Spain: Taxes and Costs

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Taxes are high in Spain

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	24%	24%	24%
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INDIVIDUAL TAXATION

Non-resident foreigners are liable to tax on their Spanish-sourced income. Nonresident couples may file their income tax returns jointly or separately.

For married couples married under the community property regime, their incomes, capital gains, and related deductions would be divided equally between them, whether they file jointly or separately. For married couples married under the separate property regime, their incomes, capital gains, and related deductions would be attributed exclusively to each individual earning the income.

INCOME TAX (IRPF)

Rental Income Tax

Income from properties is categorized as investment income in the Spanish tax laws.

Non-resident foreigners earning rental income are taxed at 24% flat rate on the gross income, withheld by the tenant. Income-generating expenses are not deductible.

As of 01 January 2007, lettings to young individuals between 18 and 35 years of age are tax-exempt. If the tenants are not in this age bracket, the property owner will only have to declare 50% of the income.

Imputed Income Tax

Non-resident foreigners have to pay 2% tax levied on the cadastral value of any unrented Spanish urban property. If a new property value was set after 01 January 1994, the applicable imputed income tax rate is 1.1%.

Local Income Tax/Income Tax Surcharge

In addition, non-residents must pay an annual registration fee to the Chamber of Commerce, Industry and Navigation. The surcharge is levied at progressive rates from 0.75% (for income up to €60,101.21) to 0.01% (for income over €24,040,484.18). The surcharge is deductible for income tax purposes.

Net Wealth Tax (Impuesto Extraordinario sobre el Patrimonio, IP)

This tax may vary from one community to another; since autonomous communities may modify the allowances and the rates they charge and collect. However, there are rates and allowances set by the national government that may be adapted by autonomous communities should they opt not to fix their own.

The taxable base is net wealth, calculated as all Spanish assets less all documented liabilities (not including exempt assets). The liabilities are valued according to their normal value on 31 December and are deductible only if they are adequately substantiated.

The property is valued at whichever is highest among:

• the cadastral value;
• the value determined by the tax administration for other taxes; and
• the actual acquisition price.

Unlike the resident Spanish property owners, non-residents’ combined amount of IRPF (income tax) and IP (wealth tax) due may exceed 60% (i.e. it has no limit ).

The net wealth tax is not a deductible expense for income tax purposes, although it can be considered as a documented liability.

CAPITAL GAINS TAX

Capital Gains Tax (Impuesto de Plusvalia)

Non-residents selling their Spanish property have to pay capital gains tax. If they sell it after owning it for a year or less, their capital gain will be taxed at progressive rates. If, on the other hand, they sell it after owning it for more than a year, their capital gain will be taxed at a flat rate of 18% (as of 01 January 2007). If the sale results to a capital loss, they may not offset the capital losses to the capital gains.

For properties acquired before 31 December 1994 but later than 31 December 1986, inflation relief is given. The gain is, then, reduced by 11.1% for each year or part of a year, the property was owned before 31 December 1994.

Three percent (3%) of the capital gains must be withheld and paid by the buyer to the Spanish tax authorities. However, the buyer of Spanish property from the non-residents need not withhold 3% of the capital gains if the non-residents have owned the property before 31 December 1996, without improving it for more than 10 years (as indicated in the notarial deed of sale), or the property was contributed to the capital of a Spanish company.

The capital gain or loss on property sale is computed as, transfer price less acquisition cost (acquisition price and related expenses) and less appropriate minimum depreciation. The acquisition cost is indexed by applying a coefficient published annually by the Budgetary Laws, based on the year of acquisition. On the other hand, the capital gain or loss on a property which was transferred as a gift or as an inheritance is computed as, transfer price less acquisition price. A non-resident may not roll-over the gain into a new home.

Urban Land Appreciation Tax (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana, IIVTU)

Non-residents have to pay this tax on the increase in the value of the urban land in case they sell it.

The taxable base is the cadastral value of the land at the date of disposal multiplied by a certain percentage, calculated as the number of years the land was held (maximum of 20 years) multiplied by a coefficient from 3 to 3.7. The rate is set by each municipality and it may be up to 30%. If they, instead, decide to give it as a gift or inheritance; their beneficiary has to pay for this tax.

PROPERTY TAX

Annual Real Estate Tax (Impuesto sobre Bienes Inmuebles, IBI)

The taxable base is the cadastral value, which is adjusted every eight years with respect to the property’s market value. The tax rates may be increased by the municipal authorities but they are generally 0.4% for urban properties and 0.3% for rural properties. Property owners are generally liable to this tax but it may be charged to the tenant, if so agreed in the contract, and this is commonly done.

Special Tax on Real Estate

Generally, a 3% tax is levied on a yearly basis on the cadastral value of real estate owned by non-residents.

Spain - more data and information

• Guide to buying houses and registering property sales in Spain

Your Comments

posted by Dennis Aldam | 2008-03-01

Retired, Benalmadena

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