Relocation from Israel to Spain

Spain is one of the most popular destinations for Israelis seeking relocation to Europe, whether for employment, investment, studies, retirement, or improving quality of life. The pleasant weather, high quality of life, rich culture, and established Jewish communities in cities like Madrid and Barcelona make Spain a particularly attractive destination.

However, relocating to Spain requires advance preparation, planning, and a thorough understanding of the legal, financial, and tax implications associated with the move. This article outlines the key considerations to address before making the move.

The 5-Step process for relocating from Israel to Spain

1. Assess employment opportunities and living costs.
2. Consider terminating Israeli tax residency, taking into account matters such as exit tax.
3. Obtain an appropriate visa or residency.
4. Review your tax obligations under both Israeli and Argentine law, including potential double taxation and available reliefs.
5. Plan fund transfers and banking.

The following sections explain the main tax, legal, and financial considerations for Israelis relocating to Spain.

Key Considerations When Relocating from Israel to Spain

The relocation process consists of several essential steps.  

First, a thorough review of employment opportunities in Spain, the cost of living, which varies between cities and regions, the local tax system, educational options for children, available healthcare services, and other important factors. 

Second, consider whether you wish to terminate your Israeli tax residency and the numerous implications that come with it. It is important to plan how you will manage your finances and assets, as well as arrange for private health insurance. Spain operates a public healthcare system. Foreigners may enjoy healthcare services; however, they must meet several conditions. Others are required to arrange private health insurance.

In addition, you must arrange your legal status in Spain – obtaining a work permit, temporary or permanent residency, visa, or citizenship, as applicable. You should choose the visa that best suits your specific circumstances.

Tax Aspects of Relocation to Spain

When moving to a foreign country, the question of post-move tax obligations in Israel arises. 

The answer usually depends on whether you have terminated your Israeli tax residency. 

Termination of Residency

One of the main issues in the relocation process is determining your residency for tax purposes. In Israel, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Israel. If you intend to settle in Spain for the long term, it may be preferable to terminate your residency in Israel (for both income tax and National Insurance purposes). Note that Israelis who sever their residency are required to pay an “exit tax” on certain assets.

According to Section 1 of the Israeli Income Tax Ordinance, residency is determined based on the center of life test, and a rebuttable presumption based on the number of days you stayed in Israel, as follows:

• The days test – An individual is considered an Israeli resident if they spent 183 days or more in Israel during a single tax year. A person may also be considered a resident if they spent 30 days or more in Israel during the current tax year. This applies when their total stay in Israel is 425 days or more over the current and two preceding years. This presumption can be rebutted if the individual proves that, despite their stay in Israel, their center of life is not in Israel.
• The “Center of Life” test – This is a substantive test, in which all personal, family, economic, and social ties are examined. These include permanent place of residence, place of economic activity, location of economic interests, and more.

 Anyone who meets the days test, i.e., is considered an Israeli resident under this test, must file Form 1348 – “Declaration of Residency”. This form is attached an annex to the individual’s tax report. Its purpose is to declare the termination of Israeli tax residency and to describe the circumstances demonstrating that the individual’s center of life is no longer in Israel.

It is important to note that terminating tax residency is usually not a one-time event but an ongoing process. The Israeli Tax Authority (ITA) may review your residency status even years after leaving. Therefore, it is recommended to keep detailed documentation of all actions indicating the transfer of your center of life to Spain, and to avoid creating new ties to Israel.

These days, a dramatic bill to amend the Income Tax Ordinance regarding the definition of Israeli residency for tax purposes has been submitted to the Knesset.

According to the proposal, there will be absolute presumptions that determine the number of days defining an individual as an Israeli resident. These presumptions cannot be rebutted. The “center of life” test will serve only as a secondary tool in cases not covered by these presumptions.

As a result, there may be situations where an individual who has terminated their residency in Israel will still be considered an Israeli resident for tax purposes. This can happen when the number of days spent in Israel in subsequent years is high enough to meet the residency threshold.

To view the draft bill, click here.

Exit Tax

Israelis leaving Israel may be required to pay an “exit tax” on certain assets. This tax is intended to capture the unrealized capital gains of assets held by Israeli residents. 

According to Section 100A of the Income Tax Ordinance, an individual who ceases to be an Israeli resident is deemed to have sold their assets on the day before terminating tax residency (“Exit Day”). The tax is calculated on the notional gain between the original purchase price and the value on the Exit Day. 

There are various methods for calculating and paying exit tax liability, each with different implications for the taxpayer. The timing and structure of these payments can significantly impact the overall tax burden. It is highly recommended to consult with an international tax expert before departing Israel to develop a tax strategy that best aligns with your specific circumstances and financial goals. 

Double Taxation Treaty between Israel and Spain

Israel and Spain have a double taxation treaty. This treaty is intended, among other things, to prevent a situation where a person pays double tax on the same income. The treaty regulates issues such as determining residency in cases of dual residency, withholding tax rates on passive income (dividends, interest, royalties), and taxation of employment income. 

Under the treaty, employment income earned by an Israeli resident who works in Spain is generally subject to tax in Spain, provided the work is physically performed there. However, if the employee is present in Spain for less than 183 days in a 12-month period or if the employer is not a Spanish resident,  Israel may retain the right to tax that income. Each case should be assessed based on its specific circumstances. 

In addition, the treaty also addresses dual residency. In cases where an individual is considered a resident for tax purposes in both countries, the treaty offers equalization rules for determining residency, as follows: 

a) The individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; if a permanent home is available in both States, that individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

b) If the State in which the centre of vital interests is situated cannot be determined, or if a permanent home is not available to the individual in either State, the individual shall be deemed to be a resident only of the State in which that individual has a habitual abode;

c) If the individual has a habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

d) If the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall endeavor to resolve the question by mutual agreement.

To read the Double Taxation Treaty between Israel and Spain in English – click here. 

How will Terminating Tax Residency Affect Income Taxation? 

If the move to Spain is temporary, you remain an Israeli tax resident and cannot terminate your residency status. This means you are liable for Israeli tax on your worldwide income and must report all income, including income earned in Spain, to the ITA.

If tax residency is not terminated, you may still be able to claim a tax credit in Israel for taxes paid in Spain. 

If the move to Spain is permanent and you have terminated your Israeli tax residency, you will only be liable for Israeli tax on income sourced in Israel, while all other income will be subject to tax in Spain. 

For more information on the termination of residency, click here. 

National Insurance 

An Israeli resident living abroad is required to pay National Insurance (Bituach Leumi) contributions. However, once tax residency is terminated, there is no obligation to pay National Insurance, and the individual is no longer entitled to health or social security benefits in Israel.

There is no social security agreement between Israel and Spain. As a result, in the absence of such an agreement, you may be required to pay social security contributions in both countries simultaneously. Therefore, it is recommended to terminate your social security status in Israel when relocating to Spain and to arrange for health insurance in your destination country until you are fully covered by the Spanish system.

Anyone working in Spain and contributing to the Spanish social security system is entitled to access the Spanish public healthcare system. Once you are registered and making contributions through employment or self-employment, you will be eligible for public health services in Spain.

Tax System in Spain

 Individuals are considered Spanish tax residents if they meet at least one of the following criteria:

1. Staying in Spain for more than 183 days during a calendar year. In determining the period of stay, temporary absences are included in the count, unless tax residency in another country can be proven. It should be noted that the Spanish tax authorities have established special rules to prevent tax avoidance in relation to tax havens.
2. Spain constitutes the main base or center of activities and economic interests of the individual. Spanish law establishes a rebuttable presumption that the taxpayer’s permanent place of residence is in Spain when their spouse (not legally separated) and dependent minor children permanently reside in Spain. Spanish income tax law includes specific provisions to prevent tax avoidance in this matter.

Individuals who do not meet any of the above criteria are not considered Spanish tax residents. In such cases, income and capital gains from Spanish sources are subject to non-resident income tax.

Income Taxation

The Spanish tax system is based on two main types of taxation: Personal Income Tax (PIT) applicable to residents on their worldwide income, and Non-Resident Income Tax (NRIT) applicable only to income sourced in Spain.

Income is divided into two main categories: general income (salaries, business income) and savings income (dividends, interest, capital gains).

1. Tax Brackets for General Income (2024)

The final tax rate consists of a state rate and a regional rate. The state tax brackets are:

• Up to €12,450: 9.5%
• €12,450-20,200: 12%
• €20,200-35,200: 15%
• €35,200-60,000: 18.5%
• €60,000-300,000: 22.5%
• Over €300,000: 24.5%

For example, in Madrid, combining the regional rate, the total rate starts at 18% for low incomes and reaches up to 45% for high incomes.

Spanish residents enjoy a tax exemption on income from work performed outside Spain up to a ceiling of €60,100, subject to certain conditions.

2. Tax Brackets for Savings Income

• Up to €6,000: 19%
• €6,000-50,000: 21%
• €50,000-200,000: 23%
• €200,000-300,000: 27%
• Over €300,000: 28%

The corporate tax rate in Spain is 25%. Other tax rates may apply, depending on the type of company and the nature of its activities.

Spain has an inheritance tax. This tax is a regional tax, mainly determined by the different autonomous communities. Each region in Spain has the authority to set its own tax rates, reliefs, and exemptions, which creates significant variation between different regions.

In cases where there is no specific regional legislation, the national tax rates apply, ranging from 7.65% for small amounts (up to €7,993.46) to 34% for large amounts (over €797,555.08). However, most regions offer significant tax reliefs, especially for first-degree heirs.

For example, Madrid offers a 99% reduction in inheritance tax for close family members (children, parents, and spouses), making the tax almost negligible in this region. These differences between regions make inheritance planning an important consideration when choosing a place of residence in Spain.

Transferring Funds from Israel to Spain

You should review the different options for transferring funds abroad, such as bank transfers and international credit cards. Each option has its own advantages and disadvantages regarding fees, transfer times, exchange rates, amount limits, and regulations. Pay close attention to reporting requirements for authorities and banks, in accordance with anti‑money‑laundering laws and international regulations (FATCA, CRS). It is also advisable to open a bank account in Spain in advance. 

According to Section 170(a) of the Ordinance, when a payment from Israel to a foreign resident constitutes taxable income, withholding tax applies. Therefore, transfers of funds that do not constitute taxable income may not be subject to tax but could still require prior approval from the ITA.

In addition, there are other requirements regarding the transfer of money abroad, such as an accountant’s approval regarding tax payments or the source of funds, and more. 

For more information, see the article “Transferring Funds from Israel Abroad.” 

Opening a Bank Account in Spain

Opening a bank account in Spain is possible for foreigners, but the process varies and usually requires a valid passport, proof of address in the country, proof of income, a Spanish NIE number, and sometimes additional documents.

Returning to Israel

When returning to Israel, it is important to carefully assess the potential implications. If you have terminated your tax residency, you may qualify for benefits as a regular  or veteran returning resident, depending on the duration of your stay abroad. These benefits can include tax exemptions on income and capital earned outside Israel.

You should also take into account the waiting period of up to six months for the renewal of National Insurance (Bituach Leumi) health coverage, as well as possible benefits available through the Ministry of Aliyah and Integration.

In short, relocation to Spain offers many opportunities, but it is a complex process that requires professional planning, personal guidance, and a thorough understanding of all legal and tax aspects. It is recommended to consult with international tax experts to ensure early and comprehensive planning for a smooth and successful transition to your new life in Spain. 

The firm of Nimrod Yaron & Co. has extensive experience advising on international relocation and Israeli tax residency termination. For an initial consultation, click here. 

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