Spanish Tax Guide for Expats Living in the Canary Islands 2026: IRPF, Modelo 720 and More

Are You a Spanish Tax Resident?

Before anything else, the first question is: are you a tax resident in Spain?

You become a Spanish tax resident if:

• You spend more than 183 days in Spain in a calendar year (counting short absences as days in Spain unless you prove tax residence elsewhere)
• Your main economic interests are in Spain (even if you spend fewer than 183 days)
• Your spouse and minor children habitually live in Spain (rebuttable presumption)

As a Spanish tax resident, you must declare your worldwide income in Spain — not only income generated in Spain.

As a non-resident (spending fewer than 183 days), you pay the Non-Resident Income Tax (IRNR) only on income sourced in Spain (e.g., rental income from a Spanish property, Spanish capital gains). The general IRNR rate for EU/EEA residents is 19%; for others, 24%. Capital gains on the sale of assets are taxed at 19% whatever your country of residence.

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Spanish Income Tax (IRPF): How It Works for Residents

IRPF (Impuesto sobre la Renta de las Personas Físicas) is Spain's personal income tax for residents. It has two components:

• National rate (set by the central government)
• Regional rate (set by each comunidad autónoma)

Combined Rates in the Canary Islands

The Canary Islands set their own regional scale, from 9% to 26% (Article 18 bis of Canary Islands Legislative Decree 1/2009), which is added to the national scale of 9.5% to 24.5% (Article 63 of the Personal Income Tax Act). Combined marginal rates for 2026:

Note: these are combined marginal rates (national scale plus the Canary Islands scale currently in force). Where a range is shown, it is because the regional brackets do not coincide with the national ones.

Types of Income and How They're Taxed

IRPF distinguishes between:

General income (renta general) — typically taxed at the progressive rates above:

• Employment income (salary, bonuses)
• Self-employment income (professional activities, freelance)
• Rental income from property
• Pension income
• Most business income

Savings income (renta del ahorro) — taxed on a separate scale:

• Dividends and interest
• Capital gains on asset sales

The savings income rates for 2026:

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The Beckham Law: Flat 24% for New Expat Residents

The Beckham Law (Régimen especial para impatriados) is the most significant tax benefit available to newly-arrived expat workers in Spain. It allows qualifying individuals to pay a flat 24% rate on Spanish-sourced income up to €600,000 per year (instead of the progressive rates, which reach 50.5% in the Canary Islands).

Who Qualifies?

• Has not been a tax resident in Spain in the 5 years immediately before the move
• Moves to Spain because of:
  • Employment contract with a Spanish employer, or
  • Assignment from a foreign company to a Spanish entity, or
  • Becoming a director of a Spanish company (with certain restrictions on ownership), or
  • A qualifying remote work arrangement in Spain
• Must apply within 6 months of starting work

Who Does NOT Qualify?

• Athletes who get paid for their sport
• Anyone who was a Spanish tax resident within the past 5 years
• Self-employed professionals who are not hired through a Spanish entity

Duration

The Beckham Law applies for the tax year of arrival and the following 5 tax years (6 years total). After that, you transition to standard IRPF rates.

For ZEC company founders: combining a ZEC company (4% corporate tax) with the Beckham Law (24% personal income tax on director fees) creates one of the most tax-efficient structures for entrepreneurial expats in the EU.

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Modelo 720: Declaring Your Foreign Assets

This is one of the most important obligations for expat tax residents in Spain, and one of the most frequently overlooked.

What Is Modelo 720?

Modelo 720 is an annual informational declaration of assets held outside Spain. It covers three categories:

1. Bank accounts opened in foreign financial institutions (current accounts, savings accounts, deposits)
2. Securities and financial instruments held in foreign entities (shares, bonds, investment funds, pension plans)
3. Real estate located abroad (houses, flats, commercial properties)

Who Must File?

Any Spanish tax resident whose total value in any single category exceeds €50,000 as of 31 December of the previous year. Note: it's per category, not cumulative.

• If your UK bank accounts total £55,000: you must declare category 1
• If your German shares are worth €60,000: you must declare category 2
• If you still own a property in France worth €200,000: you must declare category 3

If no category exceeds €50,000, you do not need to file Modelo 720.

When Is It Due?

Modelo 720 must be filed between 1 January and 31 March of the year following the one being declared.

The Penalties for Non-Declaration

Spain has historically had very severe penalties for Modelo 720 non-compliance. Following a 2022 European Court of Justice ruling (Case C-788/19), the specific penalty regime was repealed by Law 5/2022, and the general rules of the General Tax Act now apply:

• Not filing on time (Article 198): €20 per item of data, with a minimum of €300 and a maximum of €20,000; these amounts are halved if you file late before receiving a demand from the tax office
• Incomplete, inaccurate or false declaration: penalised under Article 199 of the General Tax Act

The critical point is that you must file even if no tax is due — Modelo 720 is purely informational.

First Year of Residency

In the year you become a Spanish tax resident, you must file Modelo 720 for the previous December 31st values of your foreign assets (even though you weren't yet resident on that date). In practice, many first-year filers should file Modelo 720 for the prior year's values when they submit their first Spanish tax return.

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Wealth Tax (Impuesto sobre el Patrimonio)

The Canary Islands: €700,000 Tax-Free Allowance

The Canary Islands do not apply a 100% bonus (bonificación) on the Wealth Tax. The regional rules set a tax-free allowance of €700,000 per taxpayer (Article 29 of Canary Islands Legislative Decree 1/2009); net wealth above the allowance is taxed at the progressive scale of Article 30 of Law 19/1991, from 0.2% to 3.5%.

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Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones)

A significant advantage of the Canary Islands: a 99.9% bonus on Inheritance and Gift Tax for:

• Spouses
• Children and grandchildren
• Parents and grandparents
• On inheritances: also brothers and sisters, nephews and nieces, uncles and aunts (Group III)

The bonus is set out in Articles 24 ter (inheritances, as worded since 6 September 2023) and 26 sexies (lifetime gifts, which must be formalised in a public deed) of Canary Islands Legislative Decree 1/2009.

This means passing property worth €500,000 to your child is virtually free of inheritance tax — you would pay perhaps €100-500 in nominal tax.

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Other Taxes You Will Encounter

IGIC (instead of VAT/IVA)

The Canary Islands do not apply the standard Spanish VAT (IVA). Instead, they have IGIC (Impuesto General Indirecto Canario):

• Standard IGIC rate: 7% (vs 21% for mainland Spain's general IVA rate)
• Reduced IGIC: 3% (most other food products)
• Zero IGIC: 0% (staple foods such as bread, milk, cheese, eggs and unprocessed fruit, vegetables, meat and fish; medicines for human use; books)

This is the consumption tax you pay when shopping. As a consumer, it means everyday goods and services cost less in the Canary Islands than on the mainland.

IBI (Property Tax)

If you own property, you will pay the annual IBI (Impuesto sobre Bienes Inmuebles) to the local municipality. Each municipality sets its own rate; for urban property the general legal range is 0.4% to 1.10% of the cadastral value per year (Article 72 of the Local Treasuries Act).

Non-Resident Rental Income

If you own a Spanish property but are a non-resident, rental income is taxed at 19% (EU/EEA residents) or 24% (others). Non-EU/EEA residents are taxed on the gross rent; EU/EEA residents may deduct the expenses allowed by the Personal Income Tax Act that are directly related to the rental (Article 24.6 of the Non-Resident Income Tax Act).

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Key Tax Deadlines for Expat Residents

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Moving to the Canary Islands: Tax Transition Checklist

✅ Obtain your NIE — essential before opening bank accounts or filing tax returns
✅ Register as a tax resident with the Spanish Tax Agency (AEAT) if Beckham Law doesn't apply
✅ Apply for Beckham Law within 6 months of starting work if you qualify
✅ Notify your home country bank/pension of your change of tax residence
✅ Prepare for your first Modelo 720 (required if foreign assets exceed €50,000 per category)
✅ Set up a Spanish bank account for receiving salary/pension and paying Spanish taxes
✅ Consult a specialist on double taxation treaty between Spain and your home country
✅ Update your will if you own property in Spain (see our Spanish will guide)

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Double Taxation Treaties

Spain has double taxation treaties (DTT) with over 100 countries, including:

These treaties generally prevent you from being taxed twice on the same income and allocate taxing rights between Spain and your home country. The specifics depend on the type of income (salary, pension, investment) and must be checked on a case-by-case basis.

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How ALY Abogados Can Help

Our tax and legal team in Las Palmas de Gran Canaria regularly assists expats with:

• Beckham Law application: assessing eligibility and submitting the application
• Modelo 720 preparation: inventorying your foreign assets and ensuring correct reporting
• First-year IRPF return: optimising your tax position in the transition year
• Double taxation treaty advice: for pensions, rental income and investment returns
• NIE applications: getting your tax identification number before the deadline
• Estate planning: coordinating Spanish and foreign wills, optimising for the 99.9% Canarian inheritance tax bonus

We work primarily in English and Spanish.

Your first consultation fee is deducted from our fees if you instruct us.

📞 +34 633 572 607 | ✉ alyabogados@lazaroamable.com

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Lázaro Héctor Amable Méndez — Lawyer, Bar Association No. 5,231 ICALPA