Non-residents are taxed in Spain on income arising from Spanish sources only. You are considered tax resident in Spain if you spend at least 183 days there per year or if your main resident home or centre of economic interest is located in Spain.
You will also be obliged to file a tax return detailing your worldwide income in your home (tax resident) country.
Where a double taxation agreement exists between Spain and your home country, which provides for double taxation relief, then a deduction for tax paid in the foreign country can be offset against tax on the same income in your home country. A double taxation agreement exists between Spain and Ireland / UK.
Tax on purchase:
Transfer Taxes (Impuesto de Transferencia de Propiedad)
Transfer taxes apply at rates between 8% - 10% depending on the value on the acquisition or transfer of second hand residential property. 1.2% stamp duty applies to new buildings.
VAT (IVA)
VAT is levied on new properties at the lower rate of 4% in 2012 (previously 8%) except for the Canaries which apply a rate of 5%. In certain cases eg for Spanish leaseback properties, a VAT refund may be claimed on the purchase price but this will give rise to a VAT charge on rents. Contact us for more details at info@dgitax.com
Ongoing property taxes:
Spanish Personal Income Tax (PIT)
Actual Rental Income:
Non-resident property owners must pay income tax at a flat rate of 24% (24.75% from 1.1.12 - 1.12.13) on any income arising from letting a property. A deduction for rental expenses incurred is allowed for residents of the EU, no deduction allowed for non-EU residents. For urban properties, if partially let, non-resident income tax is also paid on a deemed rent for unoccupied periods.
Deemed Rental Income: Impuesto de la renta de no residents declaración ordinaria (IRNR)
Where Urban real estate is held for personal use and is not used as the habitual residence of the owner, Spanish tax law deems income to arise on the property that is subject to IRNR or Deemed Income Tax. This tax is calculated on the deemed annual rental income currently calculated at 1.1% of the property value (or 2% if the property’s catastral value has not been revised since 1 January 1994) at a rate of 24% (or 24.75% from 01.01.2012-01.12.2013). No deductions are available against deemed income in arriving at taxable income. The catastral value is found on your IBI receipt.
Spanish Net Worth Tax (NWT) or Impuesto Sobre el Patrimonio
Up to 2007 non-resident individuals were subject to NWT on their assets located in Spain. In 2008 a 100% tax free allowance was granted which in effect resulted in zero wealth tax payable. For tax years 2011 & 2012 the 100% deduction was removed and a tax exemption limit of €700,000 was introduced. NWT is payable on net asset values over this exemption at rates between 0.2% and 2.5% of the value of the property which is calculated on the higher of:
> The purchase price
> The assessed value for tax purposes (Value assessed by Spanish Tax Authorities for transfer tax
purposes); or
> The catastral value (or Valor Catastral), as reflected in the property tax receipt (IBI) for the year to which the return refers.
It should be noted that a Spanish mortgage charged on the property can be deducted from the cadastral value for the purposes of calculating this tax.
Note: The mortgage must be registered with the Spanish Property Register.
Special tax on Real Estate assets of non-resident organisations
Where Spanish property is held by a foreign organisation / company a special tax @ 3% of catastral value is levied. There is no deduction for expenses allowed unless the organisation meets certain criteria including registered in a country which has a double taxation agreement with Spain eg Ireland or the UK.
Local Property Tax or IBI (Impuesto de Bienes Inmuebles):
This is a rates tax which varies depending on the municipality and the level of urbanisation and services relating to your property. The filing period is normally between September and November of each year and the tax is usually between 0.4% and 1.1% of the cadastral value of the property. It is important to check with the local town hall that you are registered for this tax and to ensure that you receive any notifications. It should be noted that reminders are not always sent out and if you do not pay on time the Spanish Authorities may charge interest and penalties.
Transfer taxes:
Spanish Capital Gains Tax (CGT)
Spanish CGT applies to a gain arising on the sale of the Spanish property which must be declared within three months of transfer. Depending on the year of acquisition indexation may apply. The current rate of Spanish CGT is 19%. It should be noted that any Spanish CGT paid by an Irish resident individual should be creditable against any Irish CGT arising on the same disposal under the Ireland/Spanish double tax treaty.
Withholding Tax on Sale of Property:
According to Spanish fiscal law, if you are non-resident and sell your property in Spain, the purchaser is obliged to withhold 3% from the sale price. This reflects a payment on account of the capital gains tax which is payable to the Spanish Treasury (Tesoro Publico). The purchaser then provides the non-resident seller with a copy of this form so that they may deduct this withholding from the ultimate capital gains tax payable. If the 3% is greater than the actual calculated capital gains tax you are entitled to reclaim the difference.
Note: There are transitional tax rules where the real estate was acquired before 31.12.1994 and the re-sale took place before 20.01.2006.
Spanish Inheritance Tax and gift tax (Impuesto sombre Sucesiones y Donaciones): IHT tax due depends on the owners relationship with the donee, the heir’s pre-existing wealth and the value of the property. The marginal rate is 34%. The deductions and exemptions for Spanish IHT (ISD) applicable to residents currently do not apply to Non-residents. However this is been challenged at EU level and expectations are that it will be changed similar to what happened with the Spanish CGT rate for residents versus non-residents a few years back.