ANALYSIS OF THE TAX OBLIGATIONS OF NON-RESIDENTS IN SPAIN
Tax obligations as non-resident holders of property located in Spanish territory. Summary of the most relevant aspects that may be of your interest.
1. NON-RESIDENT INCOME TAX
Those individuals and legal entities who are not residents for tax purposes in Spain and hold the ownership of real estate located in Spanish territory, will be obliged to pay for the Non-Resident Income Tax (hereinafter IRNR).
Thus, the following income is subject to IRNR when it derives, directly or indirectly, from real estate located in Spanish territory:
- Incomes resulting, directly or indirectly, from real estate located in Spanish territory or rights relating thereto.
- Imputed incomes to natural persons taxpayers who own urban real estate located in Spanish territory not assigned to economic activities.
- Capital gains resulting, directly or indirectly, from real estate.
For the purposes of this tax, the place where the property is located will be taken as the connection point to determine the scope of application of the tax.
1.1. INCOME FROM THE LEASE OF REAL ESTATE IN SPANISH TERRITORY
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.
1.2. Income from properties available to their holders: imputation of income
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).
1.3. Capital gains deriving from the transfer of real estate
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.
EU residents, Iceland and
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.
2. WEALTH TAX
In general terms, Wealth Tax is an annual, direct and personal tax, which is levied on the net worth held by natural persons on 31 December of each year. It is regulated by Law 19/1991 of 6 June 1991 on Wealth Tax.
Natural persons not resident in Spain will be taxed on the assets and rights they own when these are located, can be exercised or must be fulfilled in Spanish territory (real taxation).
Taxpayers whose tax liability is payable are obliged to submit a tax return, or when, in the absence of this circumstance, the value of their assets or rights is more than 2,000,000 euros.
On the other hand, those natural persons who are non-residents in Spain and are obliged to pay tax as owners of assets and rights when these are located, can be exercised or must be fulfilled in Spanish territory, will have the obligation to submit the Wealth Tax return, applying the criteria determining the obligation to submit a tax return as set out above, with an exemption limit of 700,000 euros.
The deadline to submit the Wealth Tax return is 30 June of the year following the accrual of the tax.
3. CANARY ISLANDS GENERAL INDIRECT TAX
The Canary Islands General Indirect Tax is a state tax of an indirect nature which levies, among other things, the provision of services by entrepreneurs and professionals within the territory of the Autonomous Community of the Canary Islands. It is regulated by Law 20/1991, of 7 June 1991, on the modification of the fiscal aspects of the Canary Islands Economic and Tax Regime.
In this way, services consisting of renting or transfer of use by whatever title of such real estate, including furnished dwellings, are considered to be provided in the territory of the Canary Islands.
However, it should be mentioned that leases of real estate used exclusively as dwellings are subject to and exempt from the tax.
In addition, the leasing of business premises is in any case a business activity subject to IGIC.
Thus, in the case of non-resident taxpayers who are the owners of property rented for any other use than as a dwelling, will be obliged to register for the IGIC and submit the corresponding quarterly self-assessments for this tax (Form 420), paying the amount of tax charged at the tax rate of 7% on the basis of the income obtained and any other similar outstanding amounts, as well as the effective credits of the lessor against the lessee and other accessory amounts, such as the amount of IBI, water costs, electricity, waste collection, special contributions, works and improvements, community of property owners, etc.
4. PROPERTY TAX
The Property Tax is a direct tax of a real nature that levies the value of real estate. It is a local tax, claimed by the councils.
They are taxpayers, in terms of contributor, natural and legal persons as well as entities that hold the ownership of the right which, in each case, constitutes the taxable event of this tax.
Thus, non-resident taxpayers who are the holders of urban real estate will be obliged to pay the tax.
The tax base shall consist of the cadastral value of the property, which shall be determined, notified and subject to challenge in accordance with the provisions of the rules governing the Real Estate Cadastre. On the basis of the cadastral value and applying the tax rate established by each Council, the amount to be paid is obtained.
The tax will accrue on the first day of the tax period, which matches the calendar year.