Taxation of Real Estate Income in Spain
Foreigners who are not citizens of Spain are required to pay income tax in Spain. Married couples who are not citizens of this country can fill out their income tax returns jointly or separately.
Married couples who jointly own property share their income, capital gains and other deductions of this kind among themselves equally, regardless of whether they fill out a joint or separate income statement. Incomes, capital gains and other relevant deductions for those couples who share property are attributed directly to each individually, depending on his personal income.
In accordance with Spanish tax law, property income is classified as a return on investment. Foreigners who are not Spanish citizens who receive income from rent are taxed in a single amount – 24% of the total profit withheld by the tenant. Costs associated with revenue generation are not deductible.
Starting from January 1, 2007, income from leasing to individuals aged 18 to 35 is not taxed. If tenants do not correspond to this age category, the property owner is required to declare only 50% of the income.
Foreigners who are not citizens of the country are required to pay a tax of 2%, levied on the cadastral value of any non-leased urban real estate in Spain. If the new prices for real estate were established after January 1, 1994, the corresponding amount of tax on imputed value will be 1.1%.
In addition to the above, non-residents are required to pay an annual registration fee to the Chamber of Commerce and Industry. Additional income is charged at an increased rate, from 0.75% (from income of up to 60 101.21 euros) to 0.01% (from income of more than 24 040 484.18 euros). An additional income allowance is withheld for income tax purposes.
Net property tax may vary depending on different local governments; since autonomous governing bodies can change the established and levied tax breaks and rates at their discretion. However, there are tax rates and incentives established by the state, which can be adopted by local autonomies, if they prefer not to establish their own.
An object of taxation is net property, defined as all assets of Spain minus documented debt obligations (excluding seized property). These liabilities are valued in accordance with their normal value as of December 31 and are deductible only if they are correctly and accurately justified.
Real estate is valued regardless of how high it is on the following criteria: cadastral value; value determined by tax authorities for other types of taxes; Actual purchase price.
Unlike property owners who are citizens of Spain, the total amount of IRPF (income tax) and IP (property tax) for persons who are not citizens of Spain can exceed 60% (that is, these payments are not limited). A tax on net property is not a deductible amount for income tax purposes, although it may be considered a documented obligation.
Non-Spanish citizens who sell their Spanish property must pay capital gains tax. If they sell real estate after owning it for a year or less than a year, their capital gains will be taxed at a higher rate. But on the other hand, if they sell real estate after more than a year of owning it, their capital gains will be taxed at a rate of 18% (as of January 1, 2007).
For real estate acquired before December 31, 1994, but after December 31, 1986, benefits are provided taking into account inflation. Thus, the owner of real estate until December 31, 1994 will receive a reduction in growth of 11.1% for each year or part of the year.
Three percent (3%) of capital gains must be withheld and paid by the buyer to the Spanish Tax Service. However, buyers of Spanish real estate sold by non-residents of the country, 3% of capital gains are not withheld if these non-residents took possession of the property until December 31, 1996 and have not been involved in the subsequent improvement of this property for more than 10 years (which should be evidenced by a notarial record of the sale) or if this property generated revenue for any Spanish company.
The gain or loss of capital in the sale of real estate is calculated as follows: transfer price minus the purchase price (purchase price and associated costs) and minus the corresponding minimum depreciation.