Tax resident in Spain
Individuals are deemed to reside regularly in Spain when they remain in the country for over 183 days (6 months) during the calendar year. Sporadic absences are taken into account when determining a presence in Spain, unless they certify their residence for tax purposes in another country.
Nevertheless, if your main center of economic activity is the Spanish territory or your spouse/children live here, you may well be regarded as a tax resident.
So if you do not comply with any of the previous requirements you will be considered non-resident in Spain.
In Spain, tax is levied per calendar year (from 1st January to 31st December) and the status of resident or non-resident will apply to each one-year period.
What taxes will you have to pay for owning a property in Spain as a non-resident?
- IRNR (non-resident income tax)
- IBI (property tax)
- In some cases Wealth Tax
This tax is payable by non-residents also for the mere ownership of a property in Spain. It has to be filed and submitted to the tax authorities as an annual tax return.
If the property is not rented, you will pay what it is called “imputed income tax” such tax is levied on the fictional income you would obtain if you effectively had tenants and is based on a flat rate.
The percentage shall be calculated as follows:
The taxable base (to which the tax rate is applied) will be either 2% of the property´s cadastral value (general) or 1.1% if the cadastral value of the property has been revised within the previous 10 years.
Then the current rate should be applied, and such rate for EU residents as well as residents of Iceland and Norway is 19%, and 24% in case of other tax payers
Payment will include the period from 1st of January to 31st December of that year and shall be paid before the end of the following year.
What happens if you have not purchased the property on January 1st of that year? You will have to pay on a pro-rata basis from the time of purchase to 31th December.
Property rented out
For leased properties, the owner will have to declare the total income received from the tenant at a rate of 19% if you are a legal resident in an EU country and at a rate of 24% if you are a resident of a non EU country.
Another advantage you will have if you are a credited resident in an EU country is that you will be allowed to declare incomes based on net yield and not on gross rent, so you will be able to deduct all expenses of the property.
In addition to filing the above annual tax, when you rent out Spanish property, whether as a long or short-term rental (i.e. holiday home or seasonal let), you also need to file and pay quarterly (January, April, July and October) the non-resident income tax in Spain.
On the days a property is effectively not rented out (think short-term lettings) a landlord is still liable for Non-Resident Imputed Income Tax on a pro rata basis (see section regarding non-rented property above). Put simply, one way or another, you pay tax on the property every day of the year.
Following the double taxation treaty between Spain and the United Kingdom non-resident landlords need to file and pay tax on their rental income in the country where the real estate asset is located. So, for example, if a British national owns property in Murcia (Spain) and rents it out as a holiday home during the summer season, they must declare and pay tax on their rental income to the Spanish Tax Office.
If this British landlord is declaring and paying his Spanish derived rental income only in the UK, where he is tax domiciled, he would in fact be breaching Spanish tax laws. Thousands of foreign property owners in Spain make this glaring mistake and are going to get into trouble with the Spanish Tax Authorities.
UK tax domiciled owners need to declare and pay tax on their rental income in both countries. Following the double taxation treaty, HM Revenue & Customs gives tax breaks on any rental income tax paid in Spain, so you will not have to pay tax twice.
Property tax (IBI)
This is a local tax payable to the City Council where the property is located and calculated by based on the cadastral value of your property.
A Bill with the amount due to be paid will be issued by the City Council every year for payment before November every year.
If you have properties or assets in Spain over 700.000 Euros you will have to pay wealth tax.
It is a progressive tax from 0,2% to 2,5%
If you have any doubt or need professional and expert advise on non-resident property tax Spain issues, feel free to contact us.