ANALYSIS OF THE TAX OBLIGATIONS OF NON-RESIDENTS IN SPAIN

The income obtained from the lease or transfer to third parties of real estate located in Spanish territory is subject to IRNR, without the possibility of deducting any expenses. 

However, in the case of IRNR taxpayers residing in a member state of the European Union, and as from 1

January 2015 also Iceland and Norway, for the determination of the tax base subject to IRNR it will be possible to deduct the expenses in accordance with the provisions of the Law on Personal Income Tax, provided that it can be proved that they are directly related to the income resulting from the rental of the property located in Spain.

Thus, as a general rule, in the case of income obtained by taxpayers resident in European Union countries, the following expenses would be deductible:

1. Interests on borrowed capital invested in the acquisition or improvement of the property, right of use and enjoyment where the incomes come from, and other financing costs, as well as the costs of repair and maintenance of the property.

The total amount to be deducted for these expenses may not exceed, for each asset or right, the amount of the gross income obtained.

2. Non-State taxes and surcharges, as well as State fees and surcharges, whatever their denomination, provided that they have an impact on the computed income or the asset or right producing them and are not of a punitive nature.

3. Amounts accrued by third parties as a result of personal services.

4. Amounts allocated for the amortisation of the property and other assets transferred with it, provided that they correspond to their actual depreciation. In the case of real estate, it is understood that the amortisation meets the requirement of effectiveness if it does not exceed the result of applying 3 per cent on the highest of the following values: the acquisition cost paid or the cadastral value, not including the land value.

As regards the tax rates applicable to the tax base in the case of income obtained without the intermediation of a permanent establishment are as follows:

– In general: 24%.

– Residents in a Member State of the European Union or of the European Economic Area with which there is an effective exchange of tax information: 19%.

The income return must be made using Form 210 for the Non-Resident Income Tax self-assessment.

The deadline for filing the aforementioned Form will depend on the result of the same, as follows:

• With payable amounts: the deadline for submission will be the first twenty calendar days of the months of April, July, October and January, in relation to the income accrued in the previous quarter.

• With no payable amount: the submission period shall be from 1 to 20 January of the year following the accrual of the income.

• With a refundable amount: from 1 February of the year following the accrual of the income declared and within the deadline of statute of limitations of the right to request the refund.

It will be mandatory to declare those amounts resulting from the ownership of real estate located in Spanish territory which are not assigned or leased to third parties, and which correspond to the result of applying  the following percentages to the cadastral value of the property:

– In general 2%.

– In the case of properties with cadastral values revised as from 1 January 1994,1.1%.

This income is deemed to accrue once a year. In addition, it will be appropriate to declare the proportional part of the income when, during the calendar year, the property has been transferred or leased.

The Form for the tax return and payment is Form 210, which must be submitted during the calendar year following the accrual of the tax (which occurs on 31 December of each year).

The capital gains obtained from the transfer of real estate located in Spanish territory will constitute income subject to IRNR.

The capital gain subject to tax will be the difference between the acquisition and transfer value of the property. 

It is relevant to note that, as of 1 January 2015, the so-called update coefficients of the acquisition value of real estate in order to determine the capital gain generated, are eliminated. However, a transitional regime is established for the application of the aforementioned coefficients in the case of capital gains deriving from the transfer of items acquired prior to 31 December 1994. 

It is worth mentioning that capital gains deriving from the sale of urban real estate located in Spanish territory that have been acquired between 12 May 2012 and 31 December 2012, are 50 % exempt.  This exemption does not apply in the following cases: 

– In the case of natural persons, when the property has been acquired or transferred to their spouse, or to any person linked to the taxpayer by kinship, consanguinity or affinity up to the second degree, to an entity related to the taxpayer, regardless of the taxpayer’s residence. 

– In the case of non-resident entities, when the property has been acquired or transferred to a person or entity that are part of the same business group, no matter their residence, as well as to any related person or entity. 

Likewise, attention should also be drawn to the possibility for those taxpayers who are resident in a Member State of the European Union to apply for the exemption for reinvestment in their main residence, applicable to capital gains accrued as from 1 January 2015. 

The tax rate applicable on the basis of the capital gains generated will be as follows.

following:

In cases of real estate onerous transfers by non-residents, the acquirer must withhold tax on the agreed compensation. They will be obliged to withhold and pay 3% of the compensation, by way of withholding or payment on account of the IRNR that corresponds to the non-resident making the transfer.

The withholding made must be declared and paid using Form 211, within one month from the accrual of the tax.

The transferor, on their part, will be obliged to declare the capital gain generated through the corresponding Form 210, within a period of three months beginning from the end of the one-month period held by the acquirer for the declaration and payment of the withholding tax.