IT Contracting in Spain: Money & Tax
Profile written by Matt Walters of Capital GES (Updated September 2016).
Spain is a very popular country for European contractors, especially in the Oil & Gas, IT and Comms as well as banking sectors. Offering plenty of sunshine, but also winter sports in the Northern Pyrenees and surfing in the Bay of Biscay, Spain has something for everyone from a leisure perspective, while retaining a relatively low cost of living (Madrid is ranked 52nd on the Mercer worldwide cost of living survey. London is ranked 17th).
In order to register in Spain, there are two steps which must be completed in person:
i. N I E
The first piece of administration to complete is the securing of an N I E number (Nùmero de Identificaciòn de Extranjeros – Foreigners' Identification Number). This number can be obtained by presenting yourself at the Town Hall with the relevant paperwork. After 4 to 6 weeks, you will receive notification that you may go and pick your N I E up. The administrative authorities will not send it by postal mail to you.
The first piece of administration to complete is the securing of an N I E number (Nùmero de Identificaciòn de Extranjeros – Foreigners’ Identification Number). This number can be obtained by presenting yourself at the Town Hall with the relevant paperwork. After 4 to 6 weeks, you will receive notification that you may go and pick up your N I Ecertificate. The administrative authorities will not send it to you by post.
Note: It is important to complete these formalities as soon as possible upon arrival, as they will greatly facilitate the opening of bank accounts and property rental.
II. Taxation in Spain
The Spanish tax year is the calendar year; taxpayers must file an annual tax return between 1 May and 30 June of the year following the tax year. Tax rates are banded between 0% and 52% dependant on income.
Salary and other employment remunerations are subject to a monthly withholding tax, later creditable against the individual’s income tax liability. This system is very similar to PAYE in many respects.
Spanish tax allowances:
i. Flat tax rate
As of January 2004, there has been an option for inbound expatriate contractors, as long as they have not lived or worked in Spain for the preceding 5 years, to take advantage of a flat tax rate of 24.75%.
ii. Other allowances
Various other allowances are available, but only for Spanish tax residents (not eligible for flat rate tax).
III. Social Security
Social security must be paid on your salary in Spain unless your employer can detach you from another EU country by means of an E101 certificate.
Care must be taken here, and it is worth taking advice, as detachment by means of an E101 may not be the best solution in all cases due to either a) the duration of your intended stay in the country, b) the level of cover provided, or c) the cost of said contributions. It is also worth noting that, under the EU social charter, social security contributions made within an EU country will count towards your time stamp for the UK.
IV. Work permits
Citizens of EU countries, including Romania and Bulgaria, do not need a work permit to take up employment in Spain. This also goes for citizens of Switzerland, Liechtenstein, Iceland and Norway. Citizens of these countries need only register with the municipality upon arrival.
Citizens of all other countries must go through a full registration and work permit process. A work permit can only be obtained if no suitable candidate can be found in Spain or in any other Member State of the EU.
Capital GES is an international payroll and contract-management company providing tailor-made tax planning services to contractors working overseas. For more detailed information on your personal situation, please contact Capital on +41 32 732 97 00.