Property Taxes in Spain for Non Residents
It's essential to factor in the taxes for these transactions:
Becoming and remaining the owner of a house or apartment
Handing over the ownership right to another person
Earning money on a house or apartment by letting third parties stay there for a while
Disposing of the garbage and letting community services collect it
Being a wealthy individual
To enable the local and national authorities to identify you, you'll be required to get an NIE number. It's a fast and straightforward procedure. Applicants submit their personal data through a website and collect the document at the nearest police station.
Before you start picking a sun-kissed villa or a cosy apartment in this welcoming state, remember one detail. The notion of the Spanish property tax consists of several varieties of expenses. Be ready to spend tens of thousands of euros on finalizing the deal and taking care of your acquisition in the forthcoming few years. Investments in local real estate can bring you excellent profit in the long run. People who decide to get rid of their properties a couple of years after the deal can face considerable losses.
Depending on where you live, your country might have or lack dual taxation with Spain. This aspect impacts the fact of whether you'll pay the taxes for the same property twice or not. Attention: foreign authorities lack the right to collect taxes for the assets that you owe in your homeland.
Buying Property Taxes
The expenses for purchasing a recently constructed property include:
VAT of up to 10% of its value
Tax on documented legal acts
The latter is determined by the local authorities. It might be around 1.5%.
If your holiday home belonged to a third party before, the cost of obtaining the ownership right for it could amount to 10% of its price.
It's vital to factor in the fees of all the professionals who are instrumental in the deal. These are your notary, lawyer, real estate broker, appraiser and so on. You'll need a sworn translator to translate your documents into Spanish. This expenditure item can account for around 10% of the property's valuation.
Selling Property in Spain Taxes
When you try to get rid of your holiday home, you'll face a tax. The ultimate amount will be identified based on two factors:
For how long have you been the owner of this property?
Did the land become more expensive under your ownership? If yes, how significantly?
The valuation of the land is not synonymous with the price of your asset on the open market. Usually, the former grows every year. The latter can go up and down. Consumers and their lawyers have been trying to dispute this rule in court. It fails to correlate with the real economic situation. Individuals who put their houses and apartments on sale incur unjustified losses. The courts don't see any reason for changing the status quo. Before composing a sales ad, it would be reasonable to reach out to your Town Hall to consult about this tax.
Now, let's concentrate on why investments in Spanish housing are not good for short-term buyers. To return the capital gain on your house or apartment, you'll pay around ¼ of the sum that you earn on transferring the ownership right. This rule is valid for expats who permanently live outside the EU. Those who spend most of their time within this region but not in Spain pay around ⅕ of their profit. Individuals who stay in this country all year round pay around ⅕ too. Plus, they have a right to claim tax relief. They will qualify for it if they used this house or apartment only for themselves for 36 months or longer.
Expats who spend most of their time in this country and have no more than one property here are exempt from this tax. Those who live predominantly abroad pay it yearly. If the cadastral value of the house or apartment has grown since 1994, 1.1% of its current value is taken into account. Otherwise, it's 2%.
For individuals who spend most of their time abroad, the amount of this tax is fixed at 24%. For those who stay in this Mediterranean country all year round, the expenses depend on their paying capacity. The rate might vary from 15% for people with a modest income to 40% for the wealthiest.
Let's use an example to explain what it means. Let's imagine that you owe an apartment worth €100,000. Its cadastral value has grown since 1994. The amount of your income tax will be calculated with the help of this formula: 100,000 x 0.011 x 0.24 = €264. Even if you invest in a gorgeous seaside villa, the amount of your income tax will remain very affordable.
Residents get a privilege when applying for a tax return. They have a right to feature the income that they make on rentals together with alternative sources of income. A wise method for cutting down expenses for them is to register the house or apartment as a tourist rental if this is legally possible. The funds they will spend on maintaining it in a good condition will be categorized as business expenses. Individuals who spend most part of the year abroad can't resort to this measure.
If you owe several properties, the IBI will be issued for each of them separately. Normally, the authorities will inform you about how much you're supposed to pay in the first few weeks of Autumn. You'll have a few months to transfer the funds to them.
Those who rent out their properties are to declare this tax quarterly. Those who use their foreign real estate exclusively for themselves, do it every 12 months. The last day to submit the declaration for them is the last working day of December.
The demand for your property might be seasonal. Then, you should declare the tax every quarter if you had tenants during these months. If the property remained empty for the whole quarter, mention it in the declaration that you submit in December.
Some expats co-own their properties with their family members. All individuals to whom a part of the asset belongs declare their taxes as separate payers. The same with tax returns. They're supposed to be filed individually but not by the whole family.
Is There a Chance to Evade Taxes and Get Away with It?
Some landlords strive to rent out their properties in a clandestine manner. They don't inform the authorities about their income and hope it will remain forever unnoticed. You might manage to pull this trick if you offer your villa to your acquaintances in personal messages. Ideally, they should pay you in cash when you meet them face-to-face.
If you display rental ads publicly online, it will be impossible to keep the deal confidential. Platforms that publish such ads legally declare their taxes. In these documents, they mention the names of the landlords whom they work with. A tax evasion attempt will lead to fines.
What If I Fail to Pay the Income Tax?
This situation wouldn't be too uncommon. Some foreigners are not aware of the taxation rules. They become incredibly surprised when they find out about their debts. Spanish authorities have a right to ask you to compensate for the debts that you made in the previous four years. Of course, there will be penalties. After receiving their demand, you'll have 10 days to fix your mistake.
The target audience of this one is individuals who paid over €700,000 for their properties. It doesn't matter whether it was one deal worth €700,000 or seven deals worth €100,000 each. The average yearly expenses of wealthy individuals vary from less than 0.3% to over 3% of their properties' prices. The richer you are, the more you pay. Your income per a fixed period or the frequency of your financial transactions doesn't impact this tax.
This one is defined by the municipality where your real estate is situated. Expats often get surprised about the fact that the highest IBI is paid not in Madrid. It's nearly twice as high in Valencia, Cadiz and Huelva than in the capital. Barcelona, Marbella and Andalucia are in the middle of the range.
Local authorities can decide when to decrease or increase this tax. Some territories modified it for the last time as long ago as in 1996. Others did it in 2010. The exact sum of the IBI fluctuates together with the national inflation level. It's not obligatory to transfer this sum in one go. Most likely, you'll be allowed to split it into several transactions.
The cadastral value of your property is significantly more affordable than its price if you try to offer it on the open market. To calculate this value, the authorities need to identify the answers to these questions:
Where is your house or apartment situated?
How long ago was it constructed?
How much does it currently cost if you try to offer it on the open market?
What are the characteristics of the land that it was built on?
How expensive were the construction materials?
The result of this research will serve as the basis for calculating the IBI.
Your property's reference cadastral number will impact the amount of this tax as well. It might happen so that the description on the title deed and the physical description contradict each other. Consult an experienced lawyer to discover how to solve this issue.
This one doesn't incur large expenses. For most apartments, it's less than €100 yearly. The exact amount and the payment date are determined by the local authorities. Typically, it happens in April or May. The tax embraces the collection of both refuse and drainage. In rented properties, either the owner or the tenants can pay it. Don't forget to mention this detail in your rental contract.
How to Pay Property Taxes in Spain from the US
For individuals who live predominantly in their homeland, there is a smart and safe way out. Set up direct payment plans through a banking institution in your area. The bank will issue a form that you'll rely on to enable this organization to pay your taxes. A copy of that document will be sent to the municipality where your overseas property is registered. Such an approach will secure you from errors and delays.
Please mind that the recipient won't accept USD. Be ready to pay a conversion fee for carrying out the transaction in EUR.
Determine your tax residency status: Your usual residence will impact your tax obligations in Spain, including income tax and capital gains tax on property sales.
Calculate your tax payable: Understand how much tax you owe based on your taxable income, which includes income from commercial property, worldwide income, and gains from selling Spanish assets.
Consider the impact of European Union membership: Spain's EU membership may affect your tax liabilities, especially if you have assets or income from other EU countries.
Keep an eye on market value: The market value of your property can impact your tax bill, particularly for taxes such as Plusvalía Municipal and property transfer tax.
Account for multiple taxes: Be aware that owning property in Spain involves paying multiple taxes, such as IBI, capital gains tax, and non-resident income tax.
Understand the sliding scale for taxes: Some taxes in Spain, such as capital gains tax, are based on a sliding scale, which can impact your tax payable.
File taxes promptly: Ensure you file your tax returns within the specified deadlines, typically one month after the end of each quarter for rental income, and three months after the end of the tax year for other taxes.
Organize your paperwork: Keep track of important documents, such as title deeds, IBI receipts, and mortgage statements, to support your tax filings.
Know the general rule for married couples: Married couples can choose to file taxes jointly or separately, depending on their individual circumstances and tax liabilities.
Seek professional help: Engage a tax professional or advisor familiar with Spanish tax regulations, including the Spanish equivalent of various taxes, to ensure compliance and optimize your tax benefits.
Explore tax benefits: Investigate potential tax benefits, such as deductions and exemptions, that may apply to your specific situation, including tax relief for first-time homebuyers or tax deductions for property improvements.
Understand the implications of company-owned property: If your property is owned by a company, be aware of the tax implications and requirements for corporate property ownership in Spain.
Stay informed about tax changes: Regularly review updates to Spanish tax regulations, rates, and taxable base to ensure you remain compliant and manage your tax bill effectively.
Frequently Asked Questions about Property Taxes in Spain
Q1: What is imputed income tax, and how does it apply to property owners in Spain?
Imputed income tax is a tax levied on a certain percentage of the property's cadastral value, which is considered as a deemed rental income for tax purposes. This tax is applicable to both Spanish residents and non-residents who own a property in Spain for their own use.
Q2: How do capital gains tax rates vary for Spanish property sales?
Capital gains tax rates vary based on the taxpayer's residency status and the duration of property ownership. Spanish residents may benefit from lower rates and exemptions under certain conditions, while non-residents are generally subject to a flat rate.
Q3: What taxes must be paid when purchasing a new property in Spain?
When purchasing a new property in Spain, buyers must pay taxes such as property transfer tax or stamp duty, land registry fees, notary fees, and legal fees. Additionally, an annual property tax known as IBI and other taxes may apply on an ongoing basis.
Q4: How is rental income taxed in Spain for non-residents?
Non-residents earning rental income from Spanish property are subject to non-resident income tax. The Spanish tax office may withhold tax on rental income, which must be paid quarterly. Non-residents may also be required to appoint a fiscal representative to handle tax issues on their behalf.
Q5: What factors determine the tax base for capital gains tax in Spain?
The tax base for capital gains tax in Spain is determined by the difference between the property's purchase price and its sale price, adjusted for costs such as legal fees, notary fees, and any improvements made during the ownership period.
Q6: Are there any exemptions or deductions available for property taxes in Spain?
Yes, there are exemptions and deductions available under certain conditions, such as the main home exemption, which may reduce or eliminate capital gains tax liability when selling a primary residence. Additionally, specific deductions may be applicable for rental income and other property-related taxes.
Q7: How does the Spanish government handle nonresident taxation?
Nonresident taxation is handled by the Spanish tax authorities, who ensure compliance with tax regulations and collect taxes, such as non-resident income tax, imputed income tax, and capital gains tax. Non-residents are generally required to file returns separately and may need to appoint a fiscal representative in Spain.
Q8: What professional advice should property owners in Spain seek to manage their tax obligations?
Property owners in Spain should consult a Spanish lawyer or tax professional familiar with Spanish property tax regulations and the tax implications of owning property in Spain. They can help ensure compliance with tax obligations, provide guidance on available deductions and exemptions, and assist with tax return filings.