The time has come to get into the picture regarding your tax obligations. To summarise your tax obligations we have made the following distinctions:

Individual residents.
Individual non-residents.
Companies.

Residents

You are obliged put in a tax return between the 1st. Of May and the 30th of June. You are liable for taxation on:

Earned income received from employment, wages, pensions, etc.
Income on invested capital (interest from bank accounts, dividends on shares, savings etc.)
Income on real estate (property lets, business premises, etc.)
Income from commercial activities (all kinds of businesses)
Patrimonial income.

A common mistake of resident foreigners (English, Germans, etc) is to declare their pensions in their own country. Although the situation must be reviewed on a yearly basis, generally speaking if you reside in Spain, then any income obtained in any country of the world must be declared in Spain.

Non-residents

In this category, four different distinctions can be made:

1. People owning holiday homes for their own personal use. They are obliged to declare the property itself and are liable for wealth and income tax for their own use of the property.

2. People who own properties for letting purposes only. Many non-residents in Spain own properties and rent them out. It is a common mistake to think that the income should be declared in your own country. According to international agreements on double taxation relief, income is taxable wherever it is generated, which in this case is Spain.

3. People owning property both for letting purposes and for their own personal use. You are liable for your own personal use of the property (income and wealth tax for personal use) as well as the income received from the rent.

4. Non residents who “forget to put in a tax return”. Among the non-residents who “forget their tax returns” are:

Those who let the property themselves from their country of origin to friends, acquaintances, relatives, etc.

Those who let through organised companies, which is to say, letting agencies that rent the property for a commission located in Spain, that are obviously obliged to declare all payments made by them to the property owners.

The not so clever, who let through Internet for substantial prices and think that the Spanish and Canary Island Tax Authorities do not have computerised detection systems. Above all, as this kind of activity is very easily detected, it must be said that the tax inspection departments of the Canary Island and Central Government Offices are currently setting up future inspection schemes.

Companies

All companies established in Spain (principally limited liability “SL” companies and public limited companies SA) are obliged to submit their yearly accounts to the Registry of Companies and Tax Authorities. Another common mistake is to think that if there has been no business activity, then it does not have to put in a tax return. Even though no transactions have taken place, the company is obliged to put in a tax return and also to submit the yearly accounts, duly signed by all its directors, to the Registry of Companies. It is relatively easy to verify whether a company has fulfilled its tax obligations, as all companies are recorded at the Tax Authorities with their corresponding Fiscal Identification Number and also at the Registry of Companies. Furthermore, the Registry of Companies sends the Spanish Inland Revenue on a yearly basis, a list of all the companies that have not fulfilled their obligation to submit the yearly accounts.

Spain can no longer be considered as a country with little control over its taxpayers. As a matter of fact, the Spanish Inland Revenue is now considered to have the most sophisticated electronic data schemes and inspection technology in the whole world.