Taxes for new residents in Madrid: first-year basics

Scope of this guide

This guide helps you set up a clean tax baseline in your first year in Madrid. It provides operational guidance, not personalized tax advice. If your situation involves foreign properties, stocks, or complex business setups, hire a local tax advisor (asesor fiscal).

Step 1: Are you a tax resident? (The 183-day rule)

You are considered a tax resident in Spain if you meet any of the following criteria:

1. You spend more than 183 days in Spanish territory during a single calendar year (January 1 to December 31).
2. Your main base of economic activities or interests is in Spain.
3. Your spouse and/or dependent children live in Spain.

If you arrive in Madrid in August, you will likely spend less than 183 days in Spain that year. You would be a non-resident for tax purposes for that calendar year, and pay Non-Resident Income Tax (IRNR) only on income earned within Spain.

If you are a tax resident, you must pay Spanish Income Tax (IRPF) on your worldwide income.

Step 2: Understand your payslip and IRPF

If you are employed by a Spanish company, your employer automatically deducts a percentage of your salary every month. This is an advance payment toward your annual income tax, called retención de IRPF.

• The percentage depends on your salary and family situation.
• If you have children or a dependent spouse, your retention rate is lower.
• Important: When you first arrive and start a job mid-year, the company might apply a flat 2% retention rate. This is legal, but it means you are severely underpaying your taxes. When tax season arrives the next year, you will receive a massive bill. Ask your HR department to adjust your IRPF retention to your actual annual bracket.

Step 3: Keep your census data current (Modelo 030)

The Tax Agency (Hacienda or AEAT) needs to know where you live. Use Modelo 030 to register yourself in the taxpayer census or to update your address if you move. You can submit this online instantly if you have a Digital Certificate. If you miss a tax notification because Hacienda sent a letter to your old flat, you are legally responsible for the fines.

Step 4: The Declaración de la Renta (Modelo 100)

Every year, between April and June, tax residents must file their annual income tax return for the previous calendar year. This is the Declaración de la Renta.

• This process calculates whether your employer withheld too much IRPF (Hacienda gives you a refund) or too little (you must pay the difference).
• You can file it online via the AEAT portal. The system generates a draft (borrador) automatically based on data your employer and bank sent them.
• Always review the draft carefully, especially to add deductions like regional rent relief (deducción por alquiler in Madrid) or union dues.

The Beckham Law (Régimen Especial de Trabajadores Desplazados)

If you move to Spain for an employment contract and haven't lived in Spain for the last 5 years, you might qualify for the "Beckham Law".

• It allows you to pay a flat tax rate of 24% on your Spanish income (up to 600,000€) for 6 years, regardless of how much you earn.
• Crucially, you do not pay Spanish wealth tax or income tax on your foreign assets and capital gains.
• You must apply for this within 6 months of starting your job in Spain using Modelo 149.

High-impact mistakes to avoid

• Ignoring the Modelo 720: If you are a tax resident and hold more than 50,000€ in assets (bank accounts, stocks, or real estate) outside of Spain, you must declare them annually using Modelo 720. Failing to do so triggers severe penalties.
• Assuming your home country tax setup applies: Do not assume you can live in Madrid year-round while remaining a tax resident of the UK, US, or Germany just because your employer is there.