Tax on property income in Spain
Taxation Researcher | January 11, 2021
Effective Tax Rate on Rental Income
|Click here to see a worked example|
|Source: Global Property Guide||Disclaimer|
Nonresident 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)
Income is categorized into the following basic categories: (1) employment income; (2) income from movable capital; (3) income from immovable capital; (4) business income; (5) capital gains, and (6) imputed income (such as income from residences, other than the taxpayer´s primary residence).
Income earned by nonresidents is generally taxed at a flat rate of 24%.
Rental Income Tax
Income from properties is categorized as investment income in the Spanish tax laws.
Nonresident foreigners earning rental income are taxed at 24% flat rate on the gross income for 2012 and 2013, withheld by the tenant. Nonresidents are generally taxed at a flat rate of 24%. Income-generating expenses are not deductible.
Imputed Income Tax
Nonresident 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, nonresidents 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.
CAPITAL GAINS TAX
Capital Gains Tax (Impuesto de Plusvalia)
Nonresidents selling their Spanish property have to pay capital gains tax. 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.
Capital gains derived by nonresidents are taxed at a flat rate of 19%.
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 nonresidents need not withhold 3% of the capital gains if the nonresidents have owned the property before 31 December 1996, without improving it for more than 10 years (as indicated in the notarized deed of sale), or the property was contributed to the capital of a Spanish company.
Urban Land Appreciation Tax (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana, IIVTU)
Nonresidents 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.
Net Wealth Tax (Impuesto sobre el Patrimonio, IP)
In all autonomous regions except Guipuzcoa, which is a province of the Basque Country, the net wealth tax as been abolished as of 01 January 2008. Technically, the tax law has not been abolished but there is a 100% tax allowance and taxpayers are not required to file tax returns on net wealth.
From 2015 to 2016, the net wealth tax has been reactivated. Resident individuals are subject to net wealth tax, which is levied on their worldwide assets.
The net wealth tax rates range from 0.20% to 3.50%. In Andalucia, the net wealth tax rates range from 0.24% to 3.03%.
NET WEALTH TAX 2021
|TAX BASE, €||TAX RATE|
|Up to €167,129||0.20%|
|€167,129 - €334,253||0.30%|
|€334,253 - €668,500||0.50%|
|€668,500 - €1,336,999||0.90%|
|€1,336,999 - €2,673,999||1.30%|
|€2,673,999 - €5,347,998||1.70%|
|€5,347,998 - €10,695,996||2.10%|
|Source: Global Property Guide|
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, nonresidents´ 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.
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. Real estate taxes are deductible for income tax purposes.
Special Tax on Real Estate
Generally, a 3% tax is levied on a yearly basis on the cadastral value of real estate owned by nonresidents.