Tax Essentials: Navigating Spain's Personal Income Tax (IRPF) System in 2025

1. Compensation for Physical or Psychological Damage:

Previously, compensation payments for personal injury were only tax-exempt if determined by courts or specific legal processes.

Now, compensation payments agreed upon through mediation or alternative dispute resolutions (not just court orders) are also tax-exempt, provided:

• The compensation is paid by the insurance company of the responsible party.
• A neutral third party oversees the agreement, and the agreement is recorded in an official document (public deed).
• The exempt amount does not exceed what would be set by standard compensation guidelines for traffic accidents (baremo established by law).

2. Compensation for Dismissal or Termination of Employment:

Compensation received by workers dismissed or whose employment is terminated is exempt from tax if officially agreed during the administrative conciliation stage (prior to going to court).

Compensations set in the conciliation process with an official administrative service are explicitly tax-exempt.

However, compensations based purely on private agreements or contracts between the employer and employee (without official administrative or judicial conciliation) remain taxable.

3. Alimony Payments for Children:

Alimony payments made to children (from one parent to another or directly to children) set in a regulatory agreement (divorce agreement or similar agreements regulated by regional laws) are now explicitly recognized as tax-exempt for the recipient children.

These payments are tax-exempt if:

• Approved officially by a judge, or
• Formalized by a judicial administrative authority (letrado de la Administración de Justicia) or notarized (public deed by a notary).

4. Mandatory Declaration of Unemployment Benefits:

Starting from the 2024 tax year (declared in 2025), all individuals receiving unemployment benefits must file a tax return, even if unemployment benefits are their only source of income, regardless of the amount.

5. Increased Tax Rates on Savings:

Effective January 1, 2025, the top tax rate on savings income (such as interest, dividends, capital gains from financial assets) increases:

• From 14% to 15% at both regional and state levels for residents.
• From 28% to 30% for non-residents and individuals under special tax regimes (such as workers relocated to Spain or Spanish taxpayers living abroad).

6. New Reduction for Exceptional Artistic Income:

Effective January 2025, income from exceptional artistic, literary, or scientific activities, including certain auxiliary roles, benefits from a new tax reduction, applicable under specific conditions defined by law.

Quick Summary of Key Points:

Determining your tax residency status in Spain is the first step in understanding your tax obligations. You are considered a tax resident if you meet any of the following criteria:

• Physical Presence: Spending more than 183 days in Spain during a calendar year. Temporary absences are included unless you can prove tax residency in another country.
• Economic Interests: Your main economic activities or interests are based in Spain.
• Family Ties: Your spouse (not legally separated) and/or underage children reside in Spain. Non-residents are taxed only on their Spanish-sourced income, while residents are taxed on their worldwide income.

Spain's Personal Income Tax (IRPF) is a progressive tax applied to the income of individuals. The tax rates for residents in 2024 are as follows:

• Up to €12,450: 19%
• €12,451 – €20,200: 24%
• €20,201 – €35,200: 30%
• €35,201 – €60,000: 37%
• €60,001 – €300,000: 45%
• Over €300,000: 47%

Non-residents are subject to a flat tax rate of 24% on their Spanish-sourced income.

Capital gains in Spain are taxed at rates that apply to savings income. The rates for 2024 are:

• Up to €6,000: 19%
• €6,001 – €50,000: 21%
• €50,001 – €200,000: 23%
• Over €200,000: 26%

Spain imposes a Wealth Tax on the net value of your assets. The tax is progressive, with rates ranging from 0.2% to 3.5%, depending on the region. Each autonomous community may set its own exemptions and rates.

Spain applies a Value Added Tax (VAT) on goods and services at the following rates:

• Standard Rate: 21%
• Reduced Rate: 10% (e.g., certain food items, passenger transport)
• Super-Reduced Rate: 4% (e.g., basic necessities like bread, milk)

Spain has agreements with numerous countries to prevent double taxation, ensuring that income is not taxed both in Spain and your home country. These agreements determine which country has taxing rights over different types of income.

Key tax deadlines in Spain include:

• Income Tax Returns: Typically filed between April 6 and June 30 for the previous tax year.
• Wealth Tax Returns: Submitted alongside the income tax return if applicable.

Residents owning property in Spain are subject to:

• Real Estate Tax (IBI): An annual municipal tax based on the cadastral value of the property.
• Income Tax on Imputed Rental Income: Applicable if the property is not your primary residence and is not rented out.

Residents in Spain are required to report overseas assets exceeding €50,000 using the Modelo 720 form. This includes bank accounts, securities, and real estate.