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Tax issues in Spain

File your personal income tax forms

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There may be tax advantages to filing a nonresident tax form in Spain

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Fiscal representation for your properties

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If you are a nonresident who owns more than one property in Spain, you are required to have a tax representative.

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Articles:
Taxes for Property Owners
Taxes for Corporate Property Owners

FAQs:
If I'm buying a property, can I save on taxes by creating a company?
How do I determine if I'm a nonresident for tax purposes?

Taxes for Property Owners in Spain

Article adapted from the Agencia Tributaria's site for nonresidents.

The tax requirements are as follows:

If you are a resident, you are subject to personal income tax (including capital gains tax) and property tax (IBI).

If you are nonresident, you are subject to personal income tax (including capital gains tax), property tax, plus an additional nonresident property tax. Personal income tax for nonresidents only represents income from the property; income from salary is declared where you are a resident. If the property is for your own use, you must pay a certain percentage of your property; if the property is rented, you declare the amount you have received in rent.

Nonresidents: Personal income tax

If the property is owned by a married couple or by various individuals, each person is treated as a separate taxpayer and must file returns separately.

Depending on what the property is used for, the income subject to taxation is as follows:

Property for own use
Form 210
Filing period: January 1 - June 20 of the following year.
(Form 214 is the single form for declaring both property tax and income tax, with the filing period any time during the following year.)

The income to be declared is a percentage of the cadastral value of the property, as indicated on your property tax receipt. It is 2%, or 1.1% if the property's cadastral value was revised after January 1, 1994. The tax rate is then 25% of this "income". If you didn't own the property for the entire year or if it was rented for part of the year, then you would prorate the amount accordingly. Note that the rules regarding this tax were modified significantly on March 1, 2004.

A nonresident whose only taxable property in Spain is a dwelling fundamentally for own use may elect to use a single form for declaring both property tax and personal income tax on the estimated income from the use of that dwelling.

Property used for rental
Form 210 for ordinary return, using general section 210-A and indicating income type 01.
Filing period for Form 210: one month after the date on which the rent is due.
Form 215 for collective return. Also indicate income type 01.
Filing period for Form 215 (filed for each quarter): In the first 20 days of the month following the end of the quarter.

The income to be declared in this case is the total amount collected from the tenant, without deducting any expenses. The tax rate is 25% of this income.

This income is chargeable when it is claimable from the tenant or when it is collected (if earlier). Each rent due is taxed separately and, consequently, a return must be filed for each rent due. Or, collective returns may be filed which may include various chargeable income of one or more taxpayers falling within a calendar quarter.

A tax form must be sent after the termination of every rental agreement, in addition to the yearly declaration of income.

Residents and nonresidents: Capital gains on the sale of property
Form 212. When the property being transferred is owned jointly by a married couple in which both spouses are nonresidents, a single return may be filed.
Filing period: three months from the end of the period in which the purchaser of the property must pay the withholding tax (which is one month from the date of the sale).

Capital gains on the sale of property are taxable income that must appear on your income tax form for both residents and nonresidents. This income is chargeable when the capital gain takes place. The gain is generally the difference between the sale and acquisition values. The acquisition value is the purchase amount, plus the expenses and taxes involved in the purchase (excluding interest) that were paid by the person now selling it. If the property has been rented, the purchase amount must be reduced by the amount of depreciation corresponding to the rental period. The depreciation is also updated on the basis of the year in question. The sale value is the sale amount, minus the expenses and taxes involved in the sale that were paid by the seller.

However, if the property being sold was acquired before December 31, 1994, this capital gain gets reduced by 11.11% per year for each year (above two) during which the asset was held. This holding period is calculated by taking the number of years between the date of acquisition and December 31, 1996 and rounding up.

Withholding tax: If the seller is nonresident, then the buyer must withhold 5% of the agreed price (regardless of whether the buyer is resident or not), using Form 211 to pay this 5% to the tax office. The buyer then provides the nonresident seller with a copy of the form, so that the seller may deduct this withholding from the tax payable in the return declaring the capital gain. If the amount withheld exceeds tax payable, the excess is refundable. If the tax withheld is not paid, the liability for the tax is attached to the property.

Nonresidents: Additional property tax
Form 714, the same as for resident taxpayers
Filing period: May 1 - June 20 of the following year.

Nonresidents must file this tax form if they own property in Spain on December 31 of each year, regardless of the value of the property. The tax is calculated based on the highest of the following three values:

The cadastral value, as reflected in the property tax receipt for the year to which the return refers.

The value assessed by the Spanish Tax Office for purposes of other taxes.

The acquisition price.

The taxable amount is based on the value plus any charges or liens on the property minus the mortgage the property has, if any.

Each individual must file a separate return; if a property is owned by a married couple or by various persons, each one of them must file a single return for the portion of the house owned (usually 50%).

Taxes for Corporate Property Owners in Spain
Form 220. Also Form 300 for VAT and Form 110 for withholding tax
Filing period: January 1 - June 30 of the following year.

The corporate tax rate is 30%. All expenses for the property are deductible, including utilities, renovation work, management fees, and property taxes.

There are accounting obligations involved in maintaining an SL.

Shareholders and directors of the SL may be residents or nonresidents.

If any future litigation is directed at the individual, liability cannot involve the property because the SL, not by the individual, owns the property.

As a corporation, the capital gains do not have to leave the company to be taxed at 30%. They can be left as "reserves" for the company. There are five years in which to pay taxes on that capital gain, or to spend that money on another business (or house).

If I'm buying a property, can I save on taxes by creating a company?

It is generally not worthwhile to form a company (sociedad limitada or "SL") if it is your only house and the main purpose of buying the property is for your own use. If, however, you buy the house principally as an investment, then forming an SL may become cost-effective, paying off the cost of forming the SL and accounting for the SL. For more information about creation of an SL, please see our corporate website.

You should consider the question of whether to become a legal resident or not, and whether to create an SL or not, as part of your international tax plan, a plan that should be thought out if you live or work in more than one country.

Example:

Suppose Bob and Judy buy a house for 200.000€. They spend 12.000€ to furnish and renovate it. They earn 16.000€ per year renting it out during the summers. Management fees and utility costs on the property are 3000€ per year. After 3 years, they sell it for 300.000€ and buy another property. Bob and Judy file as nonresidents in Spain.

Case one: They do not form an SL.

On their yearly income tax form, they pay 25% of 16.000€, or 4000€. They can't claim back the 12.000€ they spent. The property tax will be around 400€ per year. On selling the property, they pay 25% of the 100,000€ in capital gains.

Case two: They form an SL.

They must still file a yearly personal income tax, but they will have no income. The property tax remains at 400€ per year. Their yearly corporate tax will be 30% of the net profit after deducting all the expenses. Strong Abogados' fee for forming an SL is 1500€, plus VAT for residents. The yearly fee for accounting is 3300€. Expenses can often be apportioned to subsequent years, so we can say all deductible expenses amounts to:

4000€ renovation/furnishings (12.000€ / 3 years)
3000€ management fees and utilities
3900€ SL costs: accounting/formation
400€ property tax
500€ general maintenance expenses on the house
----------
11.800€

So, the corporate tax is 30% of 4200€, or 1260€. On selling the property, Bob and Judy could pay 30% of 100,000€. They then buy their next house with these reserves. Property tax and VAT can be deducted or claimed back from the company. Comparing the two possibilities, we have:

Case 1

Case 2

Income tax (per year)

4000€

1260€

SL costs (per year)

0€

3900€

Capital gain

25,000€

0€

How do I determine if I'm a nonresident for tax purposes?

Assuming you don't have Spanish citizenship, you're a resident if either:

You're physically present in Spain for more than 183 days (including sporadic absences).

The main base of your professional activities or economic interests are in Spain.