Non-Resident Home Owners in Spain and Annual Property Taxes

Published on 05/10/2010 in Taxes in Spain

Many non-resident owners of property in Spain are under the misconception that they can forget about submitting their annual tax forms!

It would be nice but it is not the case. However the good news is, from 2009 the taxes payable were less than people paid in previous years.

Taxes in SpainUp until the end of 2007 non-residents with property in Spain were also liable to pay a "wealth tax" (Patrimonio) which was calculated on the value of their assets in Spain (i.e. property, savings, etc.)

It is interesting to note that when Prime Minister Zapatero fulfilled his election promise regarding Patrimonio or "Wealth Tax", with the introduction of Spanish Law 4/2008 passed on the 23 December 2008, the tax was finally amended by reducing the taxable base to zero.

Is this technically a formal abolition of the Tax? The answer is no. Certainly the effect is that no wealth tax will be paid by either residents, (obligacion personal) or non-residents, (obligacion real).

The law, which ironically was published in the Spanish Government Official Gazette (BOE) on Christmas Day 2008, applies to tax years starting 1st January 2008 onwards which, under the previous scheme would have been payable in arrears in 2009.

The mechanics of the new law mean that the obligation to submit a wealth tax return (Modelo 214) is terminated by applying a 100 per cent deduction to the taxable base.

By reducing the tax to zero but not abolishing it, is the Spanish Government retaining the option to re-introduce the tax in the future? That may well be the case!

So to reiterate, the Patrimony "wealth tax" has to all intents and purposes been done away with. But that does not mean that there are no annual property taxes for Non-Residents to pay. You may remember noticing on previous year's Modelo 214 forms that there were 2 separate calculations: The Patrimony amount and the "Declaracion de la Renta" amount.

The "Declaracion de la Renta" or "Non Resident's annual tax return" must still be made and paid!

Taxation, and particularly dual taxation issues are an extremely complicated subject and I would always advise readers who make financial gain from their property in Spain to get a qualified assessment of their own personal circumstances, either directly from the Spanish "Hacienda", Spain's Inland Revenue, or from a tax professional.

However, in general terms the earnings from rented property or sub-let property are calculated on 24 per cent of the gross income received from the tenant, excluding IGIC.

If the property is only rented out for part of the year, the earnings are calculated as above for the rented period. For the part of the year that it lies empty, the calculation is made as for "Deemed Rental Income": see below.

See if your Catastral Value has been updated since 1994 if the answer is yes the coefficient to use is 1.1 if the answer is no then use 2.
Multiply the Catastral Value by 1.1 or 2 (as above) per cent

Take this value and multiply by 24 per cent - thats how much deemed rental income tax you pay.

Example: Catastral Value 150,000 revised since 1994 = yes

x 1.1 % = 1650

x 24% = 396 euros tax payable

If your property is left empty, even though you do not let out your holiday home for gain, Spanish law assumes you have what is called a "Deemed Rental Income" which is subject to non-resident Income Tax.

The "Deemed Rental Income", which used to be included on the old Modelo 214 form, is now declared on a Modelo 210 form.

The amount you pay is calculated using the "Valor Catastral" (Rateable Value) of your property in Spain. This can be easily ascertained by looking at the receipt for your "Impuestos Sobre Bienes Inmuebles" or IBI, (often referred to by English speakers as "Rates") - which is paid to your "Ayuntamiento" annually. The format can vary between Ayuntamientos, or whether you get the receipt from your bank rather than paying in cash. But all the information you need will be on there.

This receipt will also tell you whether the rateable value of your property has been revised since 1st January 1994. This is critical because the percentage used to calculate "Deemed Rental Income" is higher if your rateable value has not been revised since that date. Tax payable on the "Deemed Rental Income" is 24 per cent. The deadline for the submission of form Modelo 210 is the June 30th 2009 for income deemed or actually derived in 2008.

All of the above applies to Non-residents with no permanent establishment but who own a holiday home in Spain

Anyone treating apartment letting as a business

If someone owns property in Spain, but is not resident in Spain for tax purposes and has at least one office or premises used for managing the letting business and employs one or more people on a full time contract, then the owner is considered to have income through a permanent establishment in Spain and is subject to different regulations.

I wrote this article with the aim of making non-resident homeowners aware of their legal obligation to submit an annual income tax declaration in Spain; it is not intended to be a crash course on Spanish tax law. As I said that's a complicated subject and peoples's circumstances differ. But what holds true for all, is that no non-resident home owner, whatever their circumstances, is exempt from making a non-residents Income Tax return.

Do you know someone who has owned property in Spain for years and never made a declaration? Probably. However, if they are caught, and computerised records are making that ever more likely, they are liable to pay the last four year's tax and probably a hefty fine.

But in any case, when that property is eventually sold or passed on as part of an inheritance, the Spanish Tax Agency can and will check their records, which will show the property is owned by a non-resident and that no tax declarations have been received. The taxes will then need to be paid, including any fines imposed, before the property can be legally transferred.

I believe that at the very least it makes sense to clarify what your tax liability is and if at all possible keep things up to date, rather than looking over you shoulder and waiting for a fine to drop on the mat!

Written by: Diana McGlone

About the author:

Diane McGlone runs The One Stop Problem Shop in Tenerife, helping expats and foreign property owners to deal with Spanish paperwork and any issues they may have.

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gillian acton said:
31 March 2013 @ 19:17

Is the company spanish tax forms
a well known company to do our non resident tax forms? gilbar

David McMillan said:
05 July 2011 @ 00:10

What percentage should be used when calculating the non-residents tax for 2010? Is it still 24%?

Liz said:
28 March 2011 @ 16:07

I have a receipt from the bank for IBI, where does it say if the catastral value has been revised?

dermot said:
07 October 2010 @ 00:07

could you tell me how much for one year non resident non rental.and are you penilised for late payements

Roy Leon said:
06 October 2010 @ 08:10

Brilliant, just what we non residents need to explain our responsibilities.
Thank you for your time and effort.

The next biggest issue I believe is those owners who do not pay their community fees. Thereby depriving their community from legitimate funds to function efficiently.
The present system of denuncia is painfully slow and quite ineffective for many years. It is also extremely frustrating for the paid up owners of a community.

Neil said:
05 October 2010 @ 19:12

Interesting article, what is IGIC? I have two properties in Spain which are rented full time out of necessity, I know I will have to pay 24% of the gross in 2011, the first yr I was non resident but I dont make a profit, do you know can I offset this against my Uk taxes?
I wouls also like to mention IBI as for the last 2 yrs in Estepona they are treating non residents appallingly and raising the rate 3 fold from 2008, they get round it by offering a discount to those on the empadron, my tenants are on the empadron so I cant be and the ayuntamiento can claim central funding from the government, surely this is discriminatory.

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