Spain is one of the favorite tourist destinations and is one of the most attractive European countries for foreigners to buy a second residency or invest in real estate.
Being the owner of the property in Spain has its tax implications, which depend on whether the person owning the property is considered as a tax resident or NOT in Spain. The concept of the tax residence has nothing to do with residence in Spain for immigration or residence permit purposes. In this article we will focus on the taxation of non-residents of Spain for real estate owners.
When is a person considered as a NON-RESIDENT in Spain?
The Personal Income Tax Law establishes requirements for tax residence in Spain:
- To stay in the country for more than 183 days per year.
- To have the center of economic interests in Spain.
- Residence of the spouse and minor children in Spain.
On the contrary, if you do not meet any of the above criteria, then you are a non-resident in Spain.
Learn about the taxation of non-residents of Spain for real estate owners
If you reside outside of Spain and considered to be a non-resident for tax purposes, here is a list of taxes that have to be paid by the owner of real estate in Spanish territory:
- Non-Resident Income Tax (IRNR).
- Wealth Tax (IP).
- Property Tax (IBI).
Non-resident income tax
The non-resident tax is regulated by Royal Legislative Decree 5/2004, of March 5, 2004, which approves the revised text of the Non-Resident Income Tax Law. The tax, among other income, is levied on the holding, renting and transfer of real estate by non-residents.
Taxation may vary depending on the use of the property.
Property as a second home or without rental activity
A non-resident, who owns a property in Spanish territory without renting it out must pay Non-resident Income Tax for using the property as a second home or for keeping it empty. The presumed rental income is calculated at 1.1% of the Cadastral Value of the property or 2% where this value has not been revised in the previous 10 years.
The tax rate:
- 24% for non-EU citizens.
- 19% for EU citizens; Iceland and Norway.
Period for submission: during the calendar year following the date of accrual (December 31st of each year). For example, if you have a property, which was not rented during 2021, the tax should be submitted till December 31st, 2022.
Income tax on rental income
In case you rent out your Spanish property, the non-resident is tax liable to pay tax for rental income and submit quarterly tax returns Form 210. The taxation of rental income varies according to the country of residence of the owner of the property.
- Residents of the European Union, Norway and Iceland: expenses can be deducted from the total rental income if they are directly related to the income obtained in Spain (local council tax, community fees, insurance payments etc.)
Tax rate for Residents of the European Union, Iceland and Norway is 19%.
- Non-EU residents: taxpayers with residence outside of European Union, Norway or Iceland cannot deduct any type of expense. The tax rate applied to them is 24%.
Filing deadline depends on the result of the declaration:
- In case the result of tax return is positive (to pay), the declaration should be submitted during first 20 days of the months of April, July, October and January.
- Zero charge: from January 1 to January 20 of the year following accrual of the income in question.
- Negative tax return (to refund): from February 1 of the year following the year of accrual.
The taxpayer will be obliged to file a quarterly tax return (form 210) with respect to the income received.
Sale of the property
In case of a sale of property, the taxpayer has to declare the capital gain if the value of the transfer is higher than the value of the acquisition.
When a non-resident sale a property located in Spain, the purchaser, whether an individual or a legal entity, is obliged to withhold 3% of the value of the property transferred and pay it to the Tax
Authority within 1 month from the date of the sale, submitting the form 211.
The seller must file the Form 210 for the amount resulting from applying 19% to the capital gain minus 3% of the withhold. In case if the tax to be paid is less than 3% of withhold, the seller will be entitled to claim the excess to the Tax Authority.
The deadline to submit the Form 210 is during the period of 4 months after the date of transfer of the property.
Wealth Tax
The wealth tax is levied on the wealth of individuals as of December 31 of each year. Non-residents in Spanish territory are obliged to declare and pay taxes in Spain due to the “real obligation”, meaning, due to the fact that the property is located in Spain.
In general, there is a minimum exemption of 700,000 euros, but rules vary depending on the autonomous region.
Property tax
The Property tax (IBI in Spanish) is a municipal tax levied on the value of real estate (housing, parking space, storage room, premises) located in Spain.
The owners of the Spanish property are obliged to pay the Property Tax to their City Hall every year.
The City Council of each municipality is the entity in charge of establishing the amount of the tax based on the cadastral value of the property and a percentage of that cadastral value.
At ANTEO ETL GLOBAL we can advise you on the taxation of non-residents and help you to comply with your tax obligations in our tax advisory.
