Taxes for Non-Residents with property in Spain

Understanding the tax obligations for non-residents owning property in Spain is crucial for effective financial planning and legal compliance. The taxation system in Spain distinguishes between residents and non-residents, applying different tax rates and requirements based on residency status.

 

Definition of Non-Residency in Spain

A non-resident in Spain is defined as an individual who lives in the country for less than 183 days a year and does not have fiscal residency in Spain. This distinction is significant as it determines the type of taxes and the rate at which an individual is taxed​​.

 

Types of Taxes for Non-Residents

Income Tax and Capital Gains Tax

Non-residents owning property in Spain are subject to various taxes, including Income Tax (which encompasses Capital Gains Tax). This tax is levied on income generated from property, such as rental income, but does not include income from wages, which is taxable in the individual’s country of residence​​​​​​.

Imputed Income Tax

For properties not rented out, non-residents must pay an imputed income tax, calculated as a certain percentage of the property’s value. This is a unique tax for non-residents and is based on the potential income that the property could generate if it were rented out​​.

Wealth Tax

The wealth tax in Spain applies to non-residents with properties valued over 700,000 euros. This tax is calculated based on the total value of all taxable assets owned by the individual in Spain​​.

Local Taxes

In addition to national taxes, non-residents must also pay local Spanish property taxes (IBI), which vary depending on the province and the cadastral value of the property. This tax is mandatory regardless of whether the property is rented out or not​​​​​​.

Rental Tax

If the property is rented out, non-residents are required to declare this income and pay a rental tax. The tax rate depends on the non-resident’s country of residence, with different rates applied for EU/EEA citizens compared to non-EU/EEA citizens​​​​.

 

Tax Rates and Considerations

  • For EU/EEA Citizens: The tax rate for non-residents from the EU/EEA is generally 19%.
  • For Non-EU/EEA Citizens: The tax rate for non-residents from outside the EU/EEA is generally 24%.
  • Maintenance and Renovation Deductions: Only EU residents are allowed to reduce their taxable income with maintenance and renovation expenses on the property​​.

 

Tax Submission Requirements

Non-residents with property in Spain must submit tax returns and pay their taxes on a periodic basis. For rental properties, tax returns must be submitted quarterly. The tax system does not provide allowances or deductions for non-residents, except for EU residents under certain conditions​​​​.

 

Compliance and Reporting for Non-Residents

Reporting Rental Income

Non-residents who rent out their Spanish properties must report their rental income to the Spanish tax authorities. This requirement is mandatory, and the income must be reported within 30 days of receipt, although there is an option to report on a quarterly basis to simplify the paperwork. It’s important to note that Spanish Income Tax accounts for benefits arising in Spain, and for non-residents, the tax rate on rental income is 24.75%​​.

No Deductions for Non-Residents

A significant difference between tax rules for residents and non-residents in Spain is the ability to claim deductions. Non-residents are generally not allowed to reduce their taxable rental income by 50%, as is the case for resident property owners. This lack of deduction opportunities can increase the effective tax rate for non-residents​​.

Tourist Rental Properties

If a non-resident registers their property as a tourist rental, there is an opportunity to charge the cost of maintaining the property as a business expense. This can be offset against the property taxes, potentially reducing the overall tax burden. However, this requires proper registration and adherence to specific regulations governing tourist rentals in Spain​​.

Understanding the Cadastral Value

The cadastral value plays a crucial role in determining the tax liability for property owners in Spain. This value is used as a basis for calculating various taxes, including the real estate tax (IBI) and the imputed income tax. The cadastral value reflects the property’s value as assessed by the Spanish authorities and can vary greatly depending on location and other factors. It’s important for non-residents to understand the cadastral value of their property and how it affects their tax obligations​​.

 

Additional Legal Obligations

Non-residents must be aware of additional legal obligations when owning property in Spain. For example, at the time of selling a property, they are required to present the current real estate tax receipt (IBI). Additionally, a deposit of 3% of the total sale price is often required as a guarantee against potential tax liabilities. This is important to consider for non-residents planning to sell their property in Spain​​.

Professional Assistance

Given the complexity of the Spanish tax system, especially for non-residents, it is highly advisable to seek professional assistance. Tax laws in Spain can be intricate, and having expert guidance can help in ensuring compliance and optimizing tax liabilities. A tax professional or lawyer specializing in Spanish property law can provide invaluable support in navigating these complexities.

In conclusion, owning property in Spain as a non-resident requires a thorough understanding of the tax system and legal obligations. From income tax and wealth tax to local property taxes and the specifics of rental income reporting, non-residents must navigate a range of requirements. Professional advice is key to ensuring compliance and making the most of the investment in Spanish real estate.

 

Additional Considerations When Purchasing Property

When purchasing property in Spain, it is recommended to have savings of about 10% to 12% of the house’s price to cover various taxes and obligatory expenses associated with the transaction, such as VAT and registry fees​​.

In summary, non-residents in Spain with property must navigate a complex tax environment that includes income tax, wealth tax, local taxes, and rental tax. The rates and obligations vary depending on residency status and the specifics of the property owned. It is advisable for non-residents to seek professional advice to ensure compliance and optimal tax planning.