IBI Tax Explained

Raymundo Larraín Nesbitt, October, 31. 2018

Marbella-based lawyer Raymond Nesbitt explains the importance of IBI tax and the consequences of non-payment.

Article copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of November 2018

 

Introduction

With the ongoing off-plan property boom firmly underway, I thought it would be a good idea to write a gentle reminder for new-build owners on their duty to pay this local tax on the following year from buying a house.

Unbeknownst to most non-resident property owners, on buying property in Spain, you automatically become liable to pay IBI tax on the following year. No one will give you the heads up on this tax, so it is up to you to find out how much you owe and comply with the Tax Authorities.

IBI tax is of crucial importance because it has associated a valuation for tax purposes of your home known as 'cadastral value' (valor catastral, in Spanish) which is used as the benchmark to calculate all your property-related taxes.

IBI Tax - Definition

The Impuesto sobre Bienes Inmuebles (IBI, for short) is a tax that applies to both residents and non-residents. In some parts of Spain, it is known as SUMA. All property owners must pay this tax every year.

This is a local tax levied by the town hall where your property is located. It is paid once a year (normally due in August through to November). This is Spain’s equivalent of the United Kingdom’s Council Tax. It varies from one town hall to the next. It is based on the rateable value of your property (0.4 – 1.1% of cadastral value per annum); for cheap properties (think rural land) it can be as low as a few euros whereas posh pads, in sought-after prime locations such as Marbella and Sotogrande, command several thousand euros/year.

Importance

  • IBI tax is used as the benchmark to calculate all property-related taxes.
  • On selling, a buyer’s lawyer will demand copies of the IBI invoices for the previous 4 years.

 

When is it due?

  • Town halls are empowered to rule on this, so it varies. Normally, it is payable once a year, typically from August through to September. Whoever owns the property on the 1st of January is liable to pay this tax, by Law.

 

Sample IBI tax invoice

Just follow the link supplied: sample IBI invoice

Consequences of not paying IBI tax

  • It may lead to your property being impounded and sold off in a public auction. Spanish town halls, besieged by dropping revenue, are becoming increasingly adept at pursuing aggressively this local tax post-credit-crunch; particularly for high-end property.
  • It is not possible to file and pay NRIT and NRIIT taxes, as it requires for its calculation IBI tax. This in turn attracts fines, delay interests and surcharges.
  • On selling, a buyer’s lawyer will practice a huge retention to safeguard against any unpaid IBI tax.
  • As a seller, you may forfeit the 3% sales proceeds tax rebate (plus legal interests). On selling, when a seller is non-resident in Spain, buyers must withhold 3% of the sales proceeds by law and pay it into the Spanish Tax Office. Non-resident sellers are entitled to a tax rebate on the 3% (subject to criteria).

 

Real case: Mr Daniel David Brockman, a prominent New York-based US tax lawyer and patron of the Arts, lost the property of a huge residential area in Marbella he was going to develop known as Urbanización Sierra Blanca because he failed to pay IBI tax to Marbella’s town hall. This estate is currently valued at over a billion dollars.

Conclusion

Non-payment of IBI tax is the daftest fastest way to lose ownership of your Spanish property.

If you haven’t been paying this local tax, you should contact Larraín Nesbitt Lawyers ASAP to get it sorted out.

 

We offer the most competitive fees in the market. We file taxes all over Spain.

Setting up IBI tax: from only €200

We are specialized in taxation

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance, and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

What the Arab world needs most is free expression.” – Jamal Khashoggi

Jamal Ahmad Khashoggi (1958 – 2018). Was a Saudi journalist, writer and the former general manager and editor-in-chief of Al-Arab News Channel. He was also a Washington Post Global Opinions contributing columnist and served as editor for Saudi newspaper Al Watan. An outspoken critic of his country’s iron-ruling family, he bravely did not shy away from bringing to public light serious matters and staunchly defended the civil rights of his countrymen, specifically the freedom of speech. About to marry his fiancée, he was brutally butchered inside the Saudi consulate complex in Istanbul, Turkey, by a state-sponsored death squad at the behest of the highest level. You can read his last column here.

 

Article also published at Spanish Property Insight: IBI Tax Explained.

Legal & Tax services Larraín Nesbitt Lawyers can offer you

 

Taxation-related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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Non-Resident Imputed Income Tax

Raymundo Larraín Nesbitt, October, 9. 2018

Marbella-based lawyer Raymundo Larraín briefly covers non-resident property owner tax obligations in Spain, with particular focus on the end-of-year annual imputed income tax.

Larraín Nesbitt Lawyers, over 16 years’ taxation experience at your service.

 

 

 

 

Photo: Amsterdam slender canal houses at dusk.

The following article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. The advice given is of a general nature and should not be construed as tailored tax advice. Seek professional legal advice on your matter – see disclaimer below.

Article copyrighted © 2.018. Plagiarism will be criminally prosecuted

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of October 2018

Introduction

As the end of the year approaches fast, I thought it would be a good idea to remind non-residents of their tax obligation to file this end of year non-resident tax on owning property in Spain. However, please indulge me, and allow me to ramble off-topic in the introduction.

Amsterdam, a beautiful northern Venice. It is easy to fall in love with such a gorgeous and culturally refined city, providing you don’t get run over by one of its thousands of bicycle riders!

One of the city’s main bewitching highlights are its beautiful spindly canal houses overlooking the waterways that sprawl throughout the city like watery arteries. These opulent merchant houses were built during the apex of the Dutch Golden Age in the 17th century. Taking my interest further, I decided to visit one. When they kindly opened the door, I could not believe my eyes; a gaunt impossibly steep staircase, straight out of hell, stretched upwards fading in the distant gloom - no lift for all three storeys. Bonkers! In Dutch, stairs are aptly named as “trap” - and Good Lord, what a trap they are!

Unless you are Dutch, and therefore have preternatural cat-like climbing abilities in-built into your genetic pool, these stairs should be avoided like the plague they are by the rest of humans. So much for dreamy canal houses!

What’s the story behind these hellish stair cases? As it happens, a tax story. Devil and taxes go hand in hand it would seem.

Sea trade routes made the Dutch Republic vastly rich in the XVII century with a commercial empire spanning the world, from East to West. As an example of their might, today’s US New York city was founded by Dutch traders and was originally known as New Amsterdam. Wealthy patricians felt compelled to outdo one another, flaunting their newfound wealth building ever more impressive canal mansions in Amsterdam’s Golden Bend (feel free to draw parallels with Western London nowadays).

This exuberant madness would eventually come to an abrupt end with the culmination of the tulpenmanie (or ‘tulip bubble’ craze) where a canal house would be exchanged for a single tulip bulb! Fortunately, four centuries on, we would surely not fall for this *bitcoin*.

A patrician ruler, major of the city, concerned by his peer’s outlandish ostentatious lifestyle, sought to put some restraint and order on his fellow merchants for all this un-Dutch wealth display. He came up with a new tax on the width of houses (!). Albeit Dutch, ever pragmatic, ever keen businesspeople, neatly circumvented the tax law on building impossibly tall narrow houses instead. This ‘efficiency’ led to nightmarish staircases.

As a result, four hundred years on, we have these beautifully wobbling sinuous houses dotting the city’s landscape straight out of a Tim Burton’s movie. Stunning to gaze upon, impossible to dwell in (bar Dutch).

This quaint example just goes on to show how tax laws - bad or good - shape modern society as we know it even centuries on.

Image result for steep dutch staircases

Photo credit: Luca Coppola

Extreme sports, you say? That’s for wimps. Try climbing up three flights of Dutch stairs with groceries in one hand, a baby in the other, whilst you are talking on the mobile - that’s the real deal. Dutch (somehow) casually manage it every day.

 

Non-Resident Taxation in Spain

 

Unbeknownst to most non-residents, on buying property in Spain, you automatically become liable for a series of property-related taxes. No one will give you the heads up on them, so it is up to you to find out how much you owe and comply with the Spanish Tax Authorities.

For a full review of all taxes non-resident property owners are liable for, you can take a peek at our tax article: Non-Resident Taxes in Spain – 8th December 2015.

Today’s article keeps it short and simple featuring only one tax: Non-Resident Imputed Income Tax (or NRIIT, for short).

Non-Resident Imputed Income Tax (NRIIT)

 

Long story short, you only pay this tax once a year, on or before the end of December. This tax applies nationwide in Spain.

All non-residents owning property in Spain need to file once a year this testimonial tax.

Even if you do NOT rent out your property in Spain you still need to pay it.

Also, if you do rent out the property part time during the year, on the days you do not rent out your property in Spain these are taxed as imputed income on a pro rata.

Basically, this tax is a legal fiction whereby it is surmised that you derive some form of financial benefit (income) from your Spanish home; that is why it is called non-resident imputed income tax, as it is deemed income. Spanish Tax Authorities take the view an owner derives a benefit in kind from owning property, irrespective of whether it is true or not, and taxes it accordingly.

When is it filed? Once a year, before end of December of the following year. For 2018 we are filing the tax corresponding to the previous year (2017). We are accepting filing this tax until the 20th of December. We advise you file this yearly tax as soon as possible to avoid end-of-year bottlenecks. In fact, you should start filing it now in October to pre-empt any issues.

Tax rates: The imputed ‘income’ is assessed as 1.1% or 2% of the cadastral value. Tax rate is applied on this amount. More on what a cadastral value is in our article: What is IBI tax?

 

Larraín Nesbitt Lawyers offers you this non-resident tax service:

Non-Resident Income Tax (Fiscal Representation Service) from only €90/year: *

 

*Our fee includes up to two joint owners. If there are more, higher fees apply.

 

Advantages of appointing a Fiscal Representative in Spain

 

  • Larraín Nesbitt Lawyers, 16 years’ experience filing expat taxes at your service.
  • Professional Indemnity Insurance which you can claim from in case of negligence or malpractice. This cover stands at €1,000,000 with Larraín Nesbitt Lawyers.
  • Registered professionals. Larraín Nesbitt Lawyers only employs experienced qualified and registered Abogados and Economists. Registered abogados are subject to disciplinary action by the Law Society so must conduct themselves honourably to continue practising or else risk being barred.
  • Deal only with native English-speaking lawyers & economists.
  • Ensure you do not overpay on calculating the tax due on your property based on its rateable value and the number of days you have owned it on a pro rata basis.
  • Submit the tax returns before the Spanish Tax Office in a timely manner (thus avoiding attracting penalties and surcharges on late payment).
  • Setting a fiscal representative’s address to deal with all tax-related correspondence generated throughout a fiscal year.
  • Reply to any tax notifications within the deadline ensuring tax compliance.
  • Appeal misunderstandings or material errors (additional fees may apply).
  • Up-to-date knowledge on fast-paced fiscal changes.

 

Conclusion

Larraín Nesbitt Lawyer’s Fiscal Representation Service offers you peace of mind.

Let go of all the stress appointing us to deal with your yearly tax in exchange for a small annual fee.

We file taxes all over Spain.

 

We offer the most competitive fees in the market.

Non-Resident Imputed Income Tax (Fiscal Representation Service) from only €90/year

We are specialized in taxation

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Dan denk ik niet aan al de ellende, maar aan het mooie dat nog overblijft.” – Anne Frank

I don’t think of all the misery but of the beauty that still remains.

 

“Wat is gebeurd kan niet ongedaan worden gemaakt, maar men kan voorkomen dat het weer gebeurt.” – Anne Frank

What is done cannot be undone but one can prevent it happening again.  

  

Annelies Marie Frank (1929 – 1945). Was a gifted German-born Jewish diarist. She documented her life in hiding during WWII Amsterdam for over two years before being captured by nazis. She would be interned in Bergen-Belsen concentration camp where she would meet an untimely death aged 16. Her Amsterdam canal house has been repurposed as a museum where tourists flock to. It is nigh impossible to visit as it is always fully booked up months in advance.

 

Article originally published at Spanish Property Insight: Non-Resident Imputed Income Tax (Fiscal Representation Service)

Tax services Larraín Nesbitt Lawyers can offer you

 

General tax-related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No cats were harmed on writing this article.VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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Holiday Rental Taxation in Spain

Raymundo Larraín Nesbitt, June, 19. 2018

Marbella-based lawyer Raymond Nesbitt gives us an overview on how the taxation for holiday homes work in Spain from a non-resident landlord perspective. For an abridged version of this article here: Holiday Rental Taxation in Spain.

Larraín Nesbitt Lawyers takes the stress off your taxation making it easy, freeing you up so you can relax and spend more quality time enjoying what you value most in life.

The following article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. The advice given is of a general nature and should not be construed as tailored tax advice. Seek professional legal advice on your matter – see disclaimer below.

 

Article copyrighted © 2018. Plagiarism will be criminally prosecuted

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of July 2018

Introduction

I often get emails from distressed clients moaning on how the taxation on holiday lettings is convoluted and scares them off. I can relate to someone who, unaccustomed to dealing with taxes, let alone Spanish ones, may feel somewhat overwhelmed by the sheer over-complication and admin red tape involved.

Fortunately, that is where lawyers and economists step in, simplifying matters, and lending you an expert hand to file these taxes in exchange for a reasonable fee in your own language.

Following a new batch of regulation, non-resident landlords can now benefit from generous tax relief which used to be earmarked exclusively for Spanish resident taxpayers. These new laws have had a huge impact in taxation, vastly reducing non-resident landlord’s tax bills.

However, in our experience, few tax advisers are actually taking advantage of these changes in non-resident taxation or else purposely ignore them so as not to ‘overcomplicate’ themselves on filing tax forms! This translates into their clients facing large tax bills which could have been legally avoided if some care and diligence had been put in.

Larraín Nesbitt Lawyers offers a standardized tax service in English for non-residents which is easy to understand and very competitively priced. Do not allow yourself to be discouraged from renting out your Spanish property. As we care to quote in all our holiday home tax articles:

"We will save you more money on taxes than what you spend on hiring us."

 

Ideally, this article should be read in tandem with the one we wrote last year on the same topic: Holiday Home Taxation in Spain.

Who qualifies for landlord tax relief?

  • You are EU/EEA-tax resident
  • You can attain a tax residency certificate from your home country

 

What makes our rental tax service different and why should you hire us?

  • We offer to reduce your non-resident landlord tax bill by a minimum of 40% – or money-back guarantee. No questions asked. *
  • On average, we reduce landlord’s tax on rental income by 70%, or more.
  • Deal only with native English-speaking lawyers and economists. No lost in translation shenanigans.
  • Very competitive fees.
  • Fast, responsive, easy-to-understand tax service.
  • We will calculate and put in writing exactly how much money on taxes we have saved you through our tax service.

 

*luxury rentals are excluded from this offer

New changes to non-resident taxation: the taxman knows

 

The Spanish taxman knows you are renting. Three landmark changes in taxation took place in 2018 which constitute game-changers.

Don’t make the glaring mistake of underestimating the Spanish Tax Office (AEAT) thinking it is unaware of your rental income business. You will be caught and slapped a fine. The Spanish Tax Office is actively cracking down on taxpayers, both resident and non-resident, who fail to file and report their rental income. Spain’s AEAT is slow albeit relentless.

 

  1. The Common Reporting Standard (CRS).

Over 100 countries signed an agreement to combat tax evasion. This agreement came into force in Spain on January 2018. It has as a pivotal hallmark the automatic exchange of fiscal information between countries on taxpayers. Signatory countries no longer need to formally request information on taxpayers, they receive it automatically - without even having to ask for it. Both the United Kingdom and the ‘not-so-united’ Kingdom of Spain have both signed it. It is foolish to think the (Spanish) taxman is not aware of your Spanish rental income if you have been declaring it in your home country in lieu of Spain. This tax on rental income should have been declared and paid in Spain, not in your home country i.e. in the UK. As a result of the CRS, you may have received earlier on this year letters from your Spanish bank asking you to disclose tax information or else threatening you to block your accounts in Spain. 

An in-depth look into the impact of the CRS in our article: Non-Resident Income Tax.

Bottom line, your home country is busy informing the Spanish Tax Authorities - and vice versa - on your tax affairs: reported income, savings, assets, investments, pension pot etc.

  1. Full disclosure agreements signed in 2018 between the Spanish Tax Office and property portals (AirBnb).

Despite putting up a cat fight, the US giant AirBnb finally caved in and agreed to bury the hatchet on signing a full disclosure agreement with Spain’s Tax Office (source: Cinco Dias, The Ibizan). The newly updated privacy policy conditions for Spain, effective 25th May 2018, now read as follows on section 3.10:

"3.10 Tax Office

Hosts and Guests expressly grant us authorization, without additional notification, to disclose data of the Hosts and Guests and other information regarding both or their transactions, reservations, accommodations and taxes on accommodation to the relevant tax agencies, including, among other information, the name of the Host or Guest, the ad addresses, dates and amounts of transactions, NIF / CIF and contact information, as well as the amount of taxes that the Hosts have received from Guests (or that they owe to the first).”

These new terms apply to all properties located within Spanish territory. It doesn’t matter if you sign an agreement in the UK, it is the Spanish terms that are applied because the properties are located in Spain.

In short, AirBnb will tell the tax office everything they need to know. The tax office will be able going forward to calculate how much back tax you owe on undeclared rental income (and slap you fines and delay interests). This exchange of information begins end of 2018 / early 2019 backdated to May 2018.

It follows that if the Spanish Tax Office had AirBnb bend the knee - the most powerful of the pack - other portals will follow suit. It is only a matter of time.

If you have not been declaring and paying tax on your rental income in Spain, you should pre-empt fines, delay interests and surcharges by coming clean and filing taxes before the Spanish Tax Office is on to you.

Be proactive and speak to Larraín Nesbitt Lawyers to regularize your tax situation for a nominal fee ASAP. Be smart, avoid fines, penalties and delay interests!!

  1. Tax form 179

Last month, we saw the creation of the new quarterly tax form 179. This form creates the obligation for holiday letting intermediaries (i.e. property portals) to report to the Spanish Tax Office on a quarterly basis. They will supply all relevant information to the tax office on property identification, guest details, landlord’s rental income, number of days hired, method of payment, etc. Non-compliance by letting intermediaries has associated fines that range from €20 to €600,000.

Non-payment: Tax office penalties

The Spanish Tax Office has already issued warnings to over 134.000 property owners advertising holiday lettings over unpaid tax. Fines for non-payment of tax on rental income range from 50 to 150% of the undeclared amounts, plus delay interests. The AEAT can collect taxes dating back 4 years. These fines are in addition to those levied by Regional Tourist Authorities (see section below) on unlicensed holiday rentals (up to six-figures!)

If you want to take your chances with the Spanish Tax Office, good luck with that, you will receive a nasty letter such as this one: requerimiento inspección.

You only have 10 days to answer (in Spanish) the tax office’s letter. If you are a non-resident, chances are you won’t be able to and will be landing yourself in hot water.

Don’t risk it, pay your taxes. Larraín Nesbitt Lawyers will greatly reduce your tax bill.

Regional Tourist Authorities – attain a holiday rental licence

Several regions across Spain, on the back of popular uproar and nudged by the hotel industry, have enacted holiday home laws over the last years which range from the overtly permissive to uber-restrictive (i.e. Balears, Catalonia). All these regions require you attain a tourist rental licence if you do not want to be fined for leasing illegally to tourists.

The regional fines for non-compliance are steep across the board, reaching 6-figures in most cases. Take good note that these humongous fines imposed by Regional Tourist Authorities are totally unrelated, and in addition, to those imposed by the Spanish Tax Office on any undeclared rental income (see section above).

If you plan to offer your property out as a holiday rental, you should first register it and attain a Tourist licence from your Regional Tourist Authority.

---> Larraín Nesbitt Lawyers offers a 24-hour registration Tourist licence service exclusive to the region of Andalusia: Registration of Holiday Homes (Andalusia). We will set you up and make it very easy for you to start renting out legally in a jiffy.

Non-Resident Landlord Tax Obligations

 

Non-resident landlords are liable for the following two set of taxes, depending on whether you rent out or not.

I. You lease your property: Non-Resident Income Tax (NRIT)

Paid quarterly

On owning property in Spain and renting it out, whether long or short-term, you need to file a quarterly tax on your rental income. One tax form needs to be filed for every joint owner.

Filed: quarterly, on the first 15 days of every January, April, July and October.

Tax rates:

  • Resident in E.U., Iceland or Norway: 19% of net profit
  • Rest of the world: 24% of net profit

 

--->We offer you this tax service: Holiday Rental Accounting Service (HRAS)

Fees:*

  • 1 owner: €100/tax quarter
  • 2 owners: €110/tax quarter

 

*Does not include additional accounting services such as VAT invoicing i.e. your tenant is a company.

II. You do NOT rent out your property: Non-Resident Imputed Income Tax (NRIIT)

Paid once a year

Even if you do NOT rent out your property in Spain, regardless, non-residents still need to file once a year this testimonial tax. Also, on the days you do not rent out your property in Spain these are taxed as imputed income on a pro rata.

It is a legal fiction whereby it is surmised that you derive some form of financial benefit from your Spanish home; that is why it is called non-resident imputed income tax as it is deemed. Spanish Authorities take the view an owner derives a benefit in kind from owning property, irrespective of whether it is true or not, and taxes it accordingly.

Filed: once a year, before end of December of following year.

Tax rates: Rent is assessed as 1.1% or 2% of cadastral value. Tax rate is applied on this amount.

--->We offer you this tax service: Non-Resident Income Tax (Fiscal Representation).

Fees:

  • €90/year *

 

*This fee includes up to two joint owners.

 

Conclusion

Dodging taxes on rental income is risky business in Spain following the changes above, besides many others I do not care to list e.g. cross-checking utility consumption against properties which are purportedly ‘empty’ etc.

Bottom line, the tax office is launching a widespread campaign to catch all those landlords who systematically fail to pay taxes on their holiday rentals. Be legal, don’t get caught out.

Why pay more taxes than you ought to?

Don’t overpay taxes – contact us. Our team of native English-speaking lawyers and economists has a long track record (over 15 years' experience) successfully assisting expats on their tax matters in Spain.

Come and speak to Larraín Nesbitt Lawyer’s friendly staff, we will mitigate your tax exposure with efficient tax-planning and avoid non-optimal taxation scenarios, within the law.

We file taxes all over Spain.

 

We offer the most competitive fees in the market.

Holiday Rental Accounting Service (HRAS) from only €100/tax quarter

We are specialized in taxation

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

"Ofrecer amistad al que busca amor es dar pan al que se muere de sed." – Gabriel García Márquez

Gabriel ‘Gabo’ José de la Concordia García Márquez (1927 - 2014). Colombian master novelist, short-story writer, screenwriter and journalist. Awarded the Nobel Prize in Literature in 1982. Outstanding example of the ‘magic realism’ literary Bewegung. Among his most lauded novels are One Hundred Years of Solitude, The Autumn of the Patriarch, and Love in the Time of Cholera. From humble origins and through great personal sacrifice, he turned in deposit bottles and collected old newspapers for cash in Paris, he rose to prominence with the invaluable support of his wife and closest friends. 

Article also published at Spanish Property Insight: Holiday Rental Taxation in Spain

Legal & tax services available from Larraín Nesbitt Lawyers:

 

Holiday rental taxation-related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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Tax advantages on becoming resident in Spain

Raymundo Larraín Nesbitt, February, 26. 2018

Contrary to popular belief, it is not all bad news on becoming resident in Spain. Lawyer Raymundo Larraín sheds some light on the matter, casting away some widely held prejudices.

The following article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. The advice given is of a general nature and should not be construed as tailored tax advice. Seek professional legal advice on your matter – see disclaimer below.

Article copyrighted © 2018. Plagiarism will be criminally prosecuted.

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of March 2018

Introduction

2018 will go down as a year of changes. The advent of the Common Reporting Standard (CRS, for short) coupled with the dreaded Brexit will significantly dent the taxation of non-residents in Spain.

‘Fake’ non-residents in Spain will have already started to feel the heat from their lenders as from early January in the shape of letters, emails and phone calls requesting clients confirm their tax details that will be relayed over to the Spanish Tax Office. Moreover, some Spanish banks have even contacted some of my clients threatening them with freezing their bank accounts in Spain unless they could prove their alleged 'non-resident' status. This is quite the change from what we were used to in Spain in previous years where it was ‘no pasa nada’.

The Spanish Tax Office receives information from 47 different sources (!). So, going forward, ‘fake’ non-residents are playing a cat and mouse game with the tax office that will likely end (very) badly for them. Not to mention they could also get into trouble with their home country’s tax office as well. I already made it clear in previous taxation articles that you have to come out clean in 2018; or you are resident, or you are non-resident in Spain for tax purposes. You can no longer sit on the fence gaming the system to your advantage.

The purpose of this article is to give some pointers on why becoming (tax) resident in Spain is not as bad as some people would have us believe. Mind you, if you do become tax resident in Spain, you will be taxed on your worldwide income unless you are lucky enough to attain from Spain’s Tax Office a coveted Non-Domiciled tax status (only affluent taxpayers need apply, thank you very much) which basically legally exempts you from paying tax on your worldwide assets/income. So much for equality.

 

Advantages on becoming resident in Spain

 

The below list is open-ended, there are many more I do not mention (regional variations).

Income tax

  • Holiday home rentals: Landlords can benefit from lenient tax relief which on average reduces your tax bill by 40% or more. Ideal for those with tourist rentals.
  • Residents and EU-residents pay a much lower percentage as opposed to non-residents (approximately 25% less tax).
  • Residents in Spain do not have to pay every year Non-Resident Income Tax.
  • You do not need to file an income tax return for earnings below €22,000 from one employer (not as self-employed)*.

 

Inheritance tax:

  • Take advantage of lenient tax allowances (at a three-tier level: national, regional and local) which make a vast majority of foreign inheritors not having to pay ANY inheritance tax whatsoever in Spain. For example, in Andalusia inheritances under one million euros are untaxed (per beneficiary). Post-Brexit inheritance taxes in Spain will be punitive for most British residents. If you are concerned on this, you can commission from us a Spanish Inheritance Tax Assessment Report (SITAR) which lays out clearly how much inheritance tax your heirs stand to pay in Spain. You can of course apply for unilateral tax relief from the HRMC (on the inheritance tax bill paid in Spain) despite their being no double-taxation treaty on inheritance matters.
  • 95% of tax reduction on a heir’s taxable base on his main home (up to 99.99% in some regions in Spain i.e. Andalusia). **

 

Gift tax

  • Multiple regions in Spain offer generous tax allowances between next-of-kin i.e. Valencia offers €156,000 tax-free for cash gifts to under 21-year-olds. €100,000 euros tax-free for over 21-year-olds.

 

Capital gains tax (on selling your property in Spain)

  • No 3% of the sales proceeds withheld by the Spanish Tax Office on selling your property in Spain.
  • Rollover relief: investing the sales proceeds in a new main home in Spain (or in the European Union) will negate completely your cgt liability.
  • Absolute relief:  pay no capital gains tax on selling your property in Spain. Over 65-year-olds are not liable for cgt on selling their main home. ***

 

Plusvalia tax (on selling, on inheriting)

  • Town halls offer significant discounts to residents. Up to 95% in some cases.

 

IBI tax (Spain’s council tax)

  • Significant discounts available to residents.

 

Wealth tax

  • Wealth tax: huge reductions available for residents (€300,000 on main home, per partner) besides a personal tax-free allowance of €700,000. A resident couple may apply for a combined €600,000 tax reduction on their main home (in addition to their own personal tax-free allowance of €700,000 each).
  • Spain’s Non-Dom Tax Scheme (for affluent expats)

 

Other advantages

  • Access to free state healthcare: more information in my article How to apply for healthcare in Spain.
  • Voting rights in local elections: enrolling on your local town hall census (Padron) allows your town hall to receive more funds which in turn are used to improve public services (more ambulances, increased medical attention, discounts on public services etc.). This also allows you the right to vote in local elections.
  • Mortgage loan applications: Non-residents are limited to 60 - 70% LTV. Whereas Spanish residents are handed out more lenient terms, generally being able to borrow 80% LTV, or even more. When you are starting out your own business in Spain, this can make a key difference on the money you can raise.
  • Lease agreements: Non-residents, perceived as a greater financial risk because they have no ties to Spain, are required additional financial assurances from their landlords (read increased deposits i.e. 6-months in advance). Whereas Spanish residents are left off the hook and only need to comply with the bare minimum.

 

* Subject to terms.
** Subject to a cap.
*** Subject to terms.

Conclusion

Do you still think that becoming tax resident in Spain offers no real advantages? Think again.

Our team of native English-speaking lawyers and economists have a long track record (over 15 years' experience) successfully assisting expats on their tax matters in Spain. If you pay more taxes than you should, it is only because you want to.

Come and speak to qualified professionals, we will mitigate your tax exposure with efficient tax-planning and avoid non-optimal taxation scenarios.

Larraín Nesbitt Lawyers, small on fees, big on service.

 

Está el hoy abierto al mañana.

Mañana al infinito.

Hombres de España: ni el pasado ha muerto,

ni está el mañana ni el ayer escrito" – Antonio Machado.

 

Brilliant Spanish poet and one of the leading figures of the Spanish literary movement known as the Generation of ’98. Died in exile during the Spanish Civil War. He is credited as being one of Spain’s most popular poets. Amongst his timeless classics, Campos de Castilla stands head and shoulders above the rest.

 

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Article also published at Spanish Property Insight: Tax advantages on becoming resident in Spain.

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
Buying Property in Spain from a Developer (Off-Plan Property) – 8th March 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
Selling Property in Spain – 10 Reasons to Hire a Lawyer – 8th December 2016
Non-Resident Taxes in Spain – 8th December 2015
Non-Resident Income Tax – 8th December 2017

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

 

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Non-Resident Income Tax

Raymundo Larraín Nesbitt, December, 8. 2017

Solicitor Raymond Nesbitt gives us a year-end recap of the taxes non-resident landlords are liable for on owning and renting out property in Spain. Additionally, he walks us through the impact of the Common Reporting Standard.

The following article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. Seek professional legal advice on your matter – see disclaimer below.

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of December 2017

 

Introduction

I’m going to split this month’s contribution in two sections:

  1. I will kick off my article with the novelties introduced by the Common Reporting Standard as it marks an inflection point on non-resident taxation in Spain. This landmark agreement will force scores of non-resident taxpayers to think carefully on whether they come clean and become tax resident (in Spain) as this may have associated great fiscal advantages (listed below). The driving point I want to make clear in this article is that after this tax milestone becomes effective next 2018 nothing will ever be the same.
  2. The second part of the article acts as a gentle year-end reminder of the taxes non-residents have to pay on owning property in Spain. In my experience, the vast majority of non-residents are blissfully unaware of their tax liabilities on owning and renting property. This apathy has serious negative consequences as I care to explain below (i.e. losing substantial money on selling property in Spain; explained below).

 

I. The Common Reporting Standard and you

 

Whilst it is true the Spanish Tax Office (AEAT) traditionally adopted a blind eye towards non-resident non-tax compliance in the not so distant past, this is no longer the case by a long shot. The AEAT has dropped its paternalistic leniency and has been busy honing its claws and fangs on the wake of the Great Recession devising new methods to extort exact taxes. The widening public deficit in Western countries, led eagerly by care-free politicians obsessed with short-term opinion polls, has spurred taxmen to collect taxes in a more resolute manner leading to ‘creative’ solutions and burgeoning cross-border co-operation.

As an example of this budding trend, over 109 countries around the world, including all those belonging to the Organisation for Economic Co-operation and Development (OECD), signed three years ago a pilot initiative to automatically exchange fiscal information to combat tax evasion. As from 2018 Spanish Tax Authorities will automatically receive a great deal of fiscal information from non-resident owners, including UK and Irish nationals. This initiative is known as the Common Reporting Standard (CRS) and is a shameless mimic of the US’s wildly successful 2010 FATCA agreement which has proven adept at catching legions of non-compliant U.S. taxpayers.

In a nutshell, what the CRS does is to pull away the warm mantle of fiscal anonymity and make everyone lose their financial privacy. Its wide-reaching ripples have spilled over to multiple tax havens as well, namely UK overseas territories and the Channel Islands. Graphically, it is like the tideline receding all of a sudden, leaving ill-advised swimmers stranded and stark naked before the taxman.

All those expats who purposely – and sneakily – like gaming the system from a cosy hedge without declaring income (or paying taxes) in one country or another will have a problem going forward. You can no longer dwell and thrive in a grey area, in-between countries, to avoid paying taxes. If you own assets and receive rental income in one country but live in a second country, chances are both countries are going to know and act upon it, soon.

Leading up to this moment, the Spanish Tax Office slyly pre-empted this by requesting from resident taxpayers to comply with what is known as tax model 720 which discloses any assets tax residents in Spain hold abroad over €50,000. The Spanish Tax Office, after casting its own net and sniffing around, will now be able – for the first time ever – to cross-check tax declarations of hundreds of thousands of resident expats in Spain against the tax information supplied by fellow OECD tax offices in search of ‘discrepancies’. God forbid.

Fines for tax model 720 follow a sliding scale, but any ‘incongruity’ is fined starting at €10,000 and any data ‘omitted’ is fined starting at €5,000. Fines can lead up to a staggering 120% of the undeclared amounts you hold abroad on being resident in Spain. The afore does not preclude the fines for Income Tax which additionally can be up to 150%. In a classically fashioned pincer movement – coincidentally, no doubt – Spain’s Criminal Code was recently amended during the infamous Tax Amnesty to double the statute of limitations from 5 to 10 years in cases of tax evasion (defrauded amounts over and above €120,000). The cynic in me clearly sees a two-pronged strategy to nudge unwilling taxplayers (sic) to cross the line and become fully tax-compliant disclosing assets abroad or else face the risk of harsh penalties. Carrot or stick; it never ceases to amaze me how such a simple strategy is yet so very effective. In the spirit of full disclosure, Brussels has challenged the eye-watering fines of tax model 720, but for the time being they are very much enforceable by Spain.

The Spanish Tax Office hasn’t been dithering over the last two years and has been busy leading a pro-active hounding of non-taxpayers clawing back taxes. With particular emphasis on those living opulently in lavish villas locked up in a string of shadowy holding structures which nominally belong to third parties without paying a monthly rental. They have also been actively targeting property owners who fail to declare their annual Non-Resident Imputed Income Tax. And recently, over the last year or two, regional Tax Authorities have also jumped into the fray actively chasing non-compliant holiday home landlords on the back of the new raft of holiday home regulations as has been widely reported by Spanish Property Insight and other high-profile media. As an example, in my blog post from last October, I explained how the region of Andalusia have begun to fine non-compliant holiday home landlords with fines which range from €2,000 up to €150,000: Andalusia starts fining holiday home landlords.

Bottom line, for your own sake, if you own assets in Spain, get your taxes sorted out pronto because it is a ticking time bomb and time is running against you.

Now that I have caught your attention, and perchance given more than one reader a stomach ache, I list the tax obligations of expat landlords in Spain.

 

II. Non-Resident Income Tax

 

Unbeknownst to most non-resident Spanish property owners, irrespective of whether you let your property out or not, you are liable for tax every day of the year.

  1. Non-Resident Imputed Income Tax (NRIIT) – You do NOT let property

 

On owning property in Spain, even if you do NOT rent it out you must nonetheless file and pay once a year NRIIT. It is a legal fiction whereby it is surmised that you derive some form of financial benefit from your Spanish home; that is why it is called non-resident imputed income tax as it is deemed. Spanish Tax Authorities take the view an owner derives a benefit in kind from owning property irrespective of whether it is true or not and is taxed accordingly.

On selling your property, the Spanish Tax Office will verify you are up do date paying NRIIT; otherwise they will simply pocket all or part of the 3% retention a property buyer is forced to withhold on buying your property and pay it into the Tax Office. Losing 3% of the sales proceeds is a large amount of money for most people. You can pre-empt this on being up to date with this tax. This tax is ultra-low, and its true purpose is to serve as 'control'.

This tax is collected once a year. To be paid before the 31st of December of the following year.

You can contact us until the 21st of December 2017 to file and pay your Non-Resident Income Tax (scroll below for our law firm's contact details).

Our law firm offers the following legal service to file this annual tax at a very competitive fee: Non-Resident Income Tax (Fiscal Representation).

Stragglers are welcome!

 

  1. Non-Resident Income Tax (NRIT) – You let property (long or short-term)

 

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 NRIT 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 one 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 (updated in 2014), 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 Catalonia (Spain) and rents it out as a holiday home during the summer season, they must declare and pay tax on their rental income into 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 British make this glaring mistake and are going to get into trouble with the Spanish Hacienda. UK tax domiciled owners need to declare and pay tax on their rental income in both countries. Following the double taxation treaty, the HRMC gives tax breaks on any rental income tax paid in Spain, so you don’t have to pay tax twice.

This tax is collected quarterly, on the first 20 days of every January, April, July and October.

Generous landlord tax relief is available even if a landlord is non-resident in Spain (albeit EU/EEA-resident). This tax relief can greatly reduce a landlord’s taxable base. More details on this taxation and landlord tax relief, in my articles:

 

 

Our law firm offers the following bespoke accounting service to file this quarterly tax for a nominal fee: Holiday Rentals Accounting Service (HRAS).

 

Resident: to be or not to be – that is the question

 

To ascertain whether you qualify as resident or non-resident the Spanish Tax Office applies the following criteria:

  • You spend more than 183 days in a calendar year in Spanish territory.
  • Your centre of financial interests is located in Spain.
  • Your spouse and/or underage children live in Spain.

 

If any, or all three, above apply you will be regarded as resident for tax purposes.

 

Resident in Spain: tax advantages

Now that we have gotten out of the way that you can no longer game the system pretending not to be resident in Spain following the introduction of the CSR, you may be surprised to learn there are a great number of tax advantages on becoming tax resident in Spain.

Post-Brexit, many of the tax advantages that British could benefit from as members of the European Union will cease to exist. As an example, in a recent Spanish Inheritance Tax Assessment Report (SITAR) we completed on behalf of a UK-domiciled client, it resulted in him having to pay 2,300% more (two thousand three hundred pc) in IHT post-Brexit than if he were Spanish (or EU) tax resident. Food for thought.

I have collated a few tax advantages on becoming tax resident in Spain, but there are many more. Speak to us for more details.

  • Income tax: landlords can benefit from lenient tax allowances which on average can reduce your tax bill by as much as 40%. Ideal for those with tourist rentals.
  • Income tax: residents and EU-residents pay a much lower percentage as opposed to non-residents (approximately 25% less tax).
  • Income tax: residents in Spain do not have to pay Non-Resident Income Tax.
  • Income tax: earnings below 22,000 euros from one employer are not obliged to make a tax return in Spain (does not apply to self-employed)*.
  • Inheritance tax: take advantage of generous tax allowances (national, regional and local) in place which make a majority of inheritors not having to pay ANY inheritance tax whatsoever in Spain.
  • Inheritance tax: 95% of tax reduction on a heir’s taxable base on main home (up to 99.99% in some regions in Spain i.e. Andalusia). **
  • Selling your property in Spain: pay no capital gains tax. ***
  • Selling your property in Spain: no 3% of the sales proceeds withheld by the Spanish Tax Office.
  • Wealth tax: huge reductions available for residents (€300,000 on main home, per partner). A couple can apply for a combined €600,000 reduction.
  • Spain’s Non-Dom Tax Scheme (for affluent expats)

 

* Subject to terms.
** Subject to a cap.
*** Subject to terms.

Conclusion

Following the CRS, Spain’s Tax Office will now have unprecedented access to fiscal information from your home country as from 2018. This will allow it to boldly cross-check fiscal information of thousands of expats, resident or not in Spain. And what’s better, they won’t even have to ask for it as it is automatically exchanged between OECD members.

The always divisive red line that separates tax avoidance (legally acceptable tax planning) from tax evasion (criminally pursuable) has grown ever thinner. Make no mistake, as from 2018 the net is closing in. There will no longer be a warm cosy grey area to shelter in. The question is if you will fall in line or remain out of line

If you choose the former, we can help you sort out your tax affairs regularising them for a nominal fee for your peace of mind. We only charge for our legal services; a pain-free stomach is gratis

Act now, before it is too late. Contact us free of compromise on your tax matters, we are here to help.

 

You never know who's swimming naked until the tide goes out.”Warren Buffet.

 

Legendary American business magnate, investor, and philanthropist. Wharton School graduate nicknamed the ‘Oracle of Omaha’. CEO and Chairman of Berkshire Hathaway. Despite a reported net worth of $80bn as of 2017, true to himself, he still lives in the same house he bought in 1958.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, litigation, conveyancing, and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article originally published at Spanish Property Insight: Non-Resident Income Tax

 

Legal services Larraín Nesbitt Lawyers can offer you

 

 

Taxation-related articles

 

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.017 © Raymundo Larraín Nesbitt. All rights reserved.

 

 

 

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Holiday Home Taxation in Spain

Raymundo Larraín Nesbitt, July, 8. 2017

Lawyer Raymond Nesbitt gives us an outline of Spain´s taxation on holiday home rentals (buy-to-let).

The following article has been greatly simplified to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. Seek professional legal advice on your matter – see disclaimer below.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of July 2017

 

Introduction

After a decade in the doldrums, Spain’s real estate market is once again picking up the pace showing indelible signs of warming up, spearheaded by Madrid and Barcelona. The market seems to be staging a comeback in full swing which is a welcome respite.

  1. Asking rental prices are soaring by two digits year-on-year as reported by experts. The exact figure is contentious, as some prestigious media, like El Pais daily, quote a 21% annual increase whilst others, such as El Mundo daily, estimate the national average rental increase to be at 10.2%. In any case, minutiae aside, the consensus is clear and unanimous that we are witnessing a whopping two-digit rental growth in asking rental prices year-on-year:

 

  1. Capital appreciation of well-located real estate is also rising fast (in some coastal areas by two digits).

 

The average rental yield in Spain can be expected at 5% pa (dependent on location). If to that you also add the potential of capital appreciation, Spanish real estate is poised for combined two-digit gains over the next years easily winning alternative investments and paltry fixed returns in a context of historic ultra-low interest rates.

Bottom line, go bricks for the win.

Limelight on Spain - why is it such an attractive place to live (and invest) in?

Spain is the world´s third country to attract more tourism (trailing closely behind the US and France) with over 68 million tourists as compiled by the United Nations World Tourism Organization annual barometer. An all-year-round mild weather, beautiful unspoilt scenery, great food, friendly natives, modern health and transport facilities, amenities and a rich cultural background make Spain a touristic hotspot to be reckoned with.

And last, let us not forget Spain´s renowned beaches. For almost 30 consecutive years Spain has led the world-ranking of Blue Flags awarded by the independent Foundation for Environmental Education with over 561 in 2015 trumping its closest competitor. Blue Flags are only awarded after meeting stringent requirements and are an indication of their high environmental and quality standards.

It is in this financial context that investors are showing increasing interest in the potential of buy-to-let properties in Spain. A burgeoning real estate market coupled with a consolidated tourism industry is luring investors to foray into the market in droves with a renewed sense of self-confidence.

Holiday Rental Homes Definition

What exactly qualifies as a holiday rental home or vivienda vacacional in Spanish? Spain is made up of 17 autonomous regions with devolved competencies on this matter. Many of these regions have passed on their own laws on what is classified as a holiday rental home. You can read further on the matter in my article Holiday Rental Laws in Spain – Explaining the Latest Changes. As an example, Andalusia approved last year its own regulation: Andalusia's Holiday Rental Laws (Decree 28/2016).

Basically, and take good note I am generalising, holiday rental homes are let for short periods of time which vary between one day up to several weeks. The main point is that they are not regarded as the permanent abode of a tenant which is referred to as ‘guest’ or ‘lodger’ rather than tenant (as opposed to long term lets). Take note that in this article I am expressly ruling out dealing with what are known as apartamentos turísticos or touristic lets which have their own regulation and set of rules.

Landlords would do well to acquaint themselves with the regulation of the autonomous region where their property is located in Spain as some of them have stringent rules in place which require the property to be registered in an official registry and other regions even go as far as demanding a touristic rental licence from landlords without which you simply cannot rent out. Fines for non-compliance vary, but we warned you could be landed with a steep six-figure fine or even having a charge placed against your property. Some regions, such as Barcelona, have taken the matter to heart with the town hall employing over forty inspectors trawling websites and doing the legwork to flag unlicenced holiday rentals and fine them. It is estimated there are 17,000 holiday rentals in Barcelona alone of which 7,000 are deemed illegal.

Holiday Rental Homes Registration

In Spain, it is mandatory most regional authorities require landlords to register their properties in a Tourism Registry. Requirements vary from one region to the next but in general a Licence of First Occupation is a chief requirement to let. Breach of these rules may attract humongous fines such as those levied on AirBnb in the hundreds of thousands.

Our law firm offers a Registration of Holiday Rental Homes service.

Holiday Rental Homes Taxation

Holiday rental homes are, by definition, short-term lets. Tenancies exceeding two months fall under Spain´s Tenancy Act and are regarded as long-term lets which give way to a great number of tenant entitlements landlords should be keenly aware of.

In Spain, all joint owners of a property are treated as individualised taxpayers. Landlords need to file a quarterly tax model in the first 20 days of every January, April, July and October.

In other words, one tax model needs to be submitted for each (joint) owner and also one for each guest. By guest it is understood as the leader of the group, he who pays the rental (not for every person lodging in a group).

Short-term landlords will additionally also be required to file an annual tax model (Non-Resident Imputed Income Tax).

As a recap, on renting out in Spain (whether long or short term) you have to pay two taxes:

 

I) Resident in E.U. or E.E.A.

Tax rate: 19% on rental income.
Tax relief: Yes, physical persons may deduct, for example, home insurance, mortgage loan interest payments, property maintenance expenses etc. Legal persons may also deduct rental-related expenses.
Dates: collected annually or quarterly.
Tax form:

II) Resident outside the E.U. or E.E.A.

Tax rate: 24% on rental income.
Tax relief: no.
Dates: collected annually or quarterly.
Tax form:

As can be gleaned, this can become tedious and very admin intensive for the average landlord. Which is where lawyers step in offering our legal and accounting services to cut through the red tape for a very competitive fee.

More information in my article Non-Resident Taxes in Spain.

With or without VAT?

In principle, as a general rule, VAT is not applied to holiday rental homes. However, if you offer any of the following below your rental may be regarded as assimilated to offering hotel accommodation in which case you need to invoice everything with VAT which impacts the profit margin of the business increasing its costs:

  • Concierge service.
  • Daily changing of bed linen.
  • Daily changing of bath towels.
  • Daily cleaning of property/room.
  • Room service (food and beverage), catering.
  • Bed & Breakfast.
  • Other ancillary hotel services such as: daily press, laundry cleaning, luggage storage service, accommodation booking (holiday reservation).
  • Other.

 

Holiday Rental Homes Non-Resident Landlord Rental Tax Relief

Recent ECJ rulings have created in their wake new opportunities for (physical) non-resident landlords to take advantage of tax relief in equal footing to Spanish nationals which were previously barred to them.

Please read my two articles on the matter which clearly explain how landlords*, with the support of our law firm, can take advantage of tax rules greatly mitigating their tax bill:

Renting in Spain: Non-Resident Landlord's Rental Tax Relief – 14th of January 2017

Renting in Spain – Landlord's Taxation Guide – 21st of December 2016

*Non-EU landlord nationals are barred from benefitting from lenient tax relief.

 

Through our dedicated service Holiday Rental Accounting Service (HRAS) we are able to reduce - on average - 30 to 40% of a landlord's taxable base on renting out property in Spain. Ask us.

Conclusion

As can be clearly surmised from the above, the taxation on private rentals may be somewhat convoluted given the fact that 17 different Autonomous Regions in Spain hold competence over them and rule accordingly. This requires the input of seasoned professionals to wade through the labyrinthian pitfalls and come out successfully.

Which is where we lawyers step in; hand-holding landlords and guiding them through the taxation ordeal to come up on top, working the system.

 

We offer the most competitive fees in the market.

Holiday Rental Accounting Service (HRAS) from only €100/tax quarter

We are specialized in taxation

 

90% of all millionaires become so through owning real estate.– Andrew Carnegie

Andrew Carnegie (1835 - 1929). Born in Dunfermline, Scotland, this 19th century Scottish self-made multimillionaire emigrated to the US at a young age. Carnegie led the expansion of the American steel industry in the late 19th century and through a string of savvy investments is often identified as one of the richest people and Americans ever. He will always be remembered for becoming a leading philanthropist for the United States and the British Empire giving generously to foundations, charities and university endowments.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article also published at Spanish Property Insight: Spain Holiday Home Taxation

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Holiday rental related articles

 

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.017 © Raymundo Larraín Nesbitt. All rights reserved.

 

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Renting in Spain – Landlord's Taxation Guide

Raymundo Larraín Nesbitt, January, 8. 2017

The following article summarises the tax obligations of non-resident landlords in Spain, including the rental reliefs, tax allowances and deductions they can benefit from.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of January 2017

 

 

 

Introduction 

In my experience non-resident landlords seem, at best, blissfully unaware of their taxation duties on renting out their properties in Spain; at worst, they are totally baffled by them. So I thought it would be a good idea to start off the year by adding to the mayhem writing up this little article!

For an abridged version of this article, please read my straight-to-the-point blog post without the esoterics.

I frequently get asked to cast some light on the matter, so this guide attempts to lay out all the different scenarios non-resident landlords may be faced with and what exactly are their tax duties as a result.

I take the liberty of introducing the article with the lenient tax allowances EU and EEA residents can now benefit from following recent jurisprudence from the European Court of Justice. British nationals, for the time being, may still benefit from these allowances on filing their Spanish tax returns until Prime Minister Theresa May triggers article 50 sometime in spring 2017.

This article is split into two sections:

  1. Allowances (state and regional) as well as deductions non-resident landlords can benefit from (as physical persons) to mitigate their rental tax bill in Spain.
  2. Tax returns to be filed (in Spain) depending on which case a landlord is classified in (short or long-term rental).

 

 I. Landlord Rental Reliefs

 

Following up on my article from February 2015, regarding the ECJ’s landmark ruling of last 3rd of September 2014, which put an end to discrimination between residents and non-residents on taxation matters, these changes also affect rental laws.

Law 26/2014 of the 27th of November amends both the Personal Income Tax Act (I.R.P.F.) and the Non-Resident Income Tax Act (I.R.N.R.). These changes came into force on the 1st of January 2015. I had already referred to these changes in December’s and February’s articles: Taxes on Selling Spanish Property and Changes To Spain’s Inheritance And Gift Tax Law.

Law 26/2014 adapts and transposes the decision taken by the ECJ amending internal Spanish national laws. It brings to an end (fiscal) discrimination between residents and non-residents in a wide array of matters; for this article’s sake, specifically on rental matters. EU-residents are now treated on par with Spanish residents on taxation matters relating to allowances and deductions. This translates into paying fewer taxes (as non-residents now qualify for deductions and tax allowances which were previously barred to them as these were earmarked for Spanish residents alone).

For the purpose of this article, when I make reference to ‘non-tax residents’ I will always be referring to citizens which are either tax resident in another Member State of the European Union or else in the European Economic Area (E.E.A., which is compromised by Iceland, Liechtenstein and Norway). Just to clarify, the below-listed changes do not benefit tax residents outside of the EU or EEA.

I.e. a US national cannot benefit from the tax allowances listed below.

Additionally, it should be noted that non-EU and EEA nationals have a different tax scale levied on them on renting their properties.

As a brief recap:

I) Landlords resident in E.U. or E.E.A.

  • Tax relief: Yes, physical persons may deduct, for example, home insurance, mortgage loan interest payments, property maintenance expenses etc. Legal persons may also deduct rental related expenses.
  • Dates: collected annually or quarterly.
  • Tax form: 210.
  • Tax rate: 19% on rental income for 2016.

 

 II) Landlords resident outside the E.U. or E.E.A.

  • Tax relief: no.
  • Dates: collected annually or quarterly.
  • Tax form: 210.
  • Tax rate: 24% on rental income for 2016.

 

Rental Allowances – Situation Prior to the ECJs’ Ruling

Non-resident rental allowances were virtually non-existent prior to this ruling for private individuals. There were few instances in which you could offset rental taxes as they required you employed someone full time and had a permanent establishment in Spain. Obviously of little practicality which was not an option for the vast majority of non-resident landlords.

Post-ECJs’ Ruling – Changes to Spain’s Rental Laws

The ECJ’s key ruling of 3rd of September 2014 marks the inflection point which puts an end to (fiscal) discrimination between residents and non-residents. It forces Spain to amend its internal laws and accommodate the European principles on which the EU is grounded on. The significance of the ECJ’s ruling is that it has opened up the opportunity for non-residents to apply as from the 1st of January 2015 to the below-listed state tax allowances and deductions which were previously reserved only to Spanish residents. In addition, non-residents may also benefit from those set by the Autonomous Communities where the property is located which have a penchant of being more generous than state law.

When taxpayers are resident in another European Union Member State, or in the E.E.A., the expenses described in the Law on Personal Income Tax (IRPF) can be deducted when calculating the taxable base, provided that proof is supplied that these expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain. When expenses are deducted, a certificate of tax residency in the corresponding State issued by the tax authorities of that State which must be filed along with your tax return.

So, for example, a British national must request from the HMRC a certificate of tax residency in the UK and submit this to the Spanish Tax Office. This allows to successfully offset the maintenance and running expenses of their Spanish property against their rental income yielding a higher net income. Needless to say, you need a lawyer to organize this on your behalf.

Landlord’s State Reliefs and Deductions for Private Home Rentals

Non-resident landlords can either rent out their properties on a short or long-term basis:

  • Short-term lets are understood to be subject to private holiday rental laws which are covered in detail by my articles Holiday Rental Laws in Spain and Holiday Home Taxation in Spain. Moreover, this can be further compounded by whether a rented property is classified as either urban or rural which gives way to a different set of regulations and legal requirements.
  • Long term lets are subject to Spain´s Urban Rental Law better known by its acronym LAU. These long-term lets are covered by my article Urban Rental Laws in Spain.

 

The main difference between both is that the former is ruled by each of Spain´s 17 Autonomous Regions whereas long-term lets are ruled by a national legal framework which acts nationwide. The significance of this from a practical point of view, is that landlords who rent on a short-term basis using, for example, Airbnb or other similar rental portals should check the minutiae of the regional laws where their properties are located. Some of these laws are fairly restrictive and in fact may even require a landlord to attain a rental licence of sorts or else to register themselves prior to renting out their accommodations. Non-compliance may attract humongous fines in the thousands of pounds.

The following state deductions and allowances can be offset or deducted mitigating a landlord´s tax bill without prejudice of additional compatible allowances set out by the Autonomous Community contingent on where the property is located. Please take legal advice on the latter for your case as for economy of space I will not be listing them below.

The above translates into significantly higher returns for landlords on taking smart advantage of these lenient allowances. Meaning non-resident landlords stand to profit from higher net yields on letting in Spain as from 2015 onwards.

Article 24.6 of the Non-Resident Income Tax Act (I.R.N.R.) makes a direct renvoi on these to art. 23 of the Personal Income Tax Act (I.R.P.F.).

Please take note I will only list in this article allowances which properties are owned by physical persons, not by legal persons. More on ownership of Spanish properties through corporate structures in my article Buying and Owning Spanish Property through Companies: Pros and Cons.

 

Landlord Rental Tax Relief: Allowances & Deductions (as Physical Person)

 

  1. Rental Tax Relief / Deductible Expenses (Art. 23 I.R.P.F.)

Proof must be supplied that the following expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain.

 

• Interests arising from a loan to buy the property (i.e. mortgage).

• Local taxes and administrative charges and surcharges that impact on the rental income or else on the property itself (i.e. IBI tax, SUMA tax, rubbish collection tax).

• Expenses arising from formalising rental contracts such as lets or sublets (i.e. Notary and/or Land Registry fees); legal defence (i.e. hiring a lawyer for tenant eviction purposes).

• Maintenance costs may be offset; refurbishment expenses are excluded.

Examples of maintenance costs (deductible): repainting over flaky paint, plumbing, debugging, tennis court green mold cleaning, swimming pool pump replacement, annual lift maintenance, leaking faucet.

Examples of refurbishment expenses (non-deductible): glass curtains, double-glazed windows, parquet, marble floor, extension to property (outbuilding), tennis court, swimming pool, private lift.

Notwithstanding the above, refurbishment expenses may be claimed on selling the property by offsetting them against your Capital Gains Tax liability. Please read my article: Taxes on Selling Spanish Property.

• Home insurance premiums (theft, fire, civil liability etc.). Please read my articles Home Insurance in Spain, Community of Owners’ Insurance Policies and How to Cancel your Home Insurance Policy in Spain. However claims arising from events that diminish the value of a dwelling are non-deductible i.e. fire.

• Utility invoices (electricity, water, gas and landline).

• Concierge, gardening & security services (i.e. gated communities).

• Rental publicity expenses.

• Home depreciation and amortization. The calculation is 3% on the highest value of the following two: home buying costs or cadastral value; the value of the land is excluded.

2. Allowances

  • The 100% tax allowance on letting to under thirty-year-olds is supressed as from the 1st of January 2015. The allowance is now 60% on the net income regardless of a tenant’s age. EDIT: This tax relief only applies to resident landlords. If you are not resident in Spain, you cannot benefit from it.
  • Other.

 

II. Tax Returns to be Filed

 

Depending on which classification a landlord falls in, different tax models need to be filed. This section is already covered in detail by my article Non-Resident Taxation in Spain. Notwithstanding, I will do a brief summary for completion´s sake.

  1. Not renting out property.

Regardless you must file and pay an annual tax return called Non-resident Imputed Income Tax. This is tax model 210. It must be filed and paid before the 31st of December of the following year. The details are already covered by my above-mentioned article. Please see Fiscal Representation (Non-Resident Income Tax).

  1. Renting out property in Spain

 

  1. Short-term (Private Holiday Lets or holiday homes)

Besides complying with the above annual requirement, you must file a quarterly tax return for model 210. This has associated higher professional fees from lawyers or economists as it is admin intensive. A tax model must be filed for each tenant. Additionally, a tax model must be filed for each joint owner of the property (think joint property ownership as in couples).

Landlords should note that this option is borderline to running an accommodation business that is advertised in specialized rental property portals over the net. Please see Holiday Rental Accounting Service (HRAS).

  1. Long-term Rentals

You also need to file quarterly tax models. Please see Holiday Rental Accounting Service (HRAS).

  1. Professional Rental Business

Professional rental businesses require VAT is filed on a quarterly and annual basis (tax models 303 and 390). The business is equated to running a hotel accommodation. Please see Holiday Rental Accounting Service (HRAS).

Conclusion

As can be clearly surmised from the above, the taxation on private rentals may be somewhat labyrinthian given the fact that 17 different Autonomous Regions in Spain hold competence over it and rule accordingly. This requires the input of seasoned professionals to wade through the pitfalls and come out successfully.

Which is where we lawyers step in; hand-holding landlords and guiding them through the taxation ordeal to come up on top of it working the system.

 

“The minute you read something that you can't understand, you can almost be sure that it was drawn up by a lawyer.” – Will Rogers.

William Penn Adair “Will” Rogers was a Cherokee-American cowboy, comedian, humourist, social commentator, vaudeville performer and actor. He was also the father of a well-known U.S. politician; nobody´s perfect.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

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Spain’s Non-Dom Tax Scheme

Raymundo Larraín Nesbitt, July, 8. 2016

Regular legal-contributor Raymundo Larraín Nesbitt tells us about a relatively new tax scheme the Spanish Treasury quietly introduced last year that works similarly to the UK’s popular non-dom tax arrangement, and which could make Spain a more attractive destination for wealthy expats when word of this pilot scheme gets around.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of July 2016

 

 

 

Introduction

The Spanish Tax Office quietly, albeit boldly, introduced a tax scheme inspired by the popular UKs non-domiciled tax regime which has proven most successful at attracting foreign investments (particularly in the Greater London area). It is a lukewarm attempt to attract high-achievers and create wealth fostering job creation.

Surprisingly, this pilot initiative has flown under the radar as I do not recall having read a single article published on the matter. I believe it merits exposure and should be made known to our large expat community as the savings on taxes are quite significant for the privileged few who are lucky enough to qualify.

Right off the bat I should make it clear that the criteria to benefit from it is fairly restrictive and it is geared at high-earning individuals who plan to relocate to Spain for professional reasons. Which means that most expats will not qualify.

Without further ado I analyse succinctly what it consists on and how to benefit from it. I will structure it as a FAQ for ease of comprehension.

Who is it aimed at?

This law is tailored to cater for senior corporate individuals (think of a multinational relocating a top executive in Spain). These over-qualified individuals are the ones that will reap the tax benefits of the generous provisions set out by this law. But other cases, such as high-profile artists, are also included.

Exclusions

Professional athletes, such as football players, are barred from making use of it.

The Tax Benefits

In a nutshell, this tax scheme allows expat taxpayers to make spectacular savings on paying Income Tax in Spain. If you opt into this scheme you stand to benefit from both income derived in Spain as well as any other worldwide income.

  • Spanish Income. Unlike in the UK, where you negotiate with the HRMC to pay a fixed annual sum, in Spain the first €600,000 earned from a source within Spanish territory will be taxed at a flat rate of 24%. The remainder will be taxed at 45%. Under normal circumstances resident taxpayers in Spain pay 45% on earnings of €60,000 or above. As can be surmised, even for earnings whose source is in Spanish territory, the tax savings are huge.
  • Worldwide Income. But it is here where this tax scheme truly shines. Spanish Tax Authorities will only tax you on your income derived within Spanish territory. Any other source of worldwide income is tax-exempt (just like with the popular UKs non-dom tax scheme). Under normal circumstances, resident taxpayers in Spain should pay for their worldwide income. Moreover, other countries cannot tax you on your worldwide income as for all intents and purposes you have opted to become a Spanish tax resident. You can claim double-taxation relief which negates other countries’ claims. This advantage offers a hugely attractive prospect for those that hold substantial overseas earnings and interests.
  • Best of both worlds. On opting for the scheme, expats will be treated as if they were resident taxpayers but in reality it will be a legal fiction whereby they will benefit as if they were still non-resident taxpayers. So you in fact get the best from both worlds.
  • Five years plus one. It applies on the fiscal year of relocation as well as on the following five years (total up to six years).

 

Who can apply?

  • Expats relocating to Spain as a result of a professional contract. The contract is a sine qua non requirement to opt into this scheme.
  • High-earners.
  • Not to have resided in Spain within the previous 10 years.
  • No earnings derived from a Permanent Establishment in Spain.

 

When does it apply?

It is time-limited and applies on the fiscal year of relocation as well as on the following five years (up to six years).

Timeline to apply?

Six months as from the start of the economic activity or as from enrolling in Spain´s Social Security (equivalent to the UKs NHS).

Fall from Grace

Unfortunately, this initiative falls short from its UK counterpart for a number of reasons What keeps it from being great in my mind is the fact that the Tax Office requires that the relocation comes as a result of a job offer. This leaves out entrepreneurs which are hands down the greatest source of wealth and job creation through their drive and ingenuity. This, coupled with the fact that it is time-limited, and that the tax is not capped for income derived in Spain holds it back in my opinion from being stellar.

Conclusion

The Spanish Tax Office should be heartily congratulated on offering such tax incentives to high-achievers. This type of tax scheme attracts talented individuals, fostering wealth and jobs at a time where it is much needed in Spain.

It is most certainly a step in the right direction and I for one hope the AEAT continues to venture down this road. Kudos to them.

If you plan to relocate to Spain as a result of a work commitment and happen to earn a substantial amount you may want to look into this tax scheme. Unless you enjoy overpaying taxes that is; bless your heart.

If you fail to plan, you plan to fail.” – Benjamin Franklin.

Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

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Non-Resident Taxes in Spain

Raymundo Larraín Nesbitt, December, 8. 2015

Solicitor Raymundo Larraín Nesbitt explains which property taxes non-residents face on buying property in Spain (Non-Resident Taxes in Spain).

The following article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. Seek professional legal advice on your matter – see disclaimer below.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of December 2015

 

Introduction

Unbeknownst to most non-residents, on buying property in Spain, you automatically become liable for a series of property-related taxes. No one will give you the heads up on them, so it is up to you to find out how much you owe and comply with the Tax Authorities.

Resident: to be or not to be – that is the question.

This article deals only with non-resident taxes. To ascertain whether you qualify as resident or non-resident the Spanish Tax Office applies the following criteria:

• You spend more than 183 days in a calendar year in Spanish territory.
• Your centre of financial interests is located in Spain.
• Your spouse and/or underage children live in Spain.

If any, or all three, above apply you will be regarded as resident for tax purposes which escapes the purpose of this article.

Are you married or in a joint property ownership?

For tax purposes couples or joint owners will be treated as separate taxpayers and be required to file separate tax returns. Property tax will therefore be split among co-owners.

Cadastral Value

Is the assessed value local Tax Authorities give to a property. It is usually well below the market value. This rateable value is used as the taxable base to calculate a series of taxes. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI). Be aware that a store room or garage space may be regarded legally as a distinct separate entity from your main home and therefore subject to their own individual cadastral values.

 

Non-Resident Taxation Overview

 

I review below six taxes. Before anyone frets, in truth most non-residents on buying property in Spain will only be liable for the first three on an annual basis:

I. Non-Resident Income Tax (regardless of whether you let your property out or not)
II. IBI tax.
III. Rubbish Collection Tax.

However, for completion’s sake, I have added a further three:

IV. Wealth Tax: this will be paid by a small minority of people.
V. Special tax levied on real estate: this will be paid by even fewer people as it relates to offshore holding structures domiciled in tax havens.
VI. La Complementaria or ‘bargain-hunter’ tax: strictly speaking this is not even a separate tax. It is a consequence of today’s low-priced property in Spain. It is actually supplementary Property Transfer Tax. It is explained below.

I. Non-Resident Income Tax

 

The overview of this first tax is split depending on whether you rent the property out or not – either way you are going to pay it. It is strongly advised you hire a lawyer to file this tax on your behalf. Lawyers are covered by professional indemnity insurance in case of malpractice or negligence. Make sure that whoever files taxes on your behalf has insurance in place from which to claim from.

Calculation: the taxable base is 2% of the cadastral value of your property or 1.1% if the cadastral value was revised after the 1st of January 1994. This taxable base is then multiplied by the appropriate tax rate. The tax rate varies depending on whether a taxpayer is resident or not in the European Union or European Economic Area (Norway and Iceland):

•    Resident in E.U. or E.E.A.: 20% (19% as from 2016).
•    Non-resident in E.U. or E.E.A. (rest of the world): 24%

In truth on the 10th of July 2015 Royal Decree 9/2015 was passed reducing the tax rate for EU/EEA residents down to 19.5% as from the 12th of July onwards till the 31st of December 2015. From the 1st of January through to the 11th of July it remains set at 20%. The idea behind this article is to keep it short and simple so I will choose to ignore this amendment to avoid overcomplicating the examples below.

Worth noting is that EU/EEA residents now qualify for tax relief on renting out their Spanish property as from 2015 onwards. This is a result of a recent landmark ECJ ruling of 3rd September 2014 which forced the Kingdom of Spain to amend various key laws to put an end to discrimination between residents and non-residents on taxation matters. For a full comprehensive list of available landlord rental allowances, please read my article Spain’s Holiday Rental Laws (under the heading “II. Changes in Taxation Brought About by European Legislation”).

1. Not renting out property

Hang on, does that mean I get taxed on Income despite not renting out my Spanish property?

Yes. This is a frequent question. It is a legal fiction whereby it is surmised that you derive some form of financial benefit from your Spanish home; that is why it is called non-resident imputed income tax as it is deemed. Spanish Authorities take the view an owner derives a benefit in kind from owning property irrespective of whether it is true or not and taxes it accordingly. It is a fixed annual fee.

i) Resident in E.U. or E.E.A.

Tax rate: 20%
Tax relief: not applicable.
Dates: to be paid before the 31st December of each year. If you buy a property mid-year, you are only liable to pay in proportion to the months you have owned the property (pro rata).
Tax form: 210.

Example E.U./E.E.A. resident: Mr. John Shepard owns property in Spain with a cadastral value of €100,000.

· Non-revised cadastral value: 2% = €2,000; 20% * €2,000 = €400. He will be liable for €400 as Non-Resident Imputed Income Tax.
· Revised cadastral value: 1.1% = €1,100; 20% * €1,100 = €220. He will be liable for €220 as Non-Resident Imputed Income Tax.

ii) Resident outside the E.U. or E.E.A.

Tax rate: 24%
Tax relief: not applicable.
Dates: to be filed and paid before the 31st December of each year. If you buy a property mid-year, you are only liable to pay in proportion to the months you have owned the property (pro rata).
Tax form: 210.

Example Non-E.U./E.E.A. resident: Mr. Salhadin ibn Ayyub owns a villa in Spain with a cadastral value of €100,000.

· Non-revised cadastral value: 2% = €2,000; 24% * €2,000 = €480. He will be liable for €480 as Non-Resident Imputed Income Tax.
· Revised cadastral value: 1.1% = €1,100; 24% * €1,100 = €264. He will be liable for €264 as Non-Resident Imputed Income Tax.

2. Renting out property (without permanent establishment)

i) Resident in E.U. or E.E.A.

Tax rate: 20% on rental income for 2015 (19% as from 2016).
Tax relief: Yes, physical persons may deduct, for example, home insurance, mortgage loan interest payments, property maintenance expenses etc. Legal persons may also deduct rental related expenses.
Dates: collected annually or quarterly.
Tax form: 210.

ii) Resident outside the E.U. or E.E.A.

Tax rate: 24% on rental income.
Tax relief: no.
Dates: collected annually or quarterly.
Tax form: 210.

Rental related articles

Renting in Spain: Top Ten Mistakes – 8th of June 2011
Let-to-Buy in Spain: The Smart Choice – 8th of April 2012
Letting in Spain: The Safe Way – 10th of October 2012
New Measures to Bolster Spain’s Ailing Rental Market – 8th of July 2013
Tenant Eviction in Spain – 8th of June 2014
Spain’s Holiday Rental Laws – 8th of March 2015

II. IBI Tax (Impuesto sobre Bienes Inmuebles)

 

This tax applies to both residents and non-residents. In some parts of Spain, it is known as SUMA.

This is a local tax levied by the town hall where your property is located. It is paid once a year (normally due in August through to November). It is equivalent to the UK’s Council tax.  It varies from one town hall to the next. It is based on the rateable value of your property (0.4 – 1.1% of cadastral value per annum); for cheap properties it can be as low as a few hundred euros whereas posh pads, in sought-after areas, may command a couple thousand euros.

It is highly advisable you set this tax as a standing order. The reason is because failure to pay may lead to your property being seized and sold in a public auction. Town halls are becoming increasingly aggressive pursuing this local tax post-credit-crunch; particularly for high-end property.

More on IBI Tax in our in-depth tax article: IBI Tax Explained – 8th of November 2018.

III. Rubbish Collection Tax

 

This self-explanatory tax applies to both residents and non-residents.

It is a local tax levied by the town hall where your property is located. It is paid once a year. On average it is a few hundred euros a year. It is advisable you set this tax as a standing order.

IV. Wealth Tax

 

This tax had been suppressed but was reinstated because of the severe recession. It will likely be abolished – again – over the next years. More on its reintroduction in my blog post: Spanish Wealth Tax Reloaded. It applies to both residents and non-residents

If you own assets in Spain that exceed a net value of €700,000 you are liable for this tax. The first seven hundred thousand euros is a nil rate band and the excess is taxed following a sliding scale. If the property is mortgaged, this amount may be deducted as it is a liability. If you are liable for Wealth Tax, it is compulsory you appoint a fiscal representative in Spain. In truth, only a small minority of people qualify to pay it.

Tax rate: National scale is 0.2 – 2.5% of net assets. However, it varies from one region to the next in Spain as they have devolved competencies over it i.e. in Andalusia the scale is: 0.24 – 3.03%.

Tax relief: None for non-residents aside the nil rate band.

Dates: To be filed and paid before the 30th of June of each year.

Tax form: 714

More on Wealth Tax in my in-depth article: Spanish Wealth Tax.

V. Special Tax Levied on Real Estate (GEBI)

 

If you own property in Spain through a corporate offshore structure domiciled in a tax haven you are liable to pay 3% of the property’s cadastral value every year. A full list of what the Spanish Tax Office (Hacienda or A.E.A.T.) considers as tax havens can be found here. Appointing a fiscal representative is mandatory in this case for blatant reasons. Only a fraction of taxpayers is liable for it. Unbeknownst to many, a non-resident landlord may – exceptionally – offset this special tax to mitigate his own tax bill on, for example, renting out the property. A buyer will be held liable for a non-resident vendor’s tax liability going back four years.

Dates: To be filed and paid before the 31st of December of each year.

Tax form: 213

More on this in my article: Buying and Owning Spanish Property through Corporate Structures: Pros and Cons.

VI. La Complementaria or Bargain-Hunter Tax

 

Unlike the previous five taxes, this ‘tax’ is paid only once. In fact, it is not really an extra tax. It is more of a supplementary Property Transfer Tax on buying low-priced property in a rock-bottom market. Local Tax Offices make the (wrong) assumption that a buyer has under-declared the sales value to dodge taxes. So they tax the amount they believe was under-declared. It is highly unfair and should be put to an end. It applies to both residents and non-residents.

More on this matter and how to challenge it successfully in my article: La Complementaria or Bargain-Hunter Tax.

 

Frequently Asked Questions (F.A.Q.)

 

1. What happens if I don’t pay my property-related taxes?

You are breaking the law. Overdue taxes are lodged against the property at the Land Registry. Prior to the property being sold or bequeathed (inherited) these outstanding amounts must be settled. In addition late payment interests and penalties will be rolled up compounding the debt. You will not be allowed to change the name in the Title deed until any unpaid tax is settled in full. Additionally the Tax Office is empowered to seize your Spanish bank accounts securing the debt.

On selling, the 3% retention withheld by a buyer by law (on account of a non-resident seller’s Capital Gains Tax liability) will be used to offset any owed tax by a non-resident seller (tax model 211). Do NOT expect the Tax Office to refund you the difference on the 3%; if you owe property taxes the tax authorities will pocket the full 3%. To avoid this you must first pay in advance the owed property tax (up to the last 4 years, as the statute of limitation time-bars any tax exceeding the four-year limit) plus any penalties or surcharges for late payment. Only once the outstanding property tax is settled, will they refund you the 3% withheld in full. More on this topic: Taxes on Selling Spanish Property.

In some serious cases, i.e. non-payment of IBI tax, may lead to the property being embargoed and seized by the local authority (town hall). It will then be sold in a public auction to recoup the outstanding debt. This procedure is ‘surprisingly’ expedient in Spain (as in months). With the ongoing recession town halls are proving increasingly more resolute in pursuing this (aggressive) course of action. Pre-recession they were fairly lenient.

The statute of limitations for all taxes in Spain is four years and one day (notable exception is Spanish Inheritance Tax which is four years, six months and one day).

2. Can I be chased abroad for outstanding property taxes?

To be honest, I have never seen it happen nor have I heard of such a case over the past decade. As specified above, unpaid taxes will be lodged against the property at the Land Registry. You won’t be pursued abroad for them.

That said, there are scenarios in which Spanish creditors may chase you abroad (E.U. and E.E.A.) for outstanding debts on instigating European legislation: European Enforcement Order (E.E.O.). And vice-versa, British or Irish creditors may benefit from said legislation to pursue and secure assets held in Spain by a debtor (i.e. HM Courts & Tribunals Service EEO fact sheet). In practice Spanish creditors seldom chase you abroad unless the amounts are worth their while – but make no mistake, it can be done.

The following is an example list of scenarios where you may be pursued in the E.U./E.E.A. for money claims arising in Spain:

• Defaulting on Spanish Mortgage Loan instalments on a second home in Spain.
• Falling in arrears with your Community of Owners.
• Outstanding amounts owed to developers on Buying Off-plan Property in Spain (forced completion).
• Unpaid personal loans (Bad Debtor’s List).
• Pursuing negative equity abroad: post-auction shortfall on Spanish Bank Repossessed Property.

More on this matter in my in-depth article: Spanish Creditors Pursuing Debts Abroad.

3. Do I need to appoint a fiscal representative?

It is not compulsory (in most cases) but it is highly advisable that you do. This will assure tax compliance in a diligent manner and avoid nightmare scenarios like you losing your Spanish home because of non-payment issues or having your Spanish bank account frozen to secure pending debts. A frozen bank account means that any standing orders will bounce back compounding your problems i.e. unpaid utility invoices.

4. Do I get notified in my home country of any taxes/debts?

Sadly no. You will only be notified at your Spanish address. Which is why non-residents should seriously consider appointing a fiscal representative to be on the right side of the law and avoid incurring in late payment penalties or surcharges. Moreover, you could appoint the address of your fiscal representative to receive all tax notifications ensuring compliance and adding to your peace of mind.

What can a lawyer do for you?

Appointing a lawyer as your fiscal representative in Spain to file and pay on your behalf your Non-Resident Income Tax and Wealth Tax returns, if applicable, has the following advantages:

•    Mandatory Professional Indemnity Insurance which you can claim from in case of negligence or malpractice. Currently this cover stands at €800,000 with Larraín Nesbitt Lawyers.
•    Complete the tax forms in Spanish.
•    Ensure you do not overpay on calculating the tax due on your property based on its rateable value and the number of days you have owned it on a pro rata basis.
•    Apply for tax relief (where possible).
•    Submit the tax returns before the Tax Office in a timely manner (thus avoiding attracting penalties and surcharges on late payment).
•    Setting a fiscal representative’s address to deal with all tax-related correspondence generated throughout a fiscal year.
•    Reply to any tax notifications within the deadline ensuring tax compliance.
•    Appeal misunderstandings or material errors.
•    Up-to-date knowledge on fast-paced fiscal changes.

Conclusion

Lawyers are specially qualified to act as your fiscal representative in Spain ensuring all tax deadlines are met and complied with in time. This will avoid you falling foul of the law and making costly mistakes in the long run.

Blissful ignorance on which taxes you ought to be paying, on owning property in Spain, will not be accepted as an excuse to avoid payment (Article 6 of the Spanish Civil Code). Do not expect Tax Authorities to handhold you reminding or even explaining what your taxpayer responsibilities are. It is up to you to find out and comply with them.

If in doubt, just ask a lawyer to help you out – we don’t bite (usually).

 

L’art de l’imposition consiste à plumer l’oie pour obtenir le plus possible de plumes avec le moins possible de cris.” – Jean Baptiste Colbert.

French economist and Finance Minister under King Louis XIV.

Translated as: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Plus ça change, plus c’est la même chose!

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No goose was harmed on writing this article. VOV.

2.015 © Raymundo Larraín Nesbitt. All rights reserved.

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Taxes on Buying Spanish Property

Raymundo Larraín Nesbitt, July, 8. 2015

This article, by lawyer Raymundo Larraín Nesbitt, summarises the taxes and fees a buyer can expect to pay when buying property in Spain today.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of July 2015

 

 

 

Introduction

The idea behind this article is to keep it short and simple. If you want details on a particular matter, just follow the blue links to delve further. I advise reading it in tandem with How to Buy Property in Spain Safely.

As a rule of thumb purchase costs add 10 – 15% over and above the purchase price. In some regions of Spain this figure may in fact be higher. I collate below the taxes and associated fees on buying.

I will split my article distinguishing between three property types for tax purposes:

I.     New-build (or off-plan).
II.    Resale.
III.   Commercial property.

Land Registry and Notary Public fees follow a sliding scale in relation to the declared value of a property, the number of pages in a deed and other factors I won’t go into. Examples:

  • €100,000 property would attract Notary Public fees of €700 and Land Registry fees of €400.
  • €250,000 property would attract Notary Public fees of €800 and Land Registry fees of €500.
  • €1,000,000 property would attract Notary Public fees of €900 and Land Registry fees of €600.

 

Be aware there are minor discrepancies from one region to the next as Spain’s seventeen Autonomous Communities have competence, within limits, over some taxes i.e. Property Transfer Tax (ITP) and Stamp Duty (AJD).

Buyers should be aware of the Complementaria or ‘Bargain Hunter Tax’. It is a supplementary tax the seventeen regional Spanish Tax Offices levy on buying property as a result of today’s low real estate values.

Take tailored legal advice on the region where you intend to buy. Request a full breakdown of taxes, fees and associated expenses. The tables below are a simplified approximation.

I. New-Build or Off-Plan Property

You can read further in my article Buying Off-Plan Property in Spain.

Taxes & Fees Rate
VAT (IVA) 10 %
Stamp Duty (AJD) 0.5 – 1.5 %
Land Registry fees 0.1 – 2 %
Notary Public fees 0.1 – 2 %
Lawyer’s fees 1 – 2 %
Mortgage & Gestoría fees (if finance is required) 1 – 2 %

 

II.    Resale Property

You can read further in my articles Buying Resale Property in SpainBuying Distressed Property in Spain and How to Buy Rural Property in Spain.

Taxes & Fees Rate
Property Transfer Tax (ITP) 7 to 10 %
Land Registry fees 0.1 – 2 %
Notary Public fees 0.1 – 2 %
Lawyer’s fees 1 – 2 %
Mortgage & Gestoría fees (if finance is required) 1 – 2 %

 

III.    Commercial Property

This includes storage rooms (trastero) and car parks (plaza de garaje) sold individually and legally separate from a dwelling. You can read further in my article How to Buy Commercial Property in Spain.

Tax Buying from Private Individual Buying from Developer or Professional
Property Transfer Tax (ITP) 7 to 10 % N/A
VAT (IVA) N/A 21 %
Stamp Duty (AJD) N/A 0.5 – 1.5 %
Land Registry fees 0.1 – 2 % 0.1 – 2 %
Notary Public fees 0.1 – 2 % 0.1 – 2 %
Lawyer’s fees 1 – 2 % 1 – 2 %
Mortgage & Gestoría fees (if finance is required) 1 – 2 % 1 – 2 %

 

Taxes on Selling Spanish Property

 

I refer to my in-depth article Taxes on Selling Spanish Property for details.

A seller is liable for two taxes: Capital Gains Tax and Plusvalía Tax. Additionally, following new regulation, a seller may be required to produce an Energy Performance Certificate (couple of hundred euros).

I.    Capital Gains Tax

•    Non-EU residents: 24%
•    E.E.A. or EU-residents: 20% (in 2016 this drops to 19%)

II.    Plusvalía Tax

In most cases it is not significant, usually amounting to less than €1,000 but can be more in the case of villas with large plots of land.

 

Post-Completion Taxes and Maintenance Upkeep

 

I refer to my in-depth article Non-Resident Taxes in Spain.

Once you have purchased, you will face the associated running expenses. Make sure you have budgeted these expenses carefully so as to avoid unpleasant surprises! Some of the luxury gated communities with lush tropical gardens and beautiful infinity pools that dot the Spanish coastlines have pretty steep maintenance expenses (tallying several hundred euros a month!).

1. IBI tax: 0.4 – 1.1% of cadastral value per annum.
2. Rubbish collection tax.
3. Community fees (if you buy into a Community of Owners).
4. Imputed Income Tax: 0.22% – 0.48% of a property’s cadastral value per annum (for 2015).

Distinction is made between EU and non-EU/EEA-residents as well as revised/unrevised cadastral values on calculating Imputed Income Tax. Revised cadastral values are those for properties acquired post 1994. The cadastral value of a property appears in your annual IBI tax invoice.

a. EEA/EU-residents

• Revised = 0.22%
• Unrevised = 0.4%

a. Non-EEA/EU-residents (rest of the world)

• Revised = 0.26%
• Unrevised =0.48%

Conclusion

Take thorough legal advice to budget your purchase carefully before you commit. Initial reservation contracts, that strike the property off the market, are normally non-refundable. So if finance fails the real estate agency and/or seller are entitled to withhold the initial reservation deposit unless specific wording is added to the reservation contract to safeguard against this event.

Attaining finance from a lender should not be taken for granted. Spanish lenders are risk-averse these days and expect a non-resident buyer to come up with a 30 to 40% deposit. This will likely change in the near future, as credit begins to flow again, requiring smaller down payments from borrowers.

I reiterate that buyers, in today’s market, should be mindful of the Complementaria or ‘Bargain Hunter Tax’ so they do not get caught out by owing extra taxes post-completion.

To close, we are in a buyer’s market. There is plenty of property to choose from so do not rush in or be pressurised to sign on the dotted line. Take your time to consider matters carefully and budget accordingly.

And last my shameless plug; hire a good lawyer.

Lo bueno, si breve, dos veces bueno; y aun lo malo, si breve, no tan malo.” – Baltasar Gracián y Morales.

Loosely translated as: “The good, if short, twice as good; and even the bad, if short, not so bad.”

Baltasar Gracián y Morales, S.J., was a 17th century baroque prose writer and philosopher belonging to Spain’s Golden Age.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.015 © Raymundo Larraín Nesbitt. All rights reserved.

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