Everybody is so busy on the run up to Christmas that often things get overlooked. So before it’s too late, take a moment to make sure that your tax affairs are up to date.
Am I non-resident?
Spanish law states that a person is resident for tax purposes in Spain if they spend 183 days in a calendar year (including sporadic absences) on Spanish territory or if their business, professional or economic interests are based in Spain. Those whose spouse and/or dependent children are habitually resident in Spain will be presumed resident (unless legally separated).
This is the basic rule to apply in determining if you are fiscally resident or non- resident – but if there is any doubt, you should contact your lawyer or tax consultant to confirm your status based on your individual circumstances.
Do I need to file a tax return? And if so, when by?
A person who is non-resident for tax purposes is liable to pay some Spanish taxes and is therefore obliged to fill in an annual tax return in Spain if they own a property here. The deadline for submitting this return is always the 31st December in the year following the end of the previous tax year – in other words it is always done a year in arrears. For example, for the 2014 tax year (which ran from 1st January 2014 until 31st December 2014), non-residents have until the 31st December 2015 to submit their return and pay any taxes due.
Why do I need to pay this tax if I don’t rent my property out?
According to Spanish tax law, non-residents who own a property in Spain have to pay Spanish income tax even if they have no rental income from the property. The tax is calculated on the “income” (imputed rent) that the Spanish tax office deems could be made from renting out the property. For that purpose, the Spanish Tax Office takes the Cadastral Value of the property (Valor Catastral). If you only owned the house for part of the year, the tax will be calculated on a pro-rata basis. If there are multiple owners (e.g. husband and wife) they will pay an equal share of the total tax due but each one of them must submit a tax return.
Obviously, if the property was actually let during the year, the income to be declared would be the total amount collected from the tenant, after deducting allowable expenses. Tax returns would need to be submitted and any tax payable would have to be paid on a quarterly basis to the Spanish Tax Office.
If the property was only let for part of the year, declarations would need to be made of the corresponding proportions on the respective tax returns.
Please note that the same rule applies to Spanish residents who have a second home here, however, it would be declared on a different type of tax return.
What do I need to do now?
Your fiscal representative will be able to calculate the respective amounts payable and submit the necessary returns on your behalf. You can contact us for an immediate quotation.
What if I choose not to file a return and pay the tax?
The Spanish tax authorities are clamping down on those who have failed to submit Non-Resident Income Tax returns over the last four years. Letters are being sent to non-residents who have not paid the charge, along with penalties and interest for late payment (penalties and charges can reach up to 300% and interest will depend on the yearly rate approved by the Spanish Government) and may even lead to an embargo being placed on their property, Spanish bank accounts or vehicles.
It is important to know that an embargo on your property could have very bad consequences if you also have a mortgage registered over it, because some Spanish banks used to include a clause in the mortgage agreements whereby they can claim the outstanding balance of the loan and terminate the mortgage if an embargo is registered on your property or if you are not up to date with your fiscal obligations.
Another problem often arises when non-residents try to sell their property. In this case the buyer is obliged to retain and pay 3% of the sale price to the tax office on behalf of the seller, which is only recoverable by the non-resident seller when they are up to date with their taxes including Non-Resident Income Tax. So you can lose the likelihood of a refund (only applicable if you sell with losses or the Capital Gains Tax payable is below the mentioned 3%).
So don’t delay. Contact us now.