All You Need to Know About Taxes in Spain vs. Taxes in the United States

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( — January 23, 2020) — Have you ever wondered the difference in taxes between these two countries? Here you will find the economic keys up to date, but first, a brief review on the subject.

What are taxes?

They are a kind of tribute administered by the State in order to finance their expenses. These payments are mandatory and required of both natural and legal persons (such as private companies). With the tax money, services offered by governments are paid. There are different types of rents, such as income taxes, property taxes, and sales taxes.

Depending on each legislation, taxes are variable. That is why legal advice is recommended before any type of employment or residence in another country. There are tax attorneys or legal multidisciplinary groups such as Balcells Group, which help resolve issues related to immigration, taxes, real estate, and business, and keep monthly accounts. So let’s see, how are taxes in Spain?

Taxes in Spain

The main direct ones are:

  • Business taxes
  • Income of Individuals taxes
  • Non-Resident Income taxes
  • The most important indirect taxes are:
  • Value Added taxes (VAT)
  • Patrimonial Transmissions and Documented Legal Acts taxes

The Spanish tax system is competitive and modern. The fiscal pressure in Spain (the percentage of taxes and social security on GDP) is five points below that of the countries of the European Union. However, it is estimated to be the fourth EU country with the highest taxes. Before the economic crisis, Spain was one of the European countries with the lowest tax rates, but since 2010 rents began to increase.

A tax reform to simplify tax obligations has been carried out recently. In order to reduce the tax burden, the modification has affected the Corporation Tax, on the Income of Individuals, on the Income of Non-Residents, on the Value Added and some special taxes.

Who pays taxes in Spain and how are they divided according to declared economic activity?

All citizens and businesses must pay their taxes as required by law. However, they vary according to how they carry out the economic activity, the two categories can be: autonomous or societies.

Saying an exact number is complicated, since it varies according to the autonomous community. However, for the lowest income, there are percentages around 19% and at the highest they can reach up to 48%.

Taxes in The US

As we mentioned earlier, taxes vary according to laws. In the United States, each state can vary the type and percentage of its taxes. There are federal and local taxes. In the 50 states the same federal taxes are paid, but those related to sales, property and salary may be higher or lower depending on the place of residence.

For example, there are 7 states that do not charge wage tax: Texas, Alaska, Washington, South Dakota, Wyoming, Florida, Nevada.

The combination of federal, state and local taxes makes the following cities pay the highest percentage of taxes in the country: Bridgeport, Connecticut; Detroit, Michigan; Philadelphia, Pennsylvania; Columbus, Ohio; Milwaukee, Wisconsin; Portland, Maine.

However, they have divided the taxpayers into five income levels and established the taxes paid by each of these groups. The highest income faces an effective federal percentage of 24.5%. For the second group with more income, the tax payment is around 16.7% of the income. Lower is the taxation of the third group, since they pay 12.6%. In the case of the second group with less income, the real tax payment moves around 5.9%. Finally, 20% with less income pays the equivalent of 0.8%, which practically supposes a total exemption from the payment of taxes.

American services

Among the services that the government provides to people living in the American country, there are: the protection of the country and the maintenance of security, disease prevention, education, construction and maintenance of roads and routes, the emergency assistance in cases of natural disasters, such as hurricanes, floods or earthquakes, among others.

When are federal taxes paid?

Any day before April 15 or that same day for people who show up only once a year. However there are different categories such as people who work “Freelance”, if they have a company or if they are Americans residing in another country, they have other dates to respect.

Who should pay taxes

People with tax residence in the US must pay taxes, even undocumented immigrants without legal status must pay taxes for their income. It is important to keep in mind that fiscal and immigration residence are different.

This post summarizes all the tax information of Spain and the United States, however, we once again emphasize the need to consult with legal experts to make any type of decision. It is important to have the support of experts in the field so as not to commit any substantial error.