Tax OBLIGATIONS for NON RESIDENTS owning real estate in Spain

28.04.2016 

We do believe many foreigners owning a second home in Spain are missing a proper approach and description of the proper Spanish tax obligations which concerns to the effective ownership of their property. Not complying with those always means problems either in the short term or the long term, and accurately complying not necessarily mean facing huge payments but reasonable ones which are anyway compensated by the relief of making sure you are doing right for your own benefit and ultimately for your heirs.

Non tax residents in Spain, both individuals and entities, owners of real estate located in Spanish territory are liable every year for Non Resident Income Tax (hereinafter IRNR, as per the Spanish acronym).

The following sources of income are subject to IRNR.

  • Effective Income derived from renting of properties located in Spanish territory o rights related to those, directly or indirectly obtained.
  • Estimated income attributed to individual taxpayers, owners of properties located in Spanish territory.
  • Capital gains derived directly or indirectly from real estate.

The income subject to taxation will be determined depending on the use or destination that has been assigned to the property, the legal personality of the owner (physical or juridical) and the nature of the event to be taxed (rental income, second home use or eventual capital gain on a sale).

  • Income from the renting/leasing of real estate located in Spanish territory

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

However, in the case of IRNR taxpayers, residents in a member state of the European Union- and from January 1st, 2015, also Iceland and Norway-, the expenses may be deducted.

With regards to the applicable tax rate for the IRNR, we will detail the existing rates for the years 2015 and 2016, and it is worth to point out that a reduced rate is applied to those taxpayers residents in a member state of the European Union:

TAX RATE
2015 2016
Residents of EU, Iceland and Norway Rest of taxpayers Residents of EU, Iceland and Norway Rest of taxpayers
Until 11/07/2015: 20% From 12/07/2015: 19.50% 24% 19% 24%

 

  • Income from real estate for the personal use of its owners: income imputation

The owners must declare those amounts derived from the ownership of real estate located in Spanish territory that have not been leased or transferred to third parties, which correspond to the result of applying the following percentages to the cadastral value:

  • On a general basis, the 2%.
  • In case of real estate with cadastral values reviewed from January 1st, 1994, the 1.1%.

This income is understood accrued once a year. Also, the owner must proceed to file the proportional share of the income when, throughout the year, the property has been transferred or leased.

TAX RATE
2015 2016
Residents of EU, Iceland and Norway Rest of taxpayers Residents of EU, Iceland and Norway Rest of taxpayers
19.50% 24% 19% 24%

 

  • Capital gains from the transfer of real estate.

Capital gains obtained from the transmission of properties located in Spanish territory are subject to the IRNR.

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

It should be noted that from the 1st January, 2015 the coefficients used to update the acquisition value of the property in order to determine the capital gains generated have been removed. However, a transitional regime in the application of those coefficients for the case of capital gains from transfers of assets acquired prior to December 31, 1994 is applied.

It is important as well to mention that, under certain requirements and limitations, the capital gains are exempt on a 50%, when the same are derived from the sale of urban real estate located in Spanish territory that had been acquired from the 12th of May, 2012 until the 31st of December, 2012.

We should also highlight the possibility that those taxpayers residents in a member state of the European Union can apply the exemption for reinvestment in the main residence, applicable to capital gains accrued from January 1st, 2015.

The tax rate applicable on the basis of the generated capital gains is as follows:

TAX RATE
2015 2016
Until July 11th From July 12th All taxpayers
20% 19.5% 19%

 

In the case of onerous transfer of property by non-residents, the acquirer has to practice withholding on the agreed consideration. The acquirer is obliged to withhold and pay the 3% of the price in the concept of withholding or payment on account of the IRNR that corresponds to the non-resident who performs the transmission.

  1. WEALTH TAX

In general, the Wealth Tax is a tax to be paid annually, with directness and personal nature, which assess the net wealth that the individuals own by the 31st of December of each year. It is regulated by the Law 19/1991 of June 6, of the Wealth Tax, (hereinafter IP, as per the Spanish acronym).

The non-resident individuals in Spain will pay tax for the assets and rights that they own when these are located, can be practised or must be fulfilled in Spanish territory (real tax).

Those taxpayers whose tax quote results in an amount to pay, are required to submit the declaration or, when these circumstances are not given, when the value of their assets or rights is superior to 2,000,000 Euros. Tax quote will result in an amount to pay by taxing the difference between value of assets and liabilities, with an exemption limit of 700,000 eur.

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