Who pays, and on what
Articles 5, 6, 12 and 13 of the Non-Resident Income Tax Act, in English, with a note on each one explaining what it actually catches.
Why these four articles
Four articles decide whether Spain can tax you at all. Article 5 says who is a taxpayer, article 6 sends you elsewhere to find out whether you are resident, article 12 says the tax is charged on income obtained in Spain, and article 13 — the long one — defines what “obtained in Spain” means, item by item.
Almost every argument about Spanish tax on a foreign person or company is really an argument about article 13. It is worth reading slowly.
Article 5. Taxpayers
The following are taxpayers for the purposes of this tax:
a) Individuals and entities not resident in Spanish territory under article 6 who obtain income in Spain, unless they are taxpayers for Personal Income Tax.
b) Individuals who are resident in Spain by virtue of any of the circumstances set out in article 9.4 of the consolidated text of the Personal Income Tax Act, approved by Royal Legislative Decree 3/2004 of 5 March.
c) Entities under the income attribution regime referred to in article 38.
The cross-reference is to a statute that no longer exists. Royal Legislative Decree 3/2004 was repealed with effect from 1 January 2007 and replaced by Law 35/2006. The reference still works, because the seventeenth additional provision of Law 35/2006 provides that references to the 2004 consolidated text are to be read as references to the corresponding provisions of the new Act. The same stale citation appears again in articles 6, 13.1.d) and 13.3. We have left it as the law has it and flagged it each time rather than silently updating the text.
Paragraph b) is narrower than it looks. It covers Spanish nationals posted abroad in diplomatic and consular service and similar positions, who remain Spanish-resident for income tax but are taxed under this Act for certain purposes. It is not a general rule for residents.
Article 6. Residence in Spanish territory
Residence in Spanish territory shall be determined in accordance with article 9 of the consolidated text of the Personal Income Tax Act, approved by Royal Legislative Decree 3/2004 of 5 March, and article 8.1 of the consolidated text of the Corporate Income Tax Act, approved by Royal Legislative Decree 4/2004 of 5 March.
This Act does not define residence. It borrows the definition. For individuals the operative test is now article 9 of Law 35/2006: more than 183 days in Spain in the calendar year, or the main base of activities or economic interests in Spain. For companies it is now article 8.1 of Law 27/2014: incorporation under Spanish law, registered office in Spain, or effective place of management in Spain. Both cited statutes have been replaced; the redirection rule in the previous note applies here too.
Article 12. Taxable event
1. The taxable event is the obtaining of income, in cash or in kind, in Spanish territory by taxpayers for this tax, in accordance with the following article.
2. The supply or transfer of goods, rights and services capable of generating income subject to this tax shall be presumed to be remunerated, unless proved otherwise.
3. Income subject to Inheritance and Gift Tax is not subject to this tax.
Paragraph 2 reverses the burden of proof. If you let a Spanish property to a relative for nothing, or lend money to a Spanish company at no interest, the starting assumption is that you were paid a market rate and owe tax on it. The onus is on you to show otherwise.
Article 13. Income obtained in Spanish territory
1. The following shall be considered income obtained in Spanish territory:
a) Business income through a permanent establishment
Income from economic activities or operations carried on through a permanent establishment situated in Spanish territory.
An individual or entity shall be regarded as operating through a permanent establishment in Spanish territory where, on any basis, it has at its disposal in Spain, on a continuous or habitual basis, facilities or workplaces of any kind at which it carries on all or part of its activity, or where it acts in Spain through an agent authorised to contract in the name and on behalf of the taxpayer who habitually exercises those powers.
In particular, the following shall constitute a permanent establishment: places of management, branches, offices, factories, workshops, warehouses, shops or other establishments, mines, oil or gas wells, quarries, agricultural, forestry or livestock operations, or any other place of exploration or extraction of natural resources, and building, installation or assembly sites lasting more than six months.
Six months, not twelve. Domestic Spanish law creates a permanent establishment from a construction or installation site lasting more than six months. Most of Spain’s double tax treaties set the threshold at twelve. Where a treaty applies it prevails under article 4 of this Act, so the six-month rule bites mainly on contractors from countries with no treaty — and on anyone who assumes the treaty figure without checking that a treaty is in force.
b) Business income without a permanent establishment
Income from economic activities or operations carried on without a permanent establishment situated in Spanish territory, where no other paragraph of this article applies, in the following cases:
1. Where the economic activities are carried on in Spanish territory. Income from the installation or assembly of machinery or plant originating abroad shall not be regarded as obtained in Spanish territory where those operations are carried out by the supplier of the machinery or plant and their amount does not exceed 20 per cent of the acquisition price of those items.
2. Where services are used in Spanish territory, in particular services relating to studies, projects, technical assistance or management support. Services shall be regarded as used in Spanish territory where they serve economic activities carried on in Spanish territory or relate to assets situated there. Where such services serve economic activities carried on in Spanish territory only in part, they shall be regarded as obtained in Spain only to the extent that they serve the activity carried on in Spain.
3. Where they derive, directly or indirectly, from the personal activity in Spanish territory of artistes or sportspersons, or from any other activity connected with that activity, even where received by a person or entity other than the artiste or sportsperson.
The services rule catches people who have never set foot in Spain. Under paragraph 2 the test is where the service is used, not where the work is done. A consultant in Berlin writing a market study for a Spanish company is receiving Spanish-source income. Whether Spain actually taxes it is then a treaty question — under most treaties business profits without a permanent establishment are taxable only in the other state — but the starting position under domestic law catches it, and a Spanish payer may withhold accordingly.
c) Employment income
1. Where it derives, directly or indirectly, from personal activity carried on in Spanish territory.
2. Where it consists of public remuneration paid by the Spanish administration.
3. Where it consists of remuneration paid by individuals carrying on economic activities, in the exercise of those activities, or by entities resident in Spanish territory, or by permanent establishments situated there, in respect of employment exercised on board a ship or aircraft in international traffic.
Paragraphs 2 and 3 shall not apply where the work is performed entirely abroad and that income is subject to a personal tax abroad.
d) Pensions and similar benefits
Pensions and other similar benefits, where they derive from employment performed in Spanish territory or where they are paid by a person or entity resident in Spanish territory or by a permanent establishment situated there.
Pensions means remuneration paid by reason of previous employment, whether received by the worker or by another person. Similar benefits means, in particular, those provided for in article 16.2.a) and f) of the consolidated text of the Personal Income Tax Act, approved by Royal Legislative Decree 3/2004 of 5 March.
e) Directors’ remuneration
Remuneration of directors and members of boards of directors, of bodies performing equivalent functions, or of representative bodies of an entity resident in Spanish territory.
This one surprises foreign founders. Remuneration as administrador of a Spanish company is Spanish-source income under this paragraph whatever the person’s residence and wherever the work is physically done. There is no carve-out for work performed abroad, unlike the one in paragraph c). Treaties generally follow the same approach for directors’ fees, so a treaty often does not rescue it either.
f) Income from movable capital
1. Dividends and other income from participation in the equity of entities resident in Spain, without prejudice to article 118 of the consolidated text of the Corporate Income Tax Act, approved by Royal Legislative Decree 4/2004 of 5 March.
2. Interest and other income obtained from the transfer of own capital to third parties paid by persons or entities resident in Spanish territory, or by permanent establishments situated there, or which remunerates capital used in Spanish territory.
3. Royalties paid by persons or entities resident in Spanish territory or by permanent establishments situated there, or which are used in Spanish territory.
Royalties means amounts of any kind paid for the use of, or the right to use: rights in literary, artistic or scientific works, including cinematographic films; patents, trade or commercial marks, designs or models, plans, secret formulae or processes; rights in computer software; information concerning industrial, commercial or scientific experience; transferable personal rights, such as image rights; industrial, commercial or scientific equipment; any right similar to the above.
In particular, amounts paid for the use of, or the right to use, rights protected by the consolidated text of the Intellectual Property Act approved by Royal Legislative Decree 1/1996 of 12 April, by Law 11/1986 of 20 March on Patents, and by Law 17/2001 of 7 December on Trade Marks, are treated as royalties.
4. Other income from movable capital not mentioned in paragraphs 1, 2 and 3 above, paid by individuals carrying on economic activities, in the exercise of those activities, or by entities resident in Spanish territory, or by permanent establishments situated there.
Image rights are royalties here. The express mention of transferable personal rights is unusual by international standards and matters for sportspeople, performers and anyone licensing their name into a Spanish structure.
Another repealed cross-reference. Royal Legislative Decree 4/2004 was replaced by Law 27/2014. Its article 118 concerned the international holding company regime, now in articles 107 and 108 of Law 27/2014.
g) Income from immovable property
Income derived, directly or indirectly, from immovable property situated in Spanish territory or from rights relating to such property.
h) Imputed income from urban property
Income imputed to individual taxpayers who own urban immovable property situated in Spanish territory which is not used for economic activities.
You are taxed on a holiday home you never let. Where a non-resident owns Spanish urban property and neither lets it nor uses it in a business, a notional income is imputed and taxed annually. It is a small amount in most cases, and it is the single most commonly missed filing obligation among foreign owners.
i) Capital gains
1. Where they derive from securities issued by persons or entities resident in Spanish territory.
2. Where they derive from other movable property, other than securities, situated in Spanish territory, or from rights which must be performed or are exercised in Spanish territory.
3. Where they arise, directly or indirectly, from immovable property situated in Spanish territory or from rights relating to such property. The following are included in particular: capital gains from rights or interests in an entity, whether resident or not, whose assets consist principally, directly or indirectly, of immovable property situated in Spanish territory; capital gains from the transfer of rights or interests in an entity, whether resident or not, which confer on the holder a right of enjoyment over immovable property situated in Spanish territory.
4. Where property situated in Spanish territory, or rights which must be performed or are exercised in that territory, are incorporated into the taxpayer’s assets even without a prior transfer, such as gambling winnings.
Selling the company does not escape the property. Paragraph 3 reaches gains on shares in a company — Spanish or foreign — whose assets are mainly Spanish real estate. Holding Spanish property through an offshore vehicle and selling the vehicle instead of the building does not take the gain outside Spanish tax.
Income not obtained in Spain
2. The following income shall not be considered obtained in Spanish territory:
a) Income paid by reason of international sales of goods, including commissions for mediation in such sales, and ancillary and related expenses.
b) Income paid to non-resident persons or entities by permanent establishments situated abroad, charged to those establishments, where the corresponding services are connected with the activity of the permanent establishment abroad.
Paragraph 2.a) is the relief that makes trade possible. Selling goods to a Spanish buyer does not of itself create Spanish-source income. Without it every exporter in the world would have a Spanish filing obligation.
3. For the purpose of classifying the various categories of income according to their source, this article shall apply and, failing that, the criteria established in the consolidated text of the Personal Income Tax Act, approved by Royal Legislative Decree 3/2004 of 5 March.
Where this sits
Article 4 of the same Act provides that the tax applies without prejudice to treaties and conventions that form part of Spanish domestic law. Where a double tax treaty applies, it prevails over the rules on this page. Spain’s treaty network is set out in full in the treaty library, and the headline withholding rates are compared in the treaty rates guide.
Nothing here is advice on your own position. The articles that follow — what is exempt, at what rate, and how the return works — are on the next pages in this series.