It is directly regulated in Law 35/2006 of 28 November on Personal Income Tax. The general assumption to deem an individual Spanish resident are the following requirements (only one requirement needs to be met):
a)Number of days: You will be deemed resident in Spain if you spend more than 183 days in the country. Sporadic absences will be considered as days of residence unless you can prove you are tax resident in different country.
b)Economic issues: You will also be deemed resident if you have your business or economical interest directly or indirectly located in this territory.
That means that if a person meets one requirement, the Spanish Tax Agency will deem him a Spanish resident, and therefore they will be liable to inform the said Agency of all their assets -in the world- and will also be required to file tax return in Spain, in spite of having already filed them in another country. The tax rate will depend on the income you declare (from 19% to 45%).
In 2005 a new regulation came into force (Royal Decree 687/2005) for expats, which aimed to bring highly qualified professionals to Spain. The most advantageous matter is that an expat may opt for a flat rate of 24 per cent tax rate on income generated in Spain (otherwise income will continue to fall outside the scope of Spanish taxation). The purpose of this new regulation is to tax income as residents but by applying special rates for “non-residents”. There are two limitations applicable to the income generated in Spain:
1) Time limit: you can apply for the exemption during the year you arrive and the next five years (6 periods in total).
2) Monetary limit: maximum earning of 600,000 Euros per annum. The remainder will be taxed 45% rate.
With the purpose of applying this special tax condition for relocated foreign employees, the following conditions must be met:
a)The employee must be first time resident in Spain in the preceding ten years.
b)There must be a causal relationship between the employment agreement and your relocation.
c)The employee must have relocated to take up an employment agreement in Spain as an employee and the employer must be a Spanish company or non-resident company with a permanent address in Spain.
d)The employee´s activity must be carried out in Spain, although they may also perform part of their duties outside Spain, the share of their income earned from these activities must not exceed 15%.
e)The regime can be applied to the Board of Directors members of any limited company. The director may not hold more than 25% of the shares in that company.
f)The application must be made within 6 months as of the start of the new agreement.
Also, there are some considerations that Spanish Labour Authorities take into account to determinate if a real agreement has been executed or not.
Particularly, Labour Authorities do not deem agreements executed by people who live in the same house or who are economically dependent employment agreements.