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Year end

At the end of the financial year, you will have to file a personal income tax return. This return will combine all of your sources of income, including your business profits, and all of the tax reliefs you are entitled to as an individual resident in Spain.

This return ascertains your final tax liability for the year and depending on the result you will either have to make a balancing payment or request a tax refund.

A balancing payment will arise if your tax liability is greater than any payments on account already made through the system noted above. Bear in mind that the maximum payment on account suffered will have amounted to 20% of your business profits, and that the higher earners in Spain are taxed up to 43%.

A refund may be requested if the withholding tax suffered exceeded your liability once other reliefs, such as mortgage costs, have decreased your taxable base, leading to an effective rate of tax below 20%.

Deregistration

When the time comes to discontinue your business activity, it is necessary to inform both the tax office and the social security authorities. Should you fail to do so, these organisations will expect you to continue to comply with your obligations, and as such, if you don't manage things correctly, fines and penalties may arise.

Even when you have deregistered correctly, you will still remain responsible for submitting the annual summary and informative returns due in the first quarter of the year following the termination of trade.

It is always advisable to seek professional advice prior to deciding how to go about doing business in Spain. By understanding the system, you can avoid many of the frustrations commonly suffered by new businesses. As well as avoiding potential barriers and problems for your business, you will increase your chances of having a successful business and a great standard of living under the Spanish sun!

Part I - Part II - Part III