MAIN TAXES ARISING FROM THE OWNERSHIP OF REAL ESTATE IN SPAIN
In this article we will focus only on the main taxes and charges that -being an owner of a property imply as a non-residents in Spain.
A non-resident who owns urban property in Spain will be subject to non-resident income tax and two local taxes: property tax and rubbish tax. In addition, he/she would be subject to Wealth Tax by real obligation.
WHAT IS THE NON-RESIDENT INCOME TAX?
In the same way that the resident in Spain is has to pay IRPF (Personal Income Tax), those who do not reside in Spain must declare the Non- Resident Income Tax (IRNR) for the assets and rights that they hold in Spain and are subject to taxation. This declaration, which, depending on the type of income and country of residence of the person, applies tax rates of between 19% and 24%, “includes income obtained in Spain through economic activities, income from real estate capital, ownership of a second home and pensions”.
In Spain, the mere fact of being an owner of a house or garage located in this country, even if the individual does not obtain any economic benefit or income, he/she will still have to pay tax on it for “presumed” income. In the case that the property is rented, it is obvious and understandable that you have to pay tax on it, because you are obtaining a benefit, but if you only enjoy it, this means that just because of the fact that you could potentially earn income on the property means that you still have to pay tax .The income tax return that has to be declared for having an empty property- just because Spain is not your habitual residence.
In some cases, taxes that come from activities must be paid both in Spain and in the country of residence of the owner. In this respect, Spain has signed a large number of double taxation treaties with third countries.
Regarding the non-resident tax, it is necessary to mention the taxation of rental income, as it will be taxed differently depending on the country of residence of the
- If he/she is a resident in Spain and pays IRPF (personal income tax), you can deduct the expenses inherent to it (consumption if he pays it, community, IBI…).
- If you are resident in another EU country, you will be taxed on your rental income in Spain by IRNR (non-resident income tax) at a flat rate of 19%. You will be able to deduct the expenses inherent to this rental.
- And finally, if the landlord is a resident in a country outside the EU, in this case he/she will be taxed on the rental income in Spain by IRNR (non-resident income tax) at a fixed rate of 24% and will not be able to deduct any type of expenses.
WHAT IS THE PROPERTY TAX?
In addition to the IRNR, other taxes for non-residents can be the Impuesto sobre Bienes Inmuebles (IBI), which is the tax the owner of a property pays to the Town Hall every year and is a tax that is paid for the mere fact of having the ownership and the right to use a property and includes, in addition to dwellings, premises, garages and rural and urban estates. This tax is usually associated with a rubbish tax, which must also be paid by the owner of the property.
WHAT IS THE WEALTH TAX?
This is a direct and personal tax levied individually, not on annual income or transactions, but on the personal wealth of individuals, and is calculated based on the value of all the taxpayer's assets. At present, non-residents holding assets and rights in Spain whose net value exceeds EUR 700,000 are obliged to file a tax return and pay the corresponding tax. In addition, taxpayers whose tax liability is payable, or when, in the absence of this circumstance, the value of their assets or rights, determined in accordance with the tax regulations, exceeds 2,000,000 euros, are obliged to file a tax return.
In cases of real obligation to contribute -this is, for non-residents in Spain- charges and encumbrances affecting assets and rights which are in Spanish territory, or which may be exercised or must be fulfilled in Spanish territory, as well as debts for capital invested in the assets, shall be deductible -for instances, mortgages.
In any case, we always recommend that you seek the advice of a lawyer and tax advisor when you decide to purchase a property in Spain to advise and assist you in thepurchase process.
Interview to Julian de La Fuente
“My name is Julian de la Fuente. I’m a lawyer under the Bar Association of Malaga. I am the founder with my partners of a law firm called Franke de la Fuente, based here in the Costa del Sol.
We are a lawyer’s office devoted to foreign investments in Spain. Therefore, we have lawyers of different nationalities in order not only to provide the legal services appropriately, but at the same time to inform and to communicate to our clients in the most accurate way in their mother languages.”
Once the buyer has decided to purchase the property, what legal procedures will he find from the decision to the handing over of the keys?
“I like to see the transaction in two different ways when a foreigner decides to buy property here in Spain. First of all, the civil side of the business. This is buying a property free of charges, free of incumbencies, without any problem having the possession, with no urban issues and at the same time. Secondly, you have to see the tax side of the transaction, which implies that if you buy a first home and you promote it, you will be subject to pay 10% VAT on the purchase price plus stamp duty tax (legal documentation tax/ AJD in Spanish) and when you buy a resales property is subject to transfer tax which currently in Andalusia is set up at 7%.”
What taxes will a foreign buyer have to face to maintain a property (second residence) in Spain?
“When you become an owner of a property in Spain under your own name as an individual and as a foreigner, you will have to face two different taxes every year:
- The non-residential tax is a national tax and in case you only use the property you only pay once.
- The local tax which is a tax that you pay to the town hall where the house is is placed.
In both cases it depends on certain percentages and certain numbers but basically, I like to say that it depends on the cadastral value of the property. This value will determine which are the taxes to be paid to the national tax office and local tax office.
What about when they want to rent a property in Spain, what taxes do you have to pay ?
When a foreigner rents a property in Spain, we have to take into consideration first of all that they will have to submit quarterly taxes. They have to inform, report and pay the taxes every quarter (4 months) and at the same time pay the European union citizens tax at 19%. If you are a non-resident in the European union this tax is set up at 24%.”
What are the Golden Visa Benefits?
“The Golden visa benefits Gives you the Residence Card. This doesn’t mean that you become a tax residence. What the law says or the benefits that the law gives or the rates that the law establishes entirely depends of the individual tax resident, not from the obtention of a card that allows you to work or allows you to travel freely because I it doesn’t mean that you are you are going to become a tax residence here in Spain”
What is the sense of having a Golden Visa when you have a property here?
“Well, it makes sense, for example, “you are a European outside of the European Union and therefore you are constrained to spend certain days only in Spain, in Europe. Therefore, with the visa you can spend as many days as you wish in Spain. The only difference is that will be able to enjoy your property for the whole year round and not only a certain period of time. The only situation that you will face there is that in case you are living for more than 183 days; you may become a tax resident and that has certain implications for investors.”
What is the difference if you want to buy a property as a business/company or as an individual person?
“Many clients ask the difference between buying a property under a company or in your name. Our answer is usually the same. It entirely depends on the use you are going to give to the property. If you are going to use it and enjoy it, the best thing to do, is you to buy it under your own name. However, if you are going to do business such as rent it or you are going to renovate it and sell it in the future, maybe you can use a company to do it. You have different tax system. From the moment that as an individual paying resident tax and buying a house through a company, “for example, a Spanish company” you are subject to corporate tax.
This is a very a bit difficult and complex for me to explain in a short interview. When you buy through a company and you use the house in personal terms, the tax office can come to you and say “listen, you have a company, the only reason to have a company is to make business, and the only way to do business is to rent it or to sell. As you are not doing either, I understand that the shareholder of the company is using the house. Therefore, you have to pay taxes subject to an abstract rental agreement between the shareholder and the company.”
What happens when you want to sell a property in Spain but you live outside and is a non-resident?
“When you sell property in Spain and you are a non-resident, the capital gain will be a rated at 19% no matter where you come from, no matter where is your tax resident. You can deduct the expenses that you had when you acquired the property and the expenses that you have when selling it. That precise capital gain will be paid to the national tax office. At the same time, you have a local tax called “Plus-valia municipal” that depends on the value of the property or the year where when you acquire it, or the cadastral value. Something relevant here is that when the seller is a non-resident, the buyer is constrained to retain 3% of the purchase price and deposit in the tax office. If the seller had a capital gain, he will have to ask to the tax office to tell him how much he has to pay. If there was no capital gain, he has to claim back that 3% from the tax office.”
Tell me more about the 3% tax.
“When a non-resident sells a property in Spain, one of the things he has to have into consideration is that the buyer has to retain 3% of the purchase price and deposit in the tax office with a form called 211. Then the seller depending whether he has a capital gain or he doesn’t have a capital gain, will have to engage after that submission with the tax office, to claim back the money in case there was no capital gain or to pay more money or even to request a little bit more in case the capital gain task was less than 3% of the purchase price that was retained.”
What is role of the notary and lawyers?
“When buy a property in Spain, usually the investor will have to face certain expenses like notary, register, legal fees and the taxes as you know. Depending on whether it’s or not a new promotion, they would need to pay VAT and the stamp duty tax, and in case of second-hand sales, transfer tax. The expenses that the seller will have when selling the property is usually the plus valiant municipal tax, which is a tax paid to the local tax, the capital gain tax paid to the national tax office, the fees of the agency and the fees of the lawyer. Both of the last two will be deductible from the actual capital gain. We have to include as well the cancellation of the mortgage. In case there was a mortgage, all the expenses derived from that cancellation “let’s say the fees of the bank or the commission or the interest” will have to be included.
They have to know is that is a very safe investment. there is a legal certainty when they decide to buy and when they buy here in Spain. In the whole process apart from the guidance of your attorney, you have the intervention of two different public servants: the notary before and after the signature and where the title lead has to be inscribed in the land register with the intervention of a second public servant which is the land register.”
How Long Does it Take?
“With regards to the time that it spends until you become the owner of Spain obviously depend on the agreement that you have with the seller. When you decide to buy but you became the genuine owner since you buy the title deed
When you sign the title in the notary a process will begin. There is a process from that moment in which you you’re going to pay the taxes and you are going to have the property inscribed in the land register. Usually, depending on the on the land register itself and season we may be talking about one month, one month and a half.
Basically, from the time you start buying the property until you get the keys, we are talking of almost one or two months for the process. The first partis the agreement that you come with the seller. It depends entirely of the terms that you agree with them and the period of time can be as flexible as the parties agree. The second part is the moment you become the owner by granting the title date to the moment it is inscribed your rights in the land register being around one month one month and a half perfect.”
It is crucial in Real Estate in being up to date with current double taxation treaties and its implications for investments in Spain. Taxes are always important when you consider any type of investment. Taxes are involved in all types of transactions and the tax rate differs depending on the type of property and the purpose of the acquisition. It is thus important to know all the tax implications before making a decision to buy. Along With Frankdelafuente Law Firm (specialists in Spanish and International tax law for individuals and corporations), Pure Living Properties are at you total disposal to inform you better regarding any possible doubt you may have with Property Tax.
Article written by Julián (Lawyer and CEO of Frankdelafuente)
Julie Cavro is the Marketing Director at Pure Living Properties. She is responsible for all multi-channel marketing actions in constant coordination with the other departments of the company with the sole objective of obtaining the best results for our clients.