transfer or disposal of the asset.

Income from Economic Activity

For income from economic activity, the taxable amount will be gross income minus expenses for personnel, provision of materials, and supplies. No other expenses can be deducted. Regarding the tax rate, a general rate and a specific rate for royalties are distinguished. In this case, the taxpayer must maintain an income and expense ledger. No partial payments are required.

Filing Deadline

The general deadline for filing is one month from the date of accrual.