When is a person considered a tax resident in Spain?
According to the Personal Income Tax Law (Law 35/2006, Article 9), an individual is considered a tax resident in Spain if any of the following conditions are met:
1.- Physical presence in Spain for more than 183 days during the calendar year.
- The days do not need to be consecutive.
- Occasional absences are counted as days spent in Spain unless tax residency in another country can be proven.
2.- The individual’s center of economic interests or activities is located in Spain.
- This includes having the majority of investments, income, business, or economic relationships in Spain.
3.- The habitual residence of the individual’s spouse or dependent minor children is in Spain.
Consequences of being a tax resident
If an individual is considered a tax resident in Spain:
- They are taxed on their worldwide income (both domestic and foreign).
- They are required to file:
- IRPF (Personal Income Tax).
- Form 720 (Declaration of foreign assets exceeding €50,000).
- From 2023 onwards, they may also need to file Form 721 (for foreign-held crypto assets).
Foreigners and Special Tax Regimes
- Inbound expatriates regime (“Beckham Law”, Article 93 LIRPF):
- Available for foreign individuals relocating to Spain for work-related reasons.
- Taxed only on Spanish-source income for the first six years.
- Flat tax rate on employment income: 24% up to €600,000, and 47% on the excess.
Companies and Tax Residency
A company is considered a tax resident in Spain if:
- It was incorporated under Spanish law.
- It has its registered office or is managed from within Spain.
While the concept of tax residency is defined at the national level, the of Madrid region applies its own tax rules to certain taxes, enhancing its appeal for investors and high-net-worth individuals.
We will now discuss the tax rules on residence in the Madrid region
Who is considered a tax resident in the Madrid region?
Once an individual is deemed a tax resident in Spain, the tax authority determines their autonomous community of residence based on:
- Primary residence: where the person lived the most days of the year.
- If unclear, the main base of economic activities or interests is considered.
- If still inconclusive, the residence of the non-legally separated spouse and dependent minor children is used.
Autonomous Tax Benefits in the Madrid region
Although personal income tax (IRPF) is a state tax, the regions have powers over regional personal income tax brackets and over devolved taxes such as Wealth Tax, Inheritance and Gift Tax and Transfer Tax.
Personal Income Tax (IRPF)
- Madrid offers the lowest regional income tax rates.
- In 2024, the first tax bracket was reduced to 5%, with deductions available for startup investments, rent, education, etc.
Wealth Tax
- 100% tax rebate → In practice, residents do not pay this tax in Madrid, although declaration may still be required.
Inheritance and Gift Tax
- 99% rebate between parents-children, spouses, and registered partners.
- One of the most favorable regimes in Spain → allows for intergenerational wealth transfer with minimal tax burden.
And what about companies?
If a company relocates its tax domicile to the Madrid region, it will be taxed based on its effective place of management. While there is no regional corporate tax, Madrid offers a business-friendly environment, including:
- Tax relief on certain transfers (e.g., family business transfers).
- Reduced bureaucracy, investment incentives, and sector-specific support.
The Madrid region stands out as a fiscally competitive region for both individuals and companies, thanks to:
- Low personal income tax rates.
- Full rebate on Wealth Tax.
- Near-total exemption from Inheritance and Gift Tax.
- Strong legal certainty and regulatory stability.