Purchasing Property In Spain – A Tax Guide
Are you thinking of purchasing property in Spain? Your tax situation will be different depending on whether or not you are considered to be tax resident in Spain.
This technical article looks in some detail at the different taxes which may apply to you, depending on how your purchase is structured.
This article was written exclusively for Expat Network by B LAW & TAX, International Tax & Legal Advisors
PURCHASE OF A REAL ESTATE PROPERTY (DWELLING) BY AN INDIVIDUAL TAX RESIDENT OR NON-RESIDENT IN SPAIN
1.1. Purchase of a Real Estate Property in Spain
Value added tax and transfer tax.
The purchase of a property in Spain by an individual might be subject to Value Added Tax (hereinafter, “VAT”) or Transfer Tax (hereinafter, referred to as “ITPO”) depending on whether we are dealing with a first or later transfer of the property. Depending on the characteristics of the property and other circumstances, the taxes involved might be different.
Considering the above, the transaction is subject at 10% VAT rate, if it is the first transfer of the property. On the other hand, in the case of a second or later transfer of the property, the transaction would be subject to ITPO.
The ITPO is a tax paid to the Autonomous Communities, so the tax rate may be different in each one (In Madrid the tax rate is 6%, in Andalucía the maximum tax rate is 10%, in Cataluña the tax rate is 10% and in Valencia the tax rate is 10%)
The deadline for submitting the declaration is 30 working days from the date of the purchase contract.
With respect to the deadline and the tax rate, the status of being a resident or non-resident in Spain is irrelevant
1.2.Ownership of a Real Estate Property in Spain
Personal Income Tax.
In accordance with the Personal Income Tax Law (hereinafter, “LIRPF”) the real estate property generates a real estate capital depending on the use of the property.
We will look at the two following situations depending on whether the property is rented or held by individual:
Attribution of real estate income:
The property held by an individual (not rented) generates imputed real estate income. The taxable base is the result of applying 2% on the cadastral value of the property, or 1.1% if the mentioned value has been revised.
In the case of the taxpayers with tax residence in Spain, this income must be imputed to the general taxable base applying the tax rate that corresponds to the taxpayer according to the rest of his income (In Madrid the maximum tax rate is 43.50%, in Andalucía the maximum tax rate is 45%, in Cataluña the maximum tax rate is 48% and in Valencia the maximum tax rate is 48%).
On other hand, if the taxpayer is non-resident in Spain this income will be taxed a tax rate of 19% if the individual is resident in the European Union or the European Economic Area, or 24% for other non-residents taxpayers.
The deadline to report the attributed real estate income is June 30th (tax resident individuals) or December 31st (non-resident taxpayers) of the following year to which the income has been obtained.
Rental income.
In the event that the property is rented, the taxable base shall be the full amount of the rental income.
For tax residents, in accordance with the LIRPF, for the determination of the taxable amount, rental costs may be deducted, when it is evidenced that they are directly related to the income obtained, for example, interest and other expenses of financing, maintenance and repair, taxes, supplies, etc.
This income must be imputed to the general taxable base applying the tax rate that corresponds to the taxpayer according to the rest of his income (In Madrid the maximum tax rate is 43,50%, in Andalucía the maximum tax rate is 45%, in Cataluña the maximum tax rate is 48% and in Valencia the maximum tax rate is 48%).
The deadline to declare the rental income is June 30th for tax resident individuals of the following year to which the income has been obtained.
On other hand, if the taxpayer is a non-resident in Spain this income will be taxed a tax rate of 19% if the individual is resident in the European Union or the European Economic Area or 24% for the rest of the non-residents taxpayers.
In addition, this income must be declared on a quarterly basis in the same the year.
Generally, the law does not allow the deduction of the above-mentioned expenses for non-residents, except for taxpayers who are residents in another state of the European Union or the European Economic Area.
Wealth Tax.
The Wealth Tax is a tax on the wealth of individuals. The taxable income is composed of the value of the assets and rights form part of said assets.
The resident taxpayers must submit the Wealth Tax Return when the value of their property or rights that they own at 31st of December, is higher than EUR 2.000.000.
The deadline to report the attributed real estate income is June 30th for the tax resident individuals.
If the taxpayers are non-residents in Spain must they submit the Wealth Tax Return exclusively in relation to assets located in Spain (real obligation) that they own at 31st of December when the value of their property or rights is higher than EUR 2.000.000.
In both cases (for tax resident individuals and non-residents) if the tax base determined in accordance with the rules of this tax is lower or equal than the minimum amount exempted -in general, EUR 700.000- taxpayers are not required to file this tax return.
The wealth tax is a tax paid to the Autonomous Communities, so the tax rate may be different in each one (In Andalucía the maximum tax rate is 3,03%, in Cataluña the tax rate is 2,750% and in Valencia the tax rate is 3,12%). In Madrid there are relevant tax allowances which will have an impact on the final tax liability.
Local Real Estate Tax.
The local real estate tax (“IBI”) is a tax that is payable on an annual basis. It is a local tax of Spain, required by the town halls.
The tax base is composed of the cadastral value of the real estate. The type of tax rate depends on the nature of the property and its use (urban, rustic, etc). In addition, this rate will be the one approved for each tax year and it appears in the tax local regulation.
According to Spanish law, the maximum tax rate for urban real estate is 1,10%.
With respect to the deadline and the tax rate, it is irrelevant the status of be a resident or non-resident in Spain.
1.3. Sale of a Property in Spain
Personal Income Tax.
For tax residents the sale of the property would be subject to taxation as a capital gain, which will be calculated on the difference between the transfer and acquisition value. The acquisition value is determined by the purchase value, plus the expenses and taxes inherent to the acquisition.
This income will be taxed at a tax rate of 19-23% and the deadline to report the attributed real estate income is June 30th (tax resident individuals) of the following year to which the income has been obtained.
In the case of non-residents this income will be taxed a tax rate of 19% if the individual is resident in the European Union or the European Economic Area or 24% for other non-residents taxpayers.
The deadline for submitting the declaration is four months from the date of the purchase. In addition, the buyer (tax resident individuals or non-residents) is obliged to withhold and pay to the Tax Office the 3% of the agreed price in the month following the transmission. This withholding has for the seller the character of payment on account of the corresponding tax on the profit derived from the transfer.
Tax on the Increase in Value of Urban Land.
This is a municipal tax, to be paid by the seller of the property. The taxation should be checked with the corresponding town hall.
With respect to the deadline and the tax rate, it is irrelevant the status of be a resident or non-resident in Spain.
SPECIAL SPANISH TAX REGIME FOR ENTITIES THAT CONDUCT REAL ESTATE ACTIVITIES
For those entities whose main activity consists of the rental of properties (dwellings) located in Spain, the Spanish Corporate Tax Law provides an Special Tax Regime which allows to the entities to conduct other complementary business activities.
The Corporate Tax Law provides a bonification equal to 85% on the part of the quota which corresponds to the dwellings that comply the legal requirements.
The final tax rate (for this kind of income) is 3,75%. The general Corporate Tax Rate in Spain is 25%, but with this bonification (85%), the final tax rate reaches the mentioned percentage.
