Spanish Compliant Investment Bonds
Tax-Efficient Investment for Expats
What Are Spanish Compliant Investment Bonds?
Spanish Compliant Bonds are an investment solution tailored for expatriates residing in Spain. Combining the benefits of life assurance alongside flexible investment capabilities, these bonds offer an attractive, tax-efficient way to protect and grow your wealth.
Key Tax Benefits
Tax Efficiency
Only the growth of the investment within a Spanish Compliant Bond is subject to tax. This is only applied when withdrawals are made. The current tax rates apply as follows:
| Savings income | Tax rates |
| €0 to €6,000 | 19% |
| €6,001 to €50,000 | 21% |
| €50,001 – €200,000 | 23% |
| €200,001 – €300,000 | 27% |
| €300,001 and above | 30% |
*Updated for 2025
Case Study:
In this example, John invests €150,000 in two investments and doesn’t have any other savings income. He wants to understand how taxes work depending on the type of policy he chooses.
There are two types of policies:
Non-compliant policy
Taxes are paid every year on the growth (or profit) of the investment, even if John doesn’t withdraw any money.
Compliant policy
No taxes are due if John leaves the money in the investment. But if he withdraws money, taxes are only paid on the amount he takes out.
What Happens Over 3 Years?
Here’s how John’s investment grows and the taxes he pays, depending on the policy type. The numbers are based on the growth of his €150,000 investment.
| Tax Year | Policy value at year end | Growth in policy value | Taxable amount of savings income | Personal income tax payable on savings income | ||
| Non-compliant Policy | Compliant policy | Non-compliant policy | Compliant policy | |||
| 2022 | €160,000 | €10,000 | €10,000 | €0 | €1,980 | €0 |
| 2023 | €172,000 | €12,000 | €12,000 | €0 | €2,400 | €0 |
| 2024 | €183,500 | €11,500 | €11,500 | €0 | €2,295 | €0 |
Key Takeaway: If John chooses a compliant policy and doesn’t withdraw any money, he pays no taxes on his investment growth. But with a non-compliant policy, he has to pay taxes every year on the growth, even if he doesn’t touch the money. This is called taxation of unrealised gains.
But What If John Withdraws Each Year?
Again, John invests €150,000 and doesn’t have any other savings income. This time John withdraws the growth from his investment each year:
| Tax Year | Policy value at year end before any withdrawals | Growth withdrawn from the policy | Taxable amount of savings income | Personal income tax payable on savings income | ||
| Non-compliant Policy | Compliant policy | Non-compliant policy | Compliant policy | |||
| 2022 | €160,000 | €10,000 | €10,000 | €625.00 | €1,980 | €118.75 |
| 2023 | €162,000 | €12,000 | €12,000 | €1,583.33 | €2,400 | €300.83 |
| 2024 | €161,500 | €11,500 | €11,500 | €2,228.20 | €2,295 | €423.36 |
Key Takeaway: For a compliant policy, tax is only due on the gain attached to the withdrawal.
As you can see the examples above, there are clear benefits of investing in a Spanish compliant policy. If John does not take any money from the investment then no personal income tax is due on the savings income. If John does take out some money, then the income tax is greatly reduced.
Example withdrawal:
Key Benefits
Simplified Tax Administration
When withdrawals are made, tax on the gain is withheld and submitted directly to the Spanish tax authorities by the investment providers fiscal representative.
No Modelo 720 Reporting
Unlike many other investment accounts in Spain, Spanish Compliant Bonds simplify tax reporting by eliminating the need to declare the bond on the Modelo 720 annual declaration. This is important because the Modelo 720 is a form for reporting overseas assets, and failing to report them correctly can lead to penalties.
Investment Security
Many Spanish Compliant Bonds are held with providers based in Ireland, a jurisdiction known for its highly regulated financial services. Ireland’s strict regulatory standards ensure strong protection for savings and investments, as all assets are ring-fenced, ensuring they can’t be used by the institution for lending purposes. Being in Ireland also means that everything is conducted in English, simplifying management.
Wide Range of Investment Options
Spanish Compliant Bonds offer the flexibility to invest in a variety of UCITS-compliant funds, including shares, bonds, and other financial instruments. This allows diversification and chosen investments that align with your risk appetite and financial goals. Whether you’re seeking conservative, balanced, or growth-focused investments, there is a range of options suited to everyone’s needs.
Multi-Currency
International bonds provide multi-currency options, allowing investments in GBP, EUR, and USD. This offers flexibility to manage investments according to your currency preferences or market conditions, making it easier to align your investments with global financial strategies.
Tax Advantages for Succession Planning
The Bond can be structured to avoid Spanish succession tax entirely. If the policy is structured correctly, there will be no tax triggered upon the death of the first spouse, meaning the bond can pass between spouses tax-free. If the ultimate beneficiaries reside outside Spain, there will be no succession tax on the second death, as both the beneficiary and the asset are located outside Spain.
My Verdict
For expats in Spain with €25,000 (or the currency equivalent) or more to invest, the Spanish Compliant Bond is an ideal choice, offering a unique mix of tax advantages and investment flexibility. With access to global investment strategies, gross roll-up benefits, and effective succession planning, it is perfect for expatriates. Often referred to as the Spanish ISA, its simplified tax administration ensures a hassle-free investment experience.
However, choosing the right Spanish Compliant Bond is just as important as understanding the benefits. The two most popular and frequently used options are:
- Prudential International Investment Bond – A well-established option offering flexibility and strong financial backing.
- Utmost Spanish Bond – Another leading choice known for its competitive tax efficiency and wide range of investment options.
To help you decide which is best suited for your needs, I have written a detailed comparison: Prudential vs. Utmost Spanish Compliant Bond – Compare.
By reviewing these options, you can make an informed decision on which Spanish Compliant Bond aligns best with your financial goals and tax strategy in Spain.