Taxation on Real Estate owned by Non-resident Individuals in Spain

1.- GENERAL CONSIDERATIONS

If you are classified as a non-resident in Spain for tax purposes but you own urban real estate in this country then you are obliged to pay non-resident income tax and a local property tax.

Furthermore, Wealth Tax has been temporarily re-established for the 2011 and 2012 financial years.

 

1.1. REPRESENTATIVE

Except in cases of residents in countries or territories with which an effective exchange of tax information does not exist, there is no obligation to appoint an agent to act before the Tax Authorities. Nevertheless, should you choose to do so, you may appoint whoever you wish, and should communicate this appointment to the Branch or Administration of the Tax Agency corresponding to the location of the property.

 

1.2. TAX IDENTIFICATION NUMBER (NUMERO DE IDENTIFICACIÓN FISCAL – NIF)

In Spain everybody is assigned a Tax Identification Number, which must appear on all tax returns and in all communications with the Tax Authorities.

In general, for people with Spanish nationality, the NIF is the number of their National Identity Card (DNI) and, in the case of foreign nationals, the NIF is the Foreign Nationals’ Identification Number (NIE). This identification is processed by the Police General Directorate. However, those foreign citizens who do not have a NIE, either temporarily or permanently, since they are not required to have one, should request a NIF be assigned to them by the tax authorities in order to complete tax operations.

 

2.- NON-RESIDENT INCOME TAX

When the property belongs to a married couple, or to more than one person, each person is an independent taxpayer, and must file an individual tax return.

Depending on the use of the property, the taxes to which it is liable are:

 

2.1. INCOME CALCULATED ON URBAN PROPERTY FOR PERSONAL USE.

The amount to declare will be that resulting from applying the following percentages to the assessed value of the property as shown on the Property Tax bill (IBI):

  • In general, 2%.
  • In the case of properties where the assessed value has been revised or modified since 1 January 1994, the percentage will be 1.1%.

This yield is calculated once per year, on 31 December.

If you have not been the owner of the property during the whole year, or if it has been rented for any period, only the proportional part of this amount is declared.

Year income accrued                  Tax rate:

  • 2011:                                    24%
  • 2012-2013:                         24,75%

Form: form 210, recording income type 02.

Means of filing:

  • on paper, generated by printing a form completed on the Tax Agency website.
  • Electronically, via the Internet (with electronic certificate).

Filing deadline: during the whole calendar year following the accrual date.

  • Direct debit payment of the tax debt: In the case of electronic filing, payment can be made by direct debit until 23 December.

 

2.2. INCOME FROM RENTED PROPERTIES.

The amount to declare is the entire amount received from the tenant, without deducting any costs.

Nevertheless, as we are dealing with taxpayers resident in another European Union member state, the expenses described in the Law on Personal Income Tax (IRPF) can be deducted when calculating the taxable base, as long as proof is provided that these expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain.

This amount is understood to have become liable for taxation at the moment that it is demandable by the lessor or on the date that it is collected, if this is earlier.

Year income accrued                  Tax rate:

  • 2011:                                    24%
  • 2012-2013:                         24,75%

Form: form 210, recording income type 01.

This shall be used to declare each income sum separately as well as to declare several different incomes obtained in a specific period as a group.

Several different incomes earned by the same taxpayer may be grouped together so long as they correspond to the same income type code, come from the same payer, the same tax rate is applicable to them and if they derive from an asset or entitlement, that they come from the same asset or entitlement.

The grouping period will be quarterly in the case of self-assessment with taxes owing, or annual in the case of self-assessment resulting in zero charge or refunds due.

Means of filing:

  • on paper, generated by printing a form completed on the Tax Agency website.
  • electronically, via the internet.

Filing deadline: depends on the self-assessment result:

  • With taxes owing: within the first twenty calendar days of the months of April, July, October and January in relation to the income whose accrual date falls within the previous calendar quarter.
    • Direct debit payment of the tax debt: in the case of electronic filing, the payment can be paid by direct debit between the 1 and 15 of the months of April, July, October and January.
  • With zero charge: from 1 to 20 January of the year following the accrual year for the declared income.
  • With a refund due: as of 1 February of the year following the accrual of the income declared and within a period of four years from the end of the period for filing the return and depositing the withholding. The deadline for filing the self-assessment will be understood to conclude on the date it is filed.

 

2.3. NET GAINS DERIVED FROM THE SALE OF BUILDINGS.

Capital gains obtained as the result of the sale of a building constitutes taxable income. This income shall be deemed accrued when the property is transferred.

In general, net gains shall be calculated based on the difference between the cost price and transfer value of the property.

The cost price consists of the real cost price of the property involved, plus all costs and taxes arising, excluding interest, paid by the transferor. Depending on the year of purchase, this value is corrected by the application of an updating coefficient which is established annually, in accordance with the General State Budget Act.

For assets sold in 2012, the coefficients are as follows:

Year of acquisition Coefficient

1994 y anteriores                            1,3037
1995                                                   1,3773
1996                                                   1,3302
1997                                                   1,3037
1998                                                   1,2784
1999                                                   1,2554
2000                                                   1,2313
2001                                                   1,2071
2002                                                   1,1834
2003                                                   1,1603
2004                                                   1,1375
2005                                                   1,1151
2006                                                   1,0933
2007                                                   1,0719
2008                                                   1,0509
2009                                                   1,0303
2010                                                   1,0201
2011                                                   1,0100
2012                                                   1,0000

However, if the investment was made on 31 December 1994, a coefficient of 1.3773 is to be applied.

The application of a coefficient other than the unit requires the investment to have been made at least one year in advance of the date of transfer of the real estate asset.

If the building being transferred had been rented, the value determined should be reduced by the amount of the depreciation corresponding to the rental period. This depreciation will also be updated in accordance with the year to which it corresponds.

The transfer value is the real amount for which the disposal was made, reduced by the amount of any costs or taxes related to the transfer paid by the seller.

As a result, the capital gain which will be taxed consists of the difference between the transfer value and the cost price, determined as described above.

Nevertheless, if the property is transferred by an individual who purchased it prior to 31 December 1994, net gains will be subject to a transitory scheme and the previously calculated figure will be reduced.

If the transferor acquired the property on two separate dates or the property has been renovated, calculations must be made as if there were two net gains.

Partial exemption:

An exemption applies to 50 percent of the capital gains resulting from the sale of urban real estate in Spain which has been purchased between 12 May 2012 and 31 December 2012. This partial exemption is not applicable:

In the case of natural persons, when the real estate has been purchased by or transferred to their spouse, to any person related to the taxpayer either via the direct line or collateral lines, by blood or by affinity, up to and including the second degree, to an entity which falls under any of the conditions set forth in article 42 of the Code of Commerce, either in relation to the taxpayer or any of the other persons mentioned above, regardless of their place of residence and the obligation to formulate consolidated annual accounts.

In the case of entities, when the real estate has been purchased by or transferred to a person or entity that falls under any of the conditions set forth in article 42 of the Code of Commerce, regardless of their place of residence and the obligation to formulate consolidated annual accounts, or to the spouse of the above mentioned person or any other person related to said person via the direct line or collateral lines, by blood or by affinity, up to and including the second degree .

Year income accrued                  Tax rate:

  • 2011:                                    19%
  • 2012-2013:                         21%

The person acquiring the building, whether resident or non-resident, shall be obliged to withhold 3% of the agreed payment and deposit it with the Public Treasury. For the seller, this withholding acts as a payment on account of capital gains tax arising from the transaction. Therefore, the purchaser will give a copy of form 211 (used to deposit the withholding) to the non-resident seller, so that the seller can deduct this withholding from the tax to be paid as a result of the tax arising from the capital gain. Should the amount retained be greater than the tax liability, it is possible to obtain a refund of the difference.

If the withholding is not paid, the real estate will be liable for payment of the lowest amount between the withholding and the corresponding tax.

 

Tax Return Form: 210, recording income type 28.

Means of filing:

  • on paper, generated by printing the form completed in on Tax Agency website.
  • Electronically, via the Internet.

When the building being transferred is jointly owned by a married couple where both partners are non-resident, exceptionally it will be possible to file a single tax return.

Time period: three months from the end of the period that the person acquiring the building has to deposit the withholding (this time period, in turn, is one month from the date of the sale).

Refund of excess withholdings In the event of capital gains loss, or in the event of a withholding greater than the amount that should have been deposited, there is a right to a refund of the excess amount retained. The refund procedure is initiated by filing the tax return form.

The Administration may make a provisional settlement within a period of six months from the end of the period established for filing the tax return. When the tax return is filed outside the period, the six months will be calculated from the filing date. If the provisional settlement is not made in said time period, the Tax Administration will proceed to refund the excess on the amount self-assessed, without prejudice to any later settlements that may be relevant. If the refund has not been ordered once six months have elapsed and for reasons not attributable to the taxpayer, the amount pending refund shall accrue late payment interest.

 

3.- WEALTH TAX

This tax has been temporarily re-established for the 2011 and 2012 financial years and is due on 31 December of each of these years.

Net tax base: The net tax base will be reduced, in concept of exemption, in €700,000.

Obligation to file: All taxpayers with a tax charge to pay are obliged to file a return. Also, those with assets and rights valued at over €2,000,000 are obliged to file a return, even if they have no tax charge to pay.

 

4.- PROPERTY TAX

This is a tax charged by local Councils and paid by property owners.

All property within the Council’s area is included on a tax register and is assigned a value (Rateable Value). The amount of tax to be paid is calculated by applying the tax rate set by the Council to this Rateable Value.

A bill is sent out for payment of this tax every year for every property on the tax register. Usually, Councils accept payment of the tax by direct debit from a bank account, which facilitates payment within the time period set and thus avoids any possible surcharges.

The payment deadline depends on the Council, although it is normally around the months of September, October or November each year.

 

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5 respuestas a Taxation on Real Estate owned by Non-resident Individuals in Spain

  1. Kevin dijo:

    Just to help anybody else in a similar situation and confirm the above after going through the process:

    We are US residents renting out a property in Spain with a Spanish mortgage. We cannot deduct the mortgage from the rental income we receive since we are not Spanish tax residents.

    We have to pay 24.75% Spanish tax on the entire rental income (tax form from Hacienda 210). Payment must be made quarterly.

    Also note that if you own an empty Spanish property and you are not resident in Spain, you must pay 1.1% of the “valor catastral”. This may be payed annually instead of quarterly.

    Payments can be made online and supporting documentation has to be sent by post.

    • Thank you Kevin.

      What you said is right for non-residents.
      But non-residents from European Union, are allowed to deduct from rental income same deductible expenses as Spanish residents, plus from rental profit they will apply a reduction of 60% from this profit.

  2. Kevin dijo:

    Thanks for the information on your website.

    I have a question regarding taxes on a property owned in Spain that we about to rent out. My wife and I are currently living in the USA and are non-residents as far as ‘Hacienda’ in Spain is concerned. My understanding is that all global income must be declared when we make our tax declaration to the US tax authorities. Does this mean that we must pay tax in the USA on the income of our rented Spanish property?

    If we pay tax in the USA, how do we inform ‘Hacienda’ in order to avoid being taxed twice?

    If we must pay tax in Spain, do we have to fill-in a complete Spanish tax return (we have no other income in Spain) or is there a specific form just for non-resident payment of taxes? In this case, would the 24.75% tax be payable on total rental income or on profits once the mortgage, IBI, comunidad, etc have been deducted?
    Many thanks.

    • Javier dijo:

      @Kevin,
      Yes, you should declare to IRS your rental income from your property in Spain. This will increase the amount to pay but you are allowed to deduct the amount of taxes paid in Spain.
      All this is explained in the Agreement for avoiding double taxation United States – Spain.
      Article 6. Explains that US residents should pay taxes in Spain for the real state in spain.
      Article 24. Explains how to compensate the double taxation of real state in Spain: US allows deducting taxes paid in Spain.

      In your tax return you will need to fill the information about Deductions for international double taxation.

      In Spain there is a specific form for non residents with real state: Form 210.
      This form should be filled once per year when the real state is non rented (for your own use)
      But if real state is rented you should fill it every term.

      The base for the tax is total rental income, without any deduction.
      Deduction is only allowed for spanish or European Unión Residents.

      Trick, for reduccing tax is renting at a lower Price, becouse the person using the house will pay comunidad, IBI…

      • Kevin dijo:

        Thanks for the reply, it has cleared everything up.
        I will inform the rental agency immediately regarding reducing the rent and having the renter pay the fixed costs.

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