Spain's new rental laws in 2019

Raymundo Larraín Nesbitt, March, 8. 2019

Lawyer Raymundo Larraín goes on to explain the new important changes afoot in rental laws in Spain in 2019 (specifically, long term rentals).

Marbella-based Larrain Nesbitt Lawyers has over 16 year’s taxation & conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
2nd of March 2019

Introduction

Here we go again, déjà vu.

The government is going to be dissolved in a month’s time, as national elections are being called up shortly.

The sitting government has entered an unprecedented state of legislative frenzy approving law after law in the few weeks it has left in what constitutes a very questionable practice, from a legal point of view. Some callous people may even think these opportunistic measures are really geared at garnering votes on polling day (less than two months away) from a legion of disenfranchised young men and women on precarious low-paid wages. Shame on you, our political class are above such petty electoral squabbles! Surely, they think grand long-term strategies, not with their eyes on short-term opinion polls making decisions on the hoof only to secure their position and public pay. God forbid!

Some of our political class make Mr. Trump look like a serious and respectable politician, almost.

One of these new laws was approved yesterday Friday 1st of March and will come into force as from Wednesday 6th of March 2019. After being published in Spain’s Official Law Gazette (presumably today Saturday), it will still require to be ratified by Congress. There is a very serious risk this law will be repealed by Congress – again – for a second time. This is because Congress will be dissolved next Tuesday and there will only be a skeleton crew commission which purpose is not really to approve such rushed ‘urgent’ laws.

It is basically a rehash of the law they passed last 19th of December 2018 (Changes to Spanish Rental Laws – 8th January 2019) which was subsequently repealed shortly after (Congress repeals Spain’s new rental law after just 35 days – 23rd January 2019).

So, it is the third set of rental laws we are getting in little over a month. Thanks Lord the self-proclaimed goal of this law is to “introduce stability into the rental market.” I couldn’t possibly imagine what it would be like if politicians were actually trying to create instability in the market…   

The significance of this new law is tremendous, as landlords, specifically legal landlords, must tread very carefully on the type of contract they are now signing as from next Wednesday with tenants. Some of these tenancy contracts will last 8 or 10 years. For your own sake, make sure you contact a law firm like Larraín Nesbitt Lawyers specialized in lease agreements unless you fancy locking yourself into a contract over the next decade.

 

Changes to Spanish rental laws 2019

 

The Government approved by Royal Decree on Friday 1st of March 2019 a spate of game-changers for the rental market (specifically for long-term rentals). Legal persons acting as landlords should be acutely aware of such changes if they rent or plan to rent out in Spain long term. Physical landlords should take note of the first bullet point.

The idea is to keep it simple and briefly list the most significant changes without going into esoterics. All changes effective from Wednesday 6th of March 2019. Prior signed rental agreements follow previous regulation, unless agreed otherwise.

I will be taking as reference my 2016 article  Urban Rental Law in Spain – Spain’s Tenancy Act (Ley de Arrendamientos Urbanos, LAU). I will take for granted legal concepts and will make no effort to explain them; if you are at a loss for example on mandatory and tacit renewal periods, you should read the above article to understand where I’m coming from.

It is strongly advised to read in tandem the above-mentioned article with the brief bullet points collated below to get the big picture on what’s changed in 2019.

  • Physical landlords: 5 years mandatory renewal period on long-term rentals (plus 3 years silent renewal). Was three years plus one.
  • Legal landlords: 7 years mandatory rental period on long-term rentals (plus 3 years silent renewal). Was three years plus one.
  • Legal landlords: additional bank guarantees demanded by a landlord on long-term rentals may not exceed a two-month deposit. Landlords typically request additional guarantees besides the compulsory one-month tenant deposit, especially when a tenant is a non-resident (because of the increased financial risk). These guarantees are now capped for legal persons acting as landlords. For physical landlords there is no change and may keep requesting additional guarantees in excess of the 2-month deposit.
  • Legal landlords: landlords - by law - will pay the commission to estate agencies on tenancy agreements: it was the case that tenants paid half or all this commission whether directly or not.
  • Inflation update: unless specified, all contracts will now be updated to bring them in line with inflation, referred to the IPC index as benchmark reference during the first 5 years. Given how rental yields increased by two digits year-on-year over the previous three years, this measure basically caps any rental increase at one digit only. So, it is detrimental to landlords and benefits tenants.
  • Non-renewal (for tacit renewal periods only): landlords must now give a 4-month notice, tenants 2-month notice.
  • ‘Necessity clause’: must now be expressly worded into the contract to be triggered by a landlord. This clause legally allowed landlords to cancel a long-term contract ahead of the agreed duration (for personal use, for family use etc).
  • Selling property: property buyers must now respect the whole duration of pre-existing lease agreements, even if they are not registered at the Land Registry. This may seriously jeopardize sales. If you want to sell your property, don’t lock yourself in an 8 or 10-year rental contract.
  • Transfer Tax: payment of Transfer Tax by tenants on signing rental agreements has been removed.
  • Subrogation: in the event the tenant dies, if his family are in a vulnerable position (under aged children, physical or mental disability and over 65-year-olds) they can take over his legal position as tenant throughout the duration of the contract.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to vote by a simple majority of 3/5 to ban outright holiday rentals within a community. I had already pointed out in a blog post in 2017 that this step was necessary, as the Horizontal Property Act at the time required unanimity to ban them, which logically was never going to happen because landlords would vote against it because of their vested interest. This measure has no retroactive effects.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to increase the communal quota assigned to a landlord (capped at 20%) of the overall community budget. In plain English, communities of owners may now vote to increase the community quota of a property owner who uses his property/ies as holiday lettings. This agreement will have no retroactive effects.

 

Conclusion

I had already covered profusely the raft of changes in prior articles, so I will refer to them for reference:

 

As a recap, in my opinion, this batch of new measures will foreseeably:

  • Restrict supply. They will scare off landlords as several of these one-sided measures curtail their rights and significantly weaken their position. They will likely pull out their properties from the rental market restricting supply.
  • Increase rentals (specifically, long-term). Tied to the previous bullet point, a restriction in supply necessarily brings about a price increase of the service or good offered.
  • Introduce (severe) tenant-screening. Because landlords will now be forfeiting a great deal of rights, they are going to implement overzealous tenant screening. Any tenant that is too young, too old (over 65 y.o.), who suffers a disability or who does not have a stable high-paying job need not apply. This will perversely worsen off the situations of many tenants who are already struggling in life after the decade-long Great Recession.
  • Induce precarity. Tied to the previous three points, it will bring more misery to families that need a property to live in, long term. Undermining the middleclass, which is the backbone of any modern democracy giving it stability and prosperity, is a sure-fire recipe to elicit extremist political movements, whether left or right-wing. Much like in pre-WWII Europe. You cannot have a strong democracy with a weakened subdued middle class.
  • Foster illegality: both landlords and tenants may now be tempted to circumvent these laws renting off the books which in turn means forfeiting a series of rights.

 

It would seem the Spanish government consistently fails to realize there are two sides to a coin in every negotiation. What this sloppy legislation does is to create a lopsided law that pulls all the stops in favour of only one side, tenants. But it does so at the (great) expense of landlord’s rights, which have taken a severe blow. In life, when you swerve violently to one side, there is bound to be an equal and opposite reaction from the other side. In any negotiation there are always two opposing sides, it is the government’s duty to strive to strike a balance, meeting with the social agents involved, gather their points of view, close positions and reconcile both sides to reach a mutually-agreeable middle ground. Both sides must compromise, making concessions to reach a middle point. Granted, it may not be the best solution but it is attained through a working consensus. Unfortunately, our government would seem oblivious to this fact and keeps obstinately ploughing ahead, like a horse with blinders, permanently enacting law after law which only benefits one side, often at the expense and exclusion of the other.

This observation is extensive to several other social policies adopted by the incumbent during his 8-month tenure, such as the irresponsible sharp minimum wage rise from last December with a mind-blowing increase of 30% in under a year, the largest combined increase over a 40-year span. Unsurprisingly, the backlash to this aggressive wage policy has been a huge spike in unemployment levels as from January, with thousands of workers being let go by SMEs and large companies. Again, the same underlying problem; legislating only for one side blissfully ignoring the other side’s point of view.

You just cannot hope to rule a country properly if you keep approving law after law permanently ignoring the other side; that is not negotiating, it is imposing one’s own views over others. There are bound to be consequences. And in the case of this new rental law, the collateral victims I’m afraid will be the same ones this well-meaning, albeit ultimately flawed law, sought to protect; the vulnerable social collectives such as youngsters, senior citizens and those with a disability that need a permanent place of abode. This law may put them in harm’s way on alienating them when it comes to looking for a reasonably priced long-term rental.

I apologize in advance for repeating what I wrote back in January, when Congress first repealed this clumsy law, but I feel compelled to post it again as it is warranted:

“Whilst it is always commendable in life to aspire to lofty ideals, these have real consequences when put into practice; this is particularly true of those politicians who have a penchant for them and who have never in their life worked in the private sector having lived off public stipends for all their life.

Politicians wield huge power and should carefully ponder the consequences of their ill-thought actions in the real economy and above all, and most fundamentally, on how these changes impact on ordinary families’ life’s.”

The only good news is that, once more, the government has let go of its whacky idea of setting and controlling rental prices (through town halls). Landlords are still free to set their own prices, as enshrined in Spain’s Tenancy Act, Art. 17. It would seem that Catalonia however are bent on passing a regional law along these lines, the first of its type.

I gently remind landlords that long-term tenancy entitlements, such as the ones described in this article, may at times (not always) be legally circumvented through the use of seasonal contracts. You can hire our law firm to draft you one, providing you meet the requirements. More on this here:

 

You can hire our contract drafting service from only €165 plus VAT: Rentals (contract drafting). Rental contracts also available in English. All contracts completed within 24 working hours.

Be proactive, talk to a lawyer. We can make it happen.

 

"Man is the only animal that trips twice over the same stone.” – proverb

 

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 952 19 22 88 or by completing our contact form to book an appointment.

Article originally published at Spanish Property Insight: New rental regulations rushed into law need to be taken seriously by landlords 

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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 delusional politician was harmed on writing this article. VOV.

2.019 © Raymundo Larraín Nesbitt. All rights reserved.

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Save 70% on your landlord tax bill

Raymundo Larraín Nesbitt, February, 22. 2019

Lawyer Raymundo Larraín explains how to profit from knocking off 70%, or more, from your tax bill on renting out in Spain (applies to both holiday lettings and long-term rentals)

Marbella-based Larrain Nesbitt Lawyers has over 16 year’s taxation & conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.

Article copyrighted © 2017 and 2019. Plagiarism will be criminally prosecuted.

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of March 2019

Introduction

Becoming a landlord in Spain has never been easier and more profitable than today:

  • Rental yields climbed steadily by two digits (14.5%) YOY for a third consecutive year. Source: Idealista.
  • Spain has broken its tourist record for its sixth year in a row! It has consolidated its hospitality status as the world’s second tourist destination, attracting almost 83 million visitors in 2018. Sources: BBC, El País and SPI.

 

Adding to all this good news, following new regulation, all non-resident EU/EEA property owners, who lease property in Spain, are entitled to deduct from their tax bill all property-related expenses. Iceland, Liechtenstein and Norway tax residents may also benefit from these generous tax deductions. Switzerland is excluded.

That is quite a lot of money you can offset every tax quarter, greatly mitigating your landlord tax bill on renting out. This new tax change translates into average tax savings of 70%, or more, for landlords. If you are not EU-resident, you cannot benefit from it.

This hinges on you receiving from your suppliers a VAT invoice. It must meet the following requirements.

Not submitting quarterly tax returns in Spain on your rental income is no longer an option, following new draconian tax laws that have turned all holiday platforms, and other intermediaries, into tax office whistleblowers retroactively as from the 1st of January 2018. All your rental income is now being reported to the Spanish taxman, unbeknownst to you. Fines for non-compliance are very steep. More on this here: Property portals and rental platforms to pass on landlord details to the Spanish Tax Authorities. Are you prepared? AirBnb, for example, explains its new tax 'sharing' data policy with the Spanish Tax Office on its website.

Landlord tax relief

 

You may claim as tax relief all the following property-related expenses:

  • Interests arising from a mortgage loan to buy the property (not a personal loan).
  • 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, refuse charge).
  • 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 (improvements) are excluded (however, you may offset them on selling on the property).
  • Community of owners’ fees: these receipts have no VAT, by law.
  • Home insurance premiums: fire, theft, civil liability etc.
  • Property repairs: plumbing, roof retiling, painting, pool pump etc.
  • Utility invoices: electricity, water, gas, internet, and landline.
  • Cleaning: cash payments are not tax-deductible, you need a VAT invoice.
  • Concierge, gardening, alarm & security services (i.e. gated communities).
  • Lawyer’s fees: are 100% tax-deductible! To calculate and submit you quarterly tax returns.
  • Property management fees: to manage your rentals.
  • Advertising expenses: online/offline.
  • Marketing expenses.
  • Home depreciation and amortization. The calculation is 3% on the highest value of the following two: sales price or cadastral value; the value of the land is excluded.

 

Requirements to benefit from these lenient tax allowances

 

  • You are tax resident in the Union or EEA (your nationality is irrelevant).
  • The expenses you claim are in direct relation towards the upkeep of the property i.e. claiming travelling expenses would be excluded.
  • You have VAT invoices to back up your tax relief claim.

 

- Is your tax advisor reducing your tax bills by 70%, no?

- Does he moan it is much too complicated, or make up excuses?

- Do you suspect he’s holding back on you?

Don’t put up with it! If you dislike time-wasters and overpaying taxes, come and speak to us. We will reduce your tax bill by 70%, on average. Call or email us to book an appointment. We will review your personal tax situation and advise accordingly. The procedure is fast and easy. We make life simple.

 

We offer the most competitive fees in the market.

Holiday Rental Accounting Service (HRAS) from only €125/tax quarter/property

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 to book an appointment.

Article also published at Spanish Property Insight: Save 70% on your landlord tax bill.

 

*Second Referendum*

"Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth." – Arthur Conan Doyle

Sir Arthur Ignatius Conan Doyle (1859 – 1930). Edinburgh-born, he was originally trained as a physician but would achieve world-renown as a writer of detective stories. He is universally known as the father of fictional character Sherlock Holmes. His fiction works are considered milestones in the crime fiction subgenre.

 

Tax & legal services available from Larraín Nesbitt Lawyers:

 

Holiday lettings-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 and 2.019 © Raymundo Larraín Nesbitt. All rights reserved.

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8 tips for Brexit

Raymundo Larraín Nesbitt, February, 12. 2019

Lawyer Raymond Nesbitt explains eight key points British nationals should be mindful of if they plan to remain in Spain in a post-Brexit world.

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

Image credit:  Theophilos Papadopoulos

 

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
21st of February 2019

Introduction

I never imagined a day would come where I’d be forced to write such a sad article as this one. It pains me greatly to see the United Kingdom leave the Union. I had already reviewed the huge negative impact this event will bring to thousands of expatriates in my article Brexit and You.

In this article I will simply assume it as a fait accompli and try to explain as simply as I can muster how you should best prepare for this once-in-a-lifetime (unfortunate) occurrence. This article is aimed at helping those who will remain in Spanish territory after this fateful event.

Some of the bullet points listed below can only be accomplished before the UK breaks away from the Union, so it is strongly advised you plan ahead to ensure you secure your rights and entitlements before this takes place (29th of March 2019 12th of April 2019 31st October 2019 31st January 2020).

The idea is to keep it simple and write these eight tips as a check list for ease of comprehension. If you are interested in delving further, just follow the links supplied in each point.

 

  1. Attain a NIE number.

A NIE number is a tax identification number for foreigners which identifies you before the Spanish Tax Office and allows you to file and pay taxes in Spain. The reason on why it is needed, is explained in-depth in our article: NIE Number Explained – 8th May 2017

  1. Apply for residency. Join the Registry for citizens members of the Union

If you are going to spend over 3 consecutive months in Spain, it is mandatory you enrol. If you are a EU national (i.e. British) you must attain a Certificado de Registro de Ciudadano de la Unión. This is the equivalent to the former residencia card. So why is all this hassle relevant you may be asking yourself? Because in a post-Brexit world, if you did not register yourself as a member of the Union before the UK breaks away, you will be stripped off a series of rights and entitlements to which you would otherwise have been entitled. You may also be regarded as an illegal alien in EU territory by the Authorities, which may even lead to your deportation to your country of origin. This is one of the points I mentioned in the article’s introduction that is time-gated. It is of crucial importance you secure your rights as a EU national before Brexit is triggered and you are no longer regarded as a EU national. You will no longer be able to join this registry post-Brexit, as this fast-track legal procedure is reserved only to EU nationals. Take heed, this is the most important advice we can give you by a long shot. You can apply for Spanish residency through us: Spanish residency.

  1. Enrol in your town hall census

In Spanish, this is known as empadronarse. By law, if you spend more than 183 days in a calendar year in Spain you should register in your town hall. This allows your town hall extra money from the central government to finance public services such as ambulances and firemen. This administrative act is also required for a number of admin procedures which will demand you produce a certificate of enrolment (Certificado de Empadronamiento). 

  1. Swap your UK driving licence for a Spanish one

If you are a Spanish resident, you must change your UK driving licence for a Spanish one. You only have 2 years to do this without a penalty. I had to do this myself when I moved back from the UK and it is a very straightforward procedure. Within 2 months you will be posted a new EU/Spanish driving licence. Needless to say, you can’t drive around in Spain with a UK-plated car if you are a Spanish resident.

  1.   Submit your resident tax returns
  • IRPF: Spanish residents are taxed on their worldwide income and assets. You will be required to file once a year an income tax return. If you work in Spain, lease or derive any income in Spain (or abroad) you need to submit IRPF. More on this here: Spanish Resident Income Tax (IRPF).
  • Wealth tax (Patrimonio): This tax is only paid by affluent taxpayers; most people do not have to pay it. As a Spanish resident you have a personal tax allowance of €700,000 per partner (in Andalusia). So, a couple, would have a combined tax allowance of €1,400,000. In addition, residents have a further allowance of €300,000 on their main home, per taxpayer. So, for a married resident couple, the combined tax-free allowance would be €2,000,000. If your net wealth exceeds this amount, then you must file once a year Patrimonio. More information in our tax article: Spanish Wealth Tax (Patrimonio) – 8th November 2011.
  • Modelo 720: All residents in Spain with assets over €50,000 abroad, must report it on filing this tax form. There is no tax to be paid on completing this tax return. Its sole purpose is to act as means of control on assets held abroad by Spanish residents and nationals. This tax form has proven to be most unpopular and it is single-handedly responsible for a mass exodus of British (and other foreign nationals) in the hundreds of thousands. Its disproportionate fines are currently being challenged in Brussels. We explain it in detail in our tax article: Tax form 720 – 20th April 2018

 

  1. Apply for an EU Social Security card

It is strongly advised you apply for one to have unfettered access to healthcare. More on this matter in our article: How to Apply for Healthcare in Spain – 8th November 2014

  1. Apply for permanent residency

If you are able to demonstrate a continued legal residence in Spain for a period of 5 years, you may now apply for permanent residency, which grants you unconditional residency without any restrictions.

  1. Apply for Spanish nationality (optional)

After 10 years of continued and legal residency in Spain, you may opt for a Spanish nationality.

This is a very serious matter you should carefully consider. Unlike the United Kingdom, where we can hold dual nationality with other countries, Spain is very restrictive. It only allows you to hold dual nationality with a limited number of countries with which it has strong historic liaisons (mostly Ibero-American, Philippines, Portugal, Andorra and Equatorial Guinea). Meaning that if you decide to take up Spanish citizenship you will be forced to relinquish your nationality of origin by the Authorities. And there is no turning back. I stress this is by no means necessary and it is purely optional. Your EU rights will be safeguarded even if you remain British till your last breath.

 

Did you know?

 

Brushing aside the fact that if you remain more than 3 months in Spain, you must apply by law for residency, the fact is that becoming resident in Spain offers some great (tax) advantages.

 

Did you know that if you become resident, for example in the region of Andalusia, there is no inheritance tax to pay? As in nil.

Did you know that if you are resident, there is a national tax allowance of 95% in inheritance tax on the main home for the surviving spouse and children? Several autonomous regions improve on this increasing it to 99.99%

Did you know that EU-residents can knock off 70%, or more, from their tax bill on renting out as they qualify for lenient landlord tax relief?

Did you know that as an EU-resident you are taxed at the lower tax rate of 19%, as opposed to the 24% applied to the rest of the world? That’s 21% less tax if you do the Maths.

Did you know that on selling your property you will not be withheld 3% of the sales proceeds by the Spanish Tax Authorities, unlike non-residents?

Did you know that under 65-year-old residents can apply for a rollover relief on their capital gains tax liability on selling up? Meaning no CGT is paid.

Did you know that over 65-year-olds may benefit from absolute relief on selling their main homes? Meaning no CGT is paid.

 

These are just a small sample of the many benefits that await you on taking up residency in Spain.

Seek tailored legal advice on your particular circumstances, read disclaimer below.

  

“A house divided against itself cannot stand.” – Abraham Lincoln

Abraham Lincoln (1809 – 1865). From an impoverished humble background of corn farmers, this self-taught American lawyer, strategist and politician would rise to serve as the 16th US President. He resolutely ensured a pro-Union victory, strengthened the federal government, modernized the economy, brought about the emancipation of slaves and preserved the Union. During his tenure, he held presidential elections in 1864 to be re-elected, amid a devastating Civil War that threatened to tear his country apart and engulf it in a sea of darkness; yet he gave example in the face of adversity, holding steadfast to his ideals, steering the ship safely into port and acting as a beacon of Democracy which light shone with a fierce intensity the likes of which the world has never witnessed, before or since. Never again would a country hold presidential elections amidst a bloody civil war in what constitutes one of History’s greatest democratic feats to date. But most importantly, he went into great lengths to ensure the festering wounds left open during the fratricidal Civil War were healed; generously reconciling both sides in equal terms, as one nation, indivisible, under God. It is for this very reason, that more than two centuries on, he is widely regarded as the greatest American President to grace the White House; likely the greatest American of all time, towering above the rest. Through his courage and sacrifice, which ultimately would claim his own life, he laid the groundwork of what was to become the greatest and most powerful nation on earth over the next two centuries. A true statesman that would always put ahead of any consideration the best interests of his people, by tearing down divisive walls and fostering at every opportunity union.

 

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 952 19 22 88 or by completing our contact form.

 

Article originally published at Spanish Property Insight: 8 tips to get ready for life after Brexit

 

Tax & legal services available from Larraín Nesbitt Lawyers:

 

Brexit-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 delusional secessionist politician was harmed on writing this article. Ní neart go cur le chéile. Voluntas omnia vincit.

2.019 © Raymundo Larraín Nesbitt. All rights reserved.

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Changes to Spanish Rental Laws

Raymundo Larraín Nesbitt, January, 4. 2019

Marbella-based lawyer Raymond Nesbitt goes on to explain the new changes afoot in rental laws in Spain.

EDIT (23-01-2019): Congress repealed this new rental law. Please read our blog post for all the details: Congress repeals Spain’s new rental law after just 35 days – 23rd January 2019

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of January 2019

Soviet mural in Karaghandy, Kazakhstan.

Introduction

Last December saw a number of changes afoot which could easily trip you up faster than having to explain to someone why Brexit will have no impact in our life’s, ha!

If you have been following our articles and blog posts, you will be aware that Spain has undergone a spectacular two-digit rental yield growth YOY over the last three years. This outstanding advance can be pinned down to a number of factors, but it is not the point of this article to digress and delve in the underlying causes. To simplify, the main two causes have been a landmark pro-landlord amendment to Spain’s Tenancy Act from June 2013 and foremost the irruption of new big players such as property portals i.e. AirBnb. Adopting more relaxed laws coupled with the advent of holiday platforms, account for this huge spike in asking rental prices.

As a result of the unbridled growth in rental yields, given how Spain’s rental market traditionally remained sluggish as laws were clearly biased pro-tenant for historical reasons, whole generations of young Spaniards are now being locked out of the market. Despite a severe correction of property prices post-bubble that saw an average price drop of 50% across the board, the truth is that Spanish youngsters still struggle to get a grip on the first rung of the property ladder. A combination of precarious jobs, low wages and high asking rental prices has led to almost 50% of those aged 18 to 35 years old to still live with their parents in Madrid, for example (source: El País).

Spain’s government, ideologically of centre left wing, has taken a series of measures to ensure these problems are challenged in benefit of society. They have increased the minimum wage by almost 30%, the largest increase over the last 40 years, and have now directly tackled the rental problem by enacting a batch of new pro-tenant regulation that greatly empowers long-term tenants (in detriment of landlords). These changes - fortunately - hardly affect holiday lettings.

There is talk that the government’s hard left-wing allies, feel these changes fall short and want to take matters a step further; they have steadily mounted pressure to take a bolder stance and actually go as far as to determine - by decree - rental prices. Whilst this state price allocation has not occurred as of yet, it would indeed be a very misguided step in the wrong direction. Some would even argue this policy has a whiff of communism.

In all my articles I clearly position myself against such state interventionism because, at least to my mind, they clearly introduce market distortions creating serious anomalies and imbalances. We are not in fact living in a planned economy and the government has no business in fixing renting prices by decree.

As an example of this, back in 2017 the Balearics property market was booming, it was Spain’s undisputed hot spot leading the property pack. The local ruling hard left-wing coalition decided to cool down sales prices and asking rental prices in benefit of youngsters seeking affordable accommodation by passing a new stringent regulation that severely restricted holiday lettings. In their minds, they thought these well-intentioned changes would bring down asking rental prices to a more affordable level allowing more young people on low wages to let. Reality bites.

I unequivocally criticized these new measures as counterproductive in my article New Balearics holiday rental law – 8th September 2017. Not 6 months had elapsed since this clumsy law had  been approved, when the Balearics property market crashed, going from a spectacular 15% growth year-to-year to sales plunging by almost 30% as can be read in a local newspaper.

You would think that, at the very least, after grinding the Balearics market to a standstill the ruling coalition managed to cool off asking rental prices, yes? Wrong. They increased by over two digits YOY.

This is because the market is 'wise' and will adjust itself accordingly. If you artificially stifle supply (by creating draconian requirements for holiday lets that effectively wipe out 50% of supply) but demand remains unabated, then the logical consequence is a price hike of the good or commodity, which is exactly what’s happened. Moreover, ironically a hard left-wing coalition have made the rich richer and the poor, poorer. They have indirectly greatly benefitted well-off owners of detached villas, who are now unshackled to offer their properties as holiday lets without restrictions, as opposed to more humble landlords who own city centre flats and who have seen their owner's rights curtailed as they have been outright banned from offering them as holiday lettings.

Regarding the 'brutal' increase in the minimum wage from last December - whilst commendable - in practice will likely greatly disincentivise (understatement) businesspersons from hiring new employees as in addition to the minimum wage, employers must also pay for Social Security which is over 1/3 of the wage on top. Furthermore, it may even lead to massive layoffs. January 2019 in fact saw the largest figure of employees being let go by companies, with over 274,000. This is the worst figure in over a decade, not even during the recent Great Recession were the figures this bad. To put these numbers into perspective, that is 100,000 more workers losing their jobs than in the same period in the previous year (176,000 in January 2018). Clearly, there is a correlation between the government's (clumsy) vast increase of the minimum wage last December (the largest in four decades) and thousands of people losing their jobs on the following month (source: Idealista).

Whilst it is always commendable in life to aspire to lofty ideals, these have real consequences when put into practice; this is particularly true of those politicians who have a penchant for them and who have never in their life worked in the private sector having lived off public stipends for all their life.

Politicians wield huge power and should carefully ponder the consequences of their ill-thought actions in the real economy and above all, and most fundamentally, on how these changes impact on ordinary families’ life’s.

 

Changes to Spanish rental laws

 

The Government approved by Royal Decree last December a spate of game-changers for the rental market. Legal persons acting as landlords should be acutely aware of such changes if they rent or plan to rent out in Spain long term. Physical landlords should take note of the first bullet point.

The idea is to keep it simple and briefly list the most significant changes without going into esoterics. All changes effective from the 19th of December 2018. Prior signed rental agreements follow previous regulation, unless agreed otherwise.

I will be taking as reference my 2016 article  Urban Rental Law in Spain – Spain’s Tenancy Act (Ley de Arrendamientos Urbanos, LAU). I will take for granted legal concepts and will make no effort to explain them; if you are at a loss for example on mandatory and tacit renewal periods, you should read the above article to understand where I’m coming from.

It is strongly advised to read in tandem the above-mentioned article with the brief bullet points collated below to get the big picture on what’s changed in 2019.

  • Physical landlords: 5 years mandatory renewal period on long-term rentals (plus 3 years tacit renewal periods). Was three years plus one.
  • Legal landlords: 7 years mandatory rental period on long-term rentals (plus 3 years tacit renewal periods). Was three years plus one.
  • Legal landlords: additional bank guarantees demanded by a landlord on long-term rentals may not exceed a two-month deposit. Landlords typically request additional guarantees besides the compulsory one-month tenant deposit, especially when a tenant is a non-resident (because of the increased financial risk). These guarantees are now capped for legal persons acting as landlords. For physical landlords there is no change and may keep requesting additional guarantees in excess of the 2-month deposit.
  • Legal landlords: landlords - by law - will pay the commission to estate agencies on tenancy agreements: it was the case that tenants paid half or all this commission whether directly or not.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to vote by a simple majority of 3/5 to ban outright holiday rentals within a community. I had already pointed out in a blog post in 2017 that this step was necessary, as the Horizontal Property Act at the time required unanimity to ban them, which logically was never going to happen because landlords would vote against it because of their vested interest. This measure has no retroactive effects.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to increase the communal quota assigned to a landlord (capped at 20%) of the overall community budget. In plain English, communities of owners may now vote to increase the community quota of a property owner who uses his property/ies as holiday lettings. This agreement will have no retroactive effects.

 

Conclusion

In my view these changes are a faux pas and will understandably make landlords (specifically those acting as legal persons) wary of renting out long-term thereby greatly restricting supply (as legal persons have thousands of units in their possession). Who in their right mind wants to lock themselves into an eight-year contract, or a ten-year for legal persons, losing possession of the property for that long? There has to be an attractive incentive to counter the increased risk these changes bring.

Whilst these changes no doubt can be electorally capitalized, garnering legions of votes on polling day from disenfranchised young men and women who are in need of affordable accommodation, it is uncertain they will actually benefit tenants.

It should be noted that landlords had already been dumping long-term contracts over the previous three years in benefit of the far more lucrative short-term holiday lettings restricting furthermore the long-term supply of properties.

These new changes in law will further compound and exacerbate an already scant supply of long-term accommodation leading to a foreseeable hike of rental prices across the board as more and more landlords will pull out from long-term rentals because of the increased perceived risks for them; exactly the opposite effect of what is sought by lawmakers on passing this new regulation nationwide which is vying to make accommodation more affordable for everyone, especially the more vulnerable collectives on precarious McJobs with low wages, namely youngsters.

Alas don’t fret, ‘fortunately’ for us the government has this base covered as there is talks of planning to intervene rental prices (shortly), goaded by their left-wing political allies, setting them out by decree like in a planned economy! Let us hope common sense prevails and this clumsy policy is not adopted by the incumbent.

I just cannot begin to express how wrong and harmful this decision would be and how counterproductive it could prove for the overall rental market. We’ve already seen last year how a well-meaning (albeit naïve) political decision by a hard-left-wing coalition in the Balearics led the property market to plunge into chaos resulting in fact in the opposite effect of what was sought; a two-digit hike in rental prices YOY (and mounting) making life of all those seeking affordable rental accommodation in the Balearics even more miserable.

Only time can tell whether these well-meant pro-tenant changes introduced by Spain’s government will in fact benefit (long-term) tenants, or not.

My money is it won’t.

 

 

You can hire our contract drafting service from only €165 plus VAT: Rentals (contract drafting). Rental contracts also available in English. All contracts completed within 24 hours.

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"Everyone thinks of changing the world, but no one thinks of changing himself.” – Leo Tolstoy.

Count Lev Nikolayevich Tolstoy (1828 – 1910). Was an unparalleled writer of universal acclaim author of pivotal novels such as War and Peace and Anna Karenina. His works attained the pinnacles of realist fiction. The strife’s of the Crimean War imbued in him a strong religious sense that would lead him to reinterpret the teachings of Jesus coalescing in his ideas of non-violent resistance. These ideas are epitomised in his work The Kingdom of God is Within You which would go on to greatly influence two of the most towering figures of the 20th century, Mohandas Karamchand Gandhi, and Martin Luther King, Jr.

 

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@larrainnesbittabogados.com, by telephone on 952 19 22 88 or by completing our contact form to book an appointment.

 

Article also published at Spansih Property Insight: Changes to Spanish Rental Laws.

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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. No delusional politician was harmed on writing this article. VOV.

2.019 © Raymundo Larraín Nesbitt. All rights reserved.

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Taxes on Buying Spanish Property

Raymundo Larraín Nesbitt, December, 10. 2018

Marbella-based Larraín Nesbitt Lawyers has over 16 year’s conveyancing & taxation experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats acquiring property all over Spain, including Madrid and Barcelona.

Article copyrighted © 2015 and 2018. Plagiarism will be criminally prosecuted.

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 2018

Introduction

The new Stamp Duty law brought about by the landmark ruling of Spain’s Supreme Court last October, calls for an updated version of this key taxation article.

The most notable change is that borrowers will no longer be paying Stamp Duty on applying for a mortgage loan in Spain. This translates into saving thousands of euros, on average.

As a rule of thumb, purchase costs add 10 – 13% over and above the purchase price. I collate below the taxes and associated fees on buying.

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). Each region is empowered to fix the tax rate, within a sliding scale, that varies between 6 to 11% for ITP and between 0.5 and 1.5% for AJD.

Buyers should be mindful 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 post-crash (particularly for resales).

I will split my article distinguishing between two property types for taxation purposes:

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

The tables below are a simplified approximation.

I. New-Build or Off-Plan Property

 

You can read further in our articles 8 Tips on Buying Off-Plan in Spain and Buying Property in Spain from a Developer (Off-Plan Property).

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 %
Mortgage & Gestoría fees   few hundred €

 

II. Resale Property

 

You can read further in our articles Buying Property in Spain from a Private Seller (Resale Property) and How to Buy Rural Property in Spain.

Taxes & Fees Rate
Property Transfer Tax (ITP) 6 to 11 %
Land Registry fees 0.1 – 2 %
Notary Public fees 0.1 – 2 %
Lawyer’s fees 1%
Mortgage & Gestoría fees   few hundred €

 

Post-Completion Taxes and Maintenance Upkeep

I refer to our 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 (this is not the market value, it is well below it).
  2. Rubbish collection tax.
  3. Community fees (if you buy into a Community of Owners).
  4. Non-Resident Imputed Income Tax (NRIIT): 1.1% or 2% of a property’s cadastral value per annum.*

*Distinction is made between EU and non-EU/EEA-residents as well as revised/unrevised cadastral values on calculating Imputed Income Tax.

Conclusion

Take thorough legal advice to budget your purchase carefully before you commit. Request a full breakdown of taxes, fees and associated expenses. The 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. That said, lenders are once again dipping their paws brazenly into the market, luring borrowers with enticing 100% mortgage loans.

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

And to close, my shameless plug; hire an experienced conveyance law firm such as Larraín Nesbitt Lawyers.

We offer the most competitive fees in the market.

Conveyancing – Buying

We are specialized in conveyancing

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 originally published in Spanish Property Insight: Taxes on Buying Spanish Property.

 

“The only advice anybody can give is, if you wanna be a writer, keep writing. And read all you can, read everything.” – Stan Lee

Stanley Martin Lieber (1922 – 2018). Exceptionally gifted Jewish American storyteller, comic book writer, editor, and publisher. This titan became Marvels’ Comics primary creative leader for several decades. In his teens, he won the New York Herald Tribune’s so-called “Biggest News of the Week Contest" prize for three straight weeks, goading the newspaper to write him and ask him to please let someone else win. Through his hard work and determination, he went on to inspire millions of children the world over for generations, of which some would even grow up to become lawyers and write articles of their own.

Buying property 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.

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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 any, and all, 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.

Cadastral Value - Definition

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. A cadastral value, in general terms, is 30 to 40% below the current market price of a property. So it does not equate to a property's true market value, it is actually well below it (which is good news).

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 one 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 100/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 100/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.

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Licence of First Occupation

Raymundo Larraín Nesbitt, September, 3. 2018

Marbella-based lawyer Raymundo Larraín revisits a First Occupancy Licence and gives us a brief rundown on what it is and its relevance to a property buyer.

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

Article copyrighted © 2.005, 2.010, and 2.018. Plagiarism will be criminally prosecuted.

 

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

The Licence of First Occupancy (LFO, for short) is a crucial document on buying off-plan property in Spain that draws a line between what is legal and what is not, in general terms. A LFO does not (usually) apply to resale properties.

This article is just a stub, a short summary. If you fancy an in-depth take on this topic, you can read our 2005/2009 breakdown: Licence of First Occupation.

Definition

A Licence of First Occupation is a certificate issued by a town hall which confirms that a newly-built property (off-plan) fully complies with all planning and building regulations and is fit to be used as a dwelling. It assures compliance with Health, Access, Safety, Planning and Construction laws, and that the property has been fully completed, with no outstanding works.

The LFO allows off-plan purchasers to dwell in a property legally. A LFO is also known as Habitation Licence or Certificate of Habitation and in Spanish, Licencia de Primera Ocupación or Cédula de Habitabilidad.

LFO importance

It is important mainly for four reasons:

  • It provides a check on the planning legality. A LFO means the developer has built the dwelling in accordance with the original town hall’s Building Licence as well as with all Planning laws. The inspection to grant this licence is carried out by town hall’s chartered technicians who certify the dwelling is deemed apt for human habitation.
  • It is required by utility companies to have access to official supplies: water, electricity and gas. Spanish law requires the granting of a LFO to hook up the dwelling to the supply grid.
  • Lenders will ask for it if you require finance. Banks will also be asking you for a LFO. Even on reselling the property, your buyer may request a copy for his own lender.
  • Holiday lettings. If you are looking to buy as an investment (buy-to-let), a LFO is required by Regional Tourist Authorities to rent out your place on a short-term. If your property hasn’t attained a first occupancy licence, you will not be able to legally rent out your house and may be landed with humongous fines if caught red-handed. The fines for non-compliance are six-figures in some regions of Spain.

 

Conclusion

Be wary of anyone downplaying the importance of a LFO on off-plan property claiming it is unnecessary.

In general, I advise you not to complete without a Licence of First Occupation.

 

We offer the most competitive fees in the market.

Conveyancing – Buying

We are specialized in conveyancing

 

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

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation 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.

 

“La perfection est atteinte, non pas lorsqu'il n'y a plus rien à ajouter, mais lorsqu'il n'y a plus rien à retirer.” – Antoine de Saint-Exupéry

Maj. Antoine Marie Jean-Baptiste Roger, comte de Saint-Exupéry (1900 – 1944 KIA). French writer, poet, aristocrat, journalist, and expert aviator. He became a laureate of several of France's highest literary awards and also won the U.S. National Book Award. During his U.S. hiatus, he wrote the three books that would earn him literary immortality whilst strongly lobbying for the U.S. to join the war effort against the cruel Nazi tyranny. He is best remembered for his novella The Little Prince (Le Petit Prince), based on his real life Libyan desert crash, and for his lyrical aviation writings, including Wind, Sand and Stars and Night Flight. He vanished without a trace during WWII over the Mediterranean Sea on a reconnaissance mission behind German lines whilst piloting his Lockheed P-38 Lightning. His tragic disappearance marks the start of his literary legend which continues to grow every year, as new generations of young readers become imbued with his exquisite work (in over 350 languages!)

Article also published at Spanish Property Inisght: Licence of First Occupation

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Off-plan-related articles

 

Please note the information provided in this blog post 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.

2.005, 2.010 and 2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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Golden Visa Spain

Raymundo Larraín Nesbitt, August, 8. 2018

Lawyer Raymond Nesbitt gives us an overview of the advantages offered by Spain’s Golden Visa application.

Larraín Nesbitt Lawyers has over 16 year’s conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats acquiring property all over Spain, including Madrid and Barcelona.

Article copyrighted © 2.013, 2.017, and 2.018. Plagiarism will be criminally prosecuted.

 

 

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8-8-18

Introduction

The Spanish Golden Visa has become the gateway to Europe for thousands of applicants pursuing the European dream. They have collectively invested over 2 billion euros since its inception in 2013. Although Spain’s visa programme was a flop initially, as it fell well below expectations and was marred with teething issues, an ambitious overhaul in 2015 made it extremely competitive compared with similar schemes offered by fellow EU countries. So much so, that this massive tweak enabled Spain to overtake Portugal last year, becoming Europe´s leading Golden Visa supplier. This is unsurprising given how Spain overtook the US as the world’s second biggest tourist destination.

Although this procedure was originally tailored to cater to well-off Chinese and Russian nationals, British should seriously consider looking into it with renewed interest post-Brexit. The reason is because this scheme would allow British nationals - that lack a EU passport - to travel across Europe skipping pesky passport controls on an equal footing to EU nationals. Much like before the UK voted to break away from the Europe Union. Avoid lengthy queues at EU airports.

If you fancy an in-depth take into this subject, you can take a peek at our 2013 article: Investor Guide to Spain’s Golden Visa Law. 

Spain’s Golden Visa programme allows affluent non-EU applicants, and their dependants, unfettered access across Europe´s Schengen Area. Travel unmolested through all of Europe.

A Golden Visa enables you, and your family, to live and work in Spain (Europe). This visa guarantees Spanish residency, which eventually leads to Spanish citizenship (optional). Live the dream, apply now!

Apply for the keys to your Golden Visa through Larraín Nesbitt Lawyers: Golden Visa Service. Your family’s success is only one call away: (+34) 952 19 22 88

Thousands of non-EU nationals have already secured their families’ future and well-being on benefiting from this special arrangement that rolls out the red carpet cutting through all the red tape. Spain’s Golden Visa is a success story, be a part of it.

Why haven’t YOU invested in your family’s future?

Why choose Europe?

  • Democracy. Europe, cradle of Democracy, hosts some of the world’s oldest and most progressive open-minded societies. A clear and stable legal framework allows freedom, tolerance, nurtures ingenuity, and upholds (property) rights for businesspeople. This concocts the ideal breeding ground to foster business investments and develop an entrepreneurial skill set.
  • Education. Europe is home to some of the world’s most respected academic institutions. Secure a bright future for your children allowing them to earn their spurs in life through a meritocratic top-notch education.
  • Culture. Europe is a crucible of cultures, a conflux that laces Western and Eastern influences, offering a rich tapestry of history and arts that shaped the world as we know it. Spain’s vast cultural heritage, spanning millennia, is a legacy of commingled cultures that attracts over 82 million tourists every year leaving an indelible mark upon its visitors.
  • Languages. Seize the opportunity to master and command some of the world’s most influential languages: English (business & finance), French (arts & diplomacy), German (industry & science), Spanish (literature & poetry).
  • Security. Taken for granted by modern society, peace and security have become an increasingly sought-after commodity in these perilous times. Europe offers a war-free space ideal for young families to raise their children. Europe, and Spain in particular, boast some of the world’s lowest crime rates. Unsurprisingly, 8 out of the 10 cities with the lowest world-wide crime rates are located within European borders. Tight gun-control policies avoid trigger-happy wackos.
  • Healthcare. Europe, and Spain in particular, are at the forefront in modern medical facilities.
  • Modern transport. Spain offers top-tier transport services including state-of-the-art high-speed rails connecting you with Europe’s major capitals.

 

Golden Visa Advantages

  • Fast-tracked. This law is specifically devised to attract affluent non-EU investors and helps to cut through the admin red tape greatly streamlining the visa procedure.
  • Travel Europe visa-free. You can travel without a visa for 90 days out of every 180 days within the Schengen Area, but you will still need a visa to enter EU countries outside the Schengen Area (for example the United Kingdom).
  • Clear rules. Initially 1 year (Residency Visa), then 2 years (Residency Permit), renewable indefinitely every 2 years.
  • No need to become resident in Spain. You only have to visit Spain once to get or renew the Residency Permit. There is no minimum stay requirement, and you don’t have to become a fiscal resident or actually live in Spain.
  • Family included. You may get additional permits for your spouse and children under 18 years (or disabled children over 18). Same-sex partners inclusive. Dependent parents of applicant are now also included (extended family).
  • You may work in Spain.
  • Spanish nationality (optional). This is a 2-year Residency Permit, not the right to permanent residency or a Spanish passport. However, it can lead to long-term Spanish residency after 5 years of continuous residence, and citizenship after 10 years.
  • Underaged children may study in Europe. Underaged offspring can live and study in Europe, in company of your partner, whilst you work and earn money abroad.
  • Return on investment. Take advantage of Spain´s burgeoning real estate recovery. Year-to-date (first five months), the market has expanded by double-digits in almost every region compared to the same period last year. Property prices are rising sharply spearheaded by Madrid (+17% YOY), Barcelona (+11% YOY), Mallorca (+15% YOY) and selected coastal areas. Low prices and cheap mortgages will not last forever, dip in whilst you can.

 

General Requirements

 Applicants pursuing investor visas must comply with the following general requirements:

  • Non-EU national.
  • The investor applicant must be of legal age (18-years-old or over).
  • The investor must not hold a criminal record whether in Spain or in the previous five years where he has resided.
  • Not be already in Spain irregularly.
  • Have access to medical insurance whether private or public.
  • Have sufficient financial means to support both himself and his family whilst in Spain.
  • Pay the relevant application fee.

 

Specific Requirements

Qualified residency permits to non-EU residents will be offered in return for any of the following:

  • Invest at least €500,000 in Spanish real estate property.
  • Invest at least €2,000,000 in Spanish Treasury Bonds.
  • Invest at least €1,000,000 in shares of Spanish companies.
  • Deposit at least €1,000,000 in Spanish bank accounts.
  • A ‘major’ business investment which fulfils at least one of the following three conditions:

 

  1. Meaningful job creation as a direct result of the investment.
  2. Significant socioeconomic impact in the geographical location where the activity will be carried out.
  3. Technological or scientific impact.

 

Interested? Come and speak to Larraín Nesbitt Lawyers’ friendly staff who will be pleased to guide you through Spain’s Golden Visa programme. Your family’s success is only one call away: (+34) 952 19 22 88

 

"The predecessors plant trees [and] the next generation cools off in the shade." – Ancient Chinese proverb.

 

Golden Visa Service *

We are specialized in conveyancing

*includes one family unit

 

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

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

Article originally published at Spanish Property Inisght: Golden Visa Spain

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Golden Visa 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.

2.013, 2.017 and 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)

Flat fee: €125/tax quarter/per property*

*Includes only up to two joint owners. More than two joint owners, has a higher fee. 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).

Flat fee: €100/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 €125/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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