Spain’s Savings Tax Burden Among Highest in Europe – What It Means for Residents in Lanzarote
People living in Lanzarote and across Spain could be paying significantly more tax on their savings and investments than those in many other European countries, according to a newly published economic study.
The report, produced by the Institute of Economic Studies (IEE) and EFPA Spain (Spanish Association of Financial Advisors), claims that Spain’s effective taxation on financial savings products stands at 22%, compared with an average of 14% across the European Union. The study argues that this difference may discourage people from investing and encourage them to leave money sitting in low-interest current accounts instead.
Why Does It Matter?
For many people in the Canary Islands, including those living in Lanzarote, building savings has become increasingly important as the cost of living continues to rise.
The report suggests that Spain’s higher tax burden on investment returns can reduce the amount savers ultimately keep from products such as:
- Savings accounts
- Fixed-term deposits
- Investment funds
- Share portfolios
- Some long-term investment products
Researchers argue that this may make investing less attractive than it is in many neighbouring European countries.
A Trillion Euros Sitting Idle
One of the study’s most striking findings is its estimate that around €1 trillion is currently being held in Spanish bank accounts that generate little or no return.
According to the report, many households prefer the security of leaving money in current accounts rather than investing it, despite inflation reducing the real value of those savings over time.
Pension Savings Also Under Scrutiny
The report also highlights Spain’s pension system.
Researchers argue that tax incentives for private pension contributions are less generous than those found in many other OECD and EU countries. They also note that withdrawals from many pension plans are taxed as employment income, potentially attracting higher tax rates depending on an individual’s circumstances.
Experts Call for Reform
The organisations behind the report believe Spain should review the taxation of savings to encourage more long-term investment.
Among the suggested reforms are:
- Improving tax incentives for savers.
- Increasing contribution limits for pension products.
- Bringing Spain’s taxation of financial savings closer to the European average.
- Encouraging households to diversify their savings rather than relying mainly on cash deposits.
What Does This Mean for Expats Living in Lanzarote?
For British, Irish and other foreign residents living in Lanzarote, the report is a useful reminder that Spanish tax rules apply differently depending on whether you are tax resident in Spain.
Many expatriates are surprised to discover that investment income, capital gains and certain overseas assets may all have tax implications once they become Spanish tax residents. Professional financial advice is often recommended before moving investments or pension arrangements.
No Immediate Tax Changes Announced
It’s important to note that the report does not announce any new taxes or immediate changes to Spanish law.
Instead, it is an economic analysis comparing Spain with other European countries and recommending reforms that could encourage greater investment and long-term saving.
Whether any of these recommendations are adopted will depend on future decisions by the Spanish Government.
