320 days of sunshine a year, a huge variety of leisure activities, excellent cuisine and a friendly society. These are just some of the advantages with which the Costa del Sol attracts. Added to this list are also… tax issues.
Lower income tax in Andalusia
With the start of 2023, the Government of Andalusia has decided to introduce an important tax change that affects a large proportion of those employed in the southern region of Spain. This involves the introduction of a lower income tax. This change will particularly benefit those with taxable incomes between €12,450 and €35,200, who will pay 4.3% less tax on their earnings in the 2023 tax year. According to calculations, up to 80% of local taxpayers could be affected by this relief.
Andalusia currently applies eight tax thresholds for its share of income tax. For the 2022 tax year, the lowest rate was 9.5% for residents whose income was less than €12,450 and the highest was 23.7% for resident taxpayers whose earnings exceed €120,000 per year.
Residents with higher incomes have already benefited from tax concessions. For example, the highest rate applicable to tax returns filed for the 2022 tax year will be 22.5%. The latest income tax reduction in Andalusia from the 2023 tax year will only apply to the regional part of the tax bill. Indeed, in Spain, income tax is levied at the national and regional levels, each comprising 50% of the tax.
100% property tax rebate
This is perhaps the most important change to the tax system that the Andalusian government has made in recent times. As we informed you at the end of 2022, Andalusia has become the second region in the country, after Madrid, to opt for a 100 per cent discount on the wealth tax levied on owners of second homes in Spain. This change will significantly reduce the amount of tax paid by foreigners on their properties. This, in turn, will make the region even more attractive to foreigners who want to own a second home in Spain. Currently, Andalusia has some of the lowest taxes in Spain of all 17 autonomous regions.
From 21 September 2022, Spanish citizens and foreigners who live in the south of the country or have a second home here, and whose net assets in Spanish territory exceed €700,000, will gain a 100 per cent rebate on the wealth tax charged. In other words, they will not have to pay tax on their assets. Andalusia will therefore be the only region besides Madrid where there will be no de facto wealth tax!
The abolition of property tax and the reduction of income tax join other concessions in force in this region of Spain. At the end of 2021, the local authorities decided to permanently reduce and standardise the transfer tax (for secondary market properties), which currently stands at 7%.
Tax changes in Spain
Every year there are tax changes in almost every country in Europe. Spain is no different. As of 2023, the central government has introduced several innovations that are worth considering if you are thinking of buying a property in Spain and moving permanently to the Iberian Peninsula:
- New tax on pension funds: as of 1 January 2023, all employees in Spain, whether salaried or self-employed, must pay a tax on social security contributions. If you work in Spain and therefore pay social security contributions, the new tax will be 0.6 per cent of your monthly salary, of which your employer will pay 0.5 per cent and you will only pay the remaining 0.1 per cent.
- Wealthtax: the Spanish government, unlike Andalusia, has maintained the wealth tax, but there will be some changes this year. It applies to people with assets of €3 million or more. The country’s rulers have decided to set three income brackets on which the tax will be paid: 1.7% for wealth between €3 million and €5.3 million, 2.1% for wealth between €5.3 million and €10.6 million and 3.5% for wealth above €10.6 million.
- Capital gains tax: the government has decided on yet another important tax change, this time concerning the savings accumulated by citizens. Starting from 2023, there will be a slight increase in taxes on capital income. For taxable income above €200,000, the rate will be increased by one per cent, from 26 to 27 per cent. In addition, income of €300,000 or more will be taxed at a rate of 28 per cent.
Andalusia attracts foreigners
According to official figures, Andalusia is now home to almost 740,000 foreigners – almost half of them from Europe. Among foreign nations, the British (around 88,000) and Romanians (75,000) lead the way. They are followed by Italians (24,000), Germans (almost 16,000) and French (13,500). At this point, it is also worth mentioning the Poles, whose share in the Spanish property market is steadily increasing – in Q3 2022, our compatriots were again among the TOP10 foreign nations most likely to buy property in Spain.
