Taxes in Spain for Foreigners - What You Need to Know

When you move to Mallorca, sooner or later you have to deal with the Spanish tax system. Taxes in Spain are something many newcomers underestimate, and that can get expensive. Whether income tax, wealth tax or the dreaded double taxation: this guide explains which tax obligations apply to you, which deadlines you have to meet and how to avoid the most common mistakes.

When do you become liable for tax in Spain?

The most important question first: when do you actually have to pay tax in Spain? The rules are clear. You become fully liable for tax in Spain if at least one of the following applies:

• You spend more than 183 days per calendar year in Spain
• Your main economic interests are in Spain (for example your job)
• Your spouse and minor children live in Spain

Once you count as a tax resident (residente fiscal), you must declare your worldwide income in Spain. That covers not only your salary on Mallorca but also rental income from your home country, capital gains or pensions. Many foreigners miss this point and report only their Spanish income. That can lead to substantial back payments if you are audited.

The main types of tax in Spain

The Spanish tax system differs from many others in a few important ways. Here are the taxes that matter most to you as a foreign resident:

IRPF (Impuesto sobre la Renta de las Personas Fisicas) - Spanish income tax is the key tax for employees and the self-employed. It is calculated progressively, which means the more you earn, the higher your rate. Rates run from 19 % on the first 12,450 EUR up to 47 % on income above 300,000 EUR. The Balearic Islands add a regional surcharge, so the top rate can reach around 50 %.

Impuesto sobre el Patrimonio - Spain levies a wealth tax on your worldwide net assets. In the Balearics the allowance is 3 million EUR (after the 2023 reform). Anything above that is taxed at rates between 0.28 % and 3.45 %.

Modelo 720 - If you are a tax resident and hold assets abroad (bank accounts, property, insurance policies) worth more than 50,000 EUR in each category, you must declare them every year via Modelo 720. The reporting duty applies even if you owe no tax on them.

Double taxation treaties

Many foreigners on Mallorca still have income from their home country, whether rental income, a company pension or capital gains. So that you are not taxed twice on the same income, Spain has double taxation treaties (convenios de doble imposicion) with many countries, including the United States, the United Kingdom, Ireland and Germany. You can find the full list of treaties on the Spanish tax agency website.

Each treaty sets out which country has the right to tax which type of income. The main principles are similar across treaties:

• Salary: generally taxed in the country where you work
• Rental income from property abroad: usually taxed where the property is located, but it must still be reported on your Spanish return
• Pensions: the rules vary by treaty and by pension type, and state pensions are often treated differently from private ones
• Capital gains: usually taxed in your country of residence (Spain)

US citizens face an extra layer, because the United States taxes its citizens on worldwide income regardless of where they live. The US-Spain treaty and foreign tax credits are designed to prevent paying twice, but filing in both countries is usually unavoidable.

In practice this often means you pay tax in one country and offset it on the tax return of the other. It sounds complicated, and it is. Without a tax advisor who knows both systems, it is hard to get right.

The Spanish tax return (Declaracion de la Renta)

The Spanish tax return is officially called the Declaracion de la Renta and is filed via Modelo 100. The key facts:

• Filing period: April to June of the following year (so for tax year 2025, April to June 2026)
• Who must file: anyone with more than 22,000 EUR of annual income from a single employer. With several employers the threshold drops to 15,000 EUR
• Online filing: via the Agencia Tributaria website with a Cl@ve PIN or a digital certificate
• Draft return: the Agencia Tributaria provides a draft (borrador) that you can review and adjust

Common mistakes foreigners make with Spanish taxes

From the experience of many newcomers on Mallorca, there are a few traps people fall into again and again:

1. Not declaring worldwide income - As a tax resident in Spain you have to report everything, including income from your home country. Declaring only your Spanish salary is a punishable offence.

2. Ignoring Modelo 720 - The reporting duty for foreign assets is often forgotten. Foreign life insurance, savings plans or brokerage accounts can be reportable too.

3. Skimping on a tax advisor - Cross-border tax law is complex. A specialised tax advisor (asesor fiscal) or a gestoria on Mallorca costs between 150 and 500 EUR per return. That is money well spent.

4. Missing deadlines - The Spanish tax return has firm deadlines. File late and you automatically pay a surcharge of at least 1 % on the tax due.

5. Not claiming double taxation relief - Tax you have already paid in your home country can usually be credited in Spain. Miss this and you pay twice.

Saving tax in Spain - legal options

There are legal ways to lower your tax bill in Spain too. Some of them are not widely known:

• Mortgage deduction: if you bought your Mallorca property before 2013, you can deduct mortgage interest
• Donations: gifts to recognised organisations are 80 % deductible (first 250 EUR) and 40 % above that
• Private pension: contributions to Spanish pension plans (plan de pensiones) are deductible up to 1,500 EUR per year
• Beckham Law: certain incoming workers can choose a flat tax rate of 24 % (for a maximum of 6 years). This is especially worthwhile on high salaries

On top of that, the self-employed (autonomos) can deduct many business expenses, from office rent to travel costs to tools and equipment. There is more on this in our guide on working as an autonomo in Spain.

Conclusion

Taxes in Spain are a complex topic, but manageable with the right preparation. If you are moving to Mallorca, sort out your tax obligations early. Clarify your residency, declare your worldwide income in full and do not forget Modelo 720. The most important advice: invest in a good tax advisor who knows both systems. You quickly recover the cost through mistakes avoided and deductions claimed. For more, see our guide to filing your tax return in Spain.