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Taxation of overseas tax residents who own property in Spain (2nd part)

Once the property in Spain has been acquired, an examination must be made to see if the income derived from it — if any — is subject to taxation in Spain, or whether it is in the event that the property is not rented out but is entirely at the disposal of the owner; or what happens if the property is transferred.

In this sense, Spanish internal regulations consider as income obtained in Spanish territory the yield obtained, directly or indirectly, from real-estate property located in Spanish territory or from rights related with it. Where there is a Tax Treaty in force to avoid double taxation, such agreements attribute the authority to tax income from property to the state in which the property is located. Yields on property located in Spanish territory may therefore be subject to taxation in Spain.

Thus, the taxes related with ownership of properties in Spain are:

1) Non-Residents Income Tax (IRNR)

Depending on the use made of the property, it will be liable for IRNR in various ways:

A)  Private use: If the property is put to private use (i.e. not rented out), the owner is obliged to file an annual IRNR tax return. The base used for calculating the tax payable will be 1.1% of the cadastral value (2% if the cadastral value has not been reviewed). That will be the tax base used for application of the current tax rate of 24.75%.

B)  Rental use: If the property is rented out, the owner who is not tax resident in Spain has to file a quarterly return for the yield obtained from it (the full amount received from the tenant), from which can be deducted any expenses directly related with the rental if the taxpayer is resident in an EU member state (if not, no expenses may be deducted). The taxation rate applicable to the yield obtained from the rental will be 24.75%.

C)  Transfer of the property: At the time of selling the property, the owner may obtain a profit in Spain, which will be taxable under the heading of IRNR.

Generally speaking, the asset gain obtained is calculated by the difference between the transfer value and the purchase value of the property. In this respect, purchase value is taken to mean the real amount paid for the property now being transferred; to this are added the amounts of the expenses and taxes inherent to the purchase, excluding interest, paid by the transferor. Transfer value is taken to mean the real amount for which the property is sold, following deduction of the amount of the expenses and taxes inherent to sale of the property and paid by the seller.

The asset gain produced by the difference between the transfer value and the purchase value will be subject to a tax rate of 21%.

Finally, it should be noted that the person who acquires the property, whether or not a resident, is obliged to withhold and to pay in to the Spanish treasury 3% of the price paid for the property. For the transferor, this amount has the nature of a payment on account of the profit arising from the transfer, for which reason if the amount withheld exceeds the amount payable then the excess can be refunded.

2) Other taxes

Persons who are not tax residents in Spain and own property in Spanish territory are subject to certain taxes other than IRNR, as set out below:

  • Wealth Tax (IP): IP was temporarily re-established for financial years 2011 to 2014 (both inclusive), falling due on 31 December of each of the aforesaid financial years.

The obligation to file a return for IP lies with taxpayers whose tax return shows they owe tax, as well as those whose goods and rights value exceeds two million euros, even where their tax return shows them to be due a refund of tax paid. The tax makes allowance for an exempt minimum, which often means that persons who are not tax residents in Spain do not have to pay this tax.

  • Property Tax (IBI): This is a local tax charged by Town Councils and which property owners have to pay irrespective of their tax residence, simply due to being owners of a property located in Spain.

We remind you that, if you have any query, you may get in touch with our Tax Department.

Martina Homedes Amat

Tax Advisor Economist