In our previous article, we examined digital nomad visas for Spain and touched upon the rates of taxation offered for the duration of the visa.
This article will examine the tax issue in more depth as part of an ongoing series on different locations and how they treat location-independent travellers. Malta was the subject of our first article in this series, and we will be writing more about different locations in the coming weeks.
The tax rates for the Spanish “digital nomad visa” or “telework residence permit” are favourable compared to many European countries. The visa can be renewed multiple times for up to five years, and for the first four years of the visa, the holder is eligible for a Spanish tax rate of 24% on earnings up to €600,000.
The Spanish tax rate offered to holders of this visa is preferential and more generous than the tax bandings offered to Spanish nationals. This is due to the “Startup Law,” which was introduced to encourage people from outside the country to come in and set up their businesses there.
Offering a lower tax rate for teleworkers is essentially a gamble that it will encourage high-earners to stay once they become eligible for permanent residence after five years of holding a digital nomad visa.
The tax rate for Spanish residents is 19% up to €12,450, 24% for anything over €12450 and less than €20,200, 30% for anything between €20,200 and €35,200, 37% between €35,200 and €60,000 and 45% between €60,000 and €300,000. The top rate of 47% is reserved for earnings above €300,000 per year.
It can be clearly seen that the digital nomad visa offers a vastly preferential tax regime compared to what locals would pay on similar earnings, and this difference may help to make moving to Spain an attractive option for many.
Malta’s Digital Nomad taxation offering is one of the best available and draws large numbers of digital nomads there. In the first year, the tax rate is zero. That’s right, you will pay no tax in Malta for a whole year, which is an absolutely phenomenal deal.
After the first year, if you have renewed the digital nomad visa, the rate goes up to 10% and stays there for the rest of the time you have the visa. This is a flat rate and is therefore not dependent on how much money you earn over this time period.
You will only pay 10% tax for your second and subsequent years in Malta. That represents an excellent opportunity and far outstrips the 24% tax rate offered by Spain for digital nomads. Saving 14% in tax compared to Spain is pushing more people to consider moving to the small independent state of Malta, rather than the larger Spanish mainland.
Malta has reciprocal deals with many other countries, which means that you pay tax only in Malta and are not eligible to be taxed twice on the same income. It is worth discussing this with an accountant to ensure that your finances and tax situation are set up correctly to avoid this.
Malta is investing in making itself a top digital nomad and startup location, and this is reflected in its taxation approach. The more you earn in your time in Malta, the more beneficial the tax situation becomes, which is obvious why many startups are considering relocating there while in their high-growth early phases.
If you choose to forego the tax benefits of Malta in favour of Spain, there are many different places where you can spend time in the warm and welcoming climate.
One of the biggest draws for digital nomads to the Spanish Digital Nomad Visa is the chance to spend the winters in the Canary Islands. Despite being politically part of Spain, they are geographically off the coast of Africa. Most of the sand from their beautiful beaches has been blown across the sea from the Sahara Desert.
Morocco is the closest country to the Canary Islands, and the winter climate is very similar. The Canary Islands consist of Gran Canaria, Tenerife, Lanzarote, Fuertaventura, La Gomera, El Hierro, and La Palma. La Palma is not to be confused with Las Palmas, the capital city of Gran Canaria and a digital nomad hotspot. La Palma, on the other hand, is a tiny, nearly uninhabited island with very few tourist amenities.
Madrid is the cultural centre and capital of Spain. It is known for being a young, hip city with an excellent nightlife. Although it isn’t one of the cheapest cities to live in, the quality of life makes up for the relatively expensive living costs.
Madrid is the home to the Royal family of Spain and has most of the administrative buildings of the central government. It is a great place to visit for aficionados of culture, art and history.
The capital of the region of Catalonia, Barcelona is a beautiful beach city that has a famous shopping street called Las Ramblas. It is the best-known and loved street in central Barcelona and always has something happening to entertain and amuse. If you are going to Barcelona, try to make it on the 11th September as it is “La Diada Nacional”, their national day, where millions take to the streets and sing their anthem called Els Segadors.
Another place on the digital nomad map is Valencia, which is a beautiful and ancient city in its own right. Valencia is known for being the place where Paella was first popularised and has one of the largest fresh produce markets in Europe. Valencia is also the largest producer of oranges in Spain.
The legendary party island of Ibiza is also one of the islands off the Spanish coast, and is popular with young people who like to dance and party the night away and then sleep on the beach during the day. It is perhaps not the most conducive environment to get a lot of work done but who are we to argue if people want to have a good time.
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