Spain has not been immune to the global economic slump of recent times, with reports showing unemplo...
Spain has not been immune to the global economic slump of recent times, with reports showing unemployment levels in August 2008 at their highest since 1998. Brits wishing to escape the gloom of the UK housing market should be aware of an equivalent slowdown in the Spanish market, with some property developers projecting further drops of 30% over the next three years.
Economics aside, as we emerge from the dreary August weather in the UK, the Mediterranean climate and general quality of life available in Spain still have strong appeal: the Economist's 2005 Quality of Life index shows a ranking for Spain of 10th and leaves Britain trailing in 29th place.
However, the weakening of the pound abroad, particularly against the euro over the last year, may discourage a move to Europe where an individual receives their income in sterling. On 5 September 2007, the pound was worth EUR1.481 but a year later, this had dropped 17% to just EUR1.228. The pound in your pocket might not buy very much in Spain these days.
In more difficult financial times, both individuals and employers are attracted by less onerous tax regimes, and there are opportunities for inbound expatriates to Spain.
Generally speaking, Spanish tax residents are liable to personal income tax (PIT) and net wealth tax (NWT) on their worldwide income. Note that a draft law to abolish NWT (potentially effective from 1 January 2008) has been sent to Spanish Congress for approval.
For resident taxpayers, PIT is applied according to a combination of general 'state' scale tax and complementary 'Autonomous Community' rates, potentially resulting in a top marginal rate of 43%.
An individual is treated as resident in Spain if they spend more than 183 days there in a calendar year, but for those considering frequent visits back to the UK, such sporadic absences may still be regarded as days of presence in Spain.
Individuals regarded as non-resident in Spain are taxed both for non-resident income tax (NRIT) on Spanish sources of income and currently NWT on Spanish-located assets only.
NRIT is due at a favourable flat rate (at 24% on employment income and 18% on capital gains/investment income), but where UK tax residence is retained, the ongoing UK tax liability must also be considered.
A notable attraction for inbound expatriates on assignment to Spain would be the opportunity to choose, by completing a 149 form on arrival, between being taxed as Spanish tax residents or as non-residents for up to six years where certain conditions are met.
Whereas social security treaties within the EU allow scope for assignees to remain within their home country regimes, the local social security rates appear attractive, at least to the employee. Employee contributions, which are lower than in the UK, are payable at 6.35% and are not only capped to monthly income of EUR3,074.10, but also deductible for tax purposes. Employer contribution rates, capped but due at approximately 32% may mean that your employer will be keener for you to remain within the UK system.
Spain certainly has its attractions, but its tax regime is not likely to be the biggest draw - indeed, the increasingly strong euro and Spain's net wealth (as well as inheritance) tax may ward off Brits looking to retire in the sun. But for those who can find openings in the job market, the non-resident concessions and relatively low income tax and social security rates make Spain an attractive location.
- Chris Brookes and Sarah Robert are, respectively, consultant and director of international executive services at KPMG.
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