Income tax for non residents

INCOME TAX FOR NON-RESIDENTS ‘IMPUESTO SOBRE LA RENTA DE NO RESIDENTES’

 

Tax-law 5/2004 of 5thMarch, approved by Royal Decree

 

According to Art.13, g) and h)

 

  • Revenue or income is considered because of the direct or indirect yield deriving from a property situated inSpanish Territory.
  • An attributed income is attributed to an individual person, who is the owner of an urban property that is not involved in any business activity

If you are the owner of a property in Spain, this article applies to you, since the mere fact that you are an owner is considered as a taxable event.

Renting out your property, whether it is for holidays or the whole year, is also considered a taxable event, as you might imagine.

 

There are many more taxable events that could apply to non-resident individuals, but this article will only focus on the ones mentioned, as these are the most common ones and most individuals are affected by them.

 

What are my tax duties if I am the owner of an urban property?

 

If the property is not rented out in a year and therefore at the owner´s disposal, I have to pay tax within the following year by 31st December.

According to where I have my permanent tax residence, distinguishing between EU-countries / non-EU-countries, the tax rate for 2015 is 19.5% / 24% and for 2016 19% / 24%.

The tax base is calculated in relation to the rateable value (valor catastral) which is shown on the payment slip of the property tax (IBI).

The corresponding tax form is the ‘Modelo 210’ which can be paid at any bank in Spain or submitted electronically by direct debit to a bank account.

 

What are my tax duties if I rent out my property?

 

If my tax residence is not in the EU, but in Switzerland for example, I am not allowed to deduct any costs at all. Income is considered as profit and taxed at 24%.

The tax form ‘Modelo 210’ has to be submitted at the end of the quarter by 20th of April, July, October and January.

 

If my tax residence is in an EU country, costs may be deducted from the income. The net profit is considered as tax base on which 19% tax rate applies, payable in the same conditions and time limits as for non EU tax residents.

If the tax base is negative because of higher cost than income, leading to a negative result in a quarter, the corresponding ‘Modelo 210’ has to be submitted by 20th January of the following year. No compensation of negative tax bases with future profit is allowed.

 

What costs are deductible? In general all expenses that are necessary in order to obtain the income, such as the depreciation of the property. These costs may vary from case to case, but in general, you might have some of the following expenses:

 

  • Interest on mortgage and any related financial costs
  • Taxes, such as waste collection tax or property tax
  • Maintenance costs if for normal use, not related to renovations or other improvements of the property
  • Insurance fees for house insurance
  • Supplies such as water, electricity (if not paid by the tenant)
  • Personal services such as community, gardener, public relations, agency fees

 

Please notice that you require a proper invoice of all costs you want to deduct.

The VAT (IVA) on those invoices can be deducted, but only if you aren’t charging any VAT to your client.

 

Why should you have to charge VAT to your tenants?

This is a critical point, since the law is very clear about if you offer a rental or a hostelry service: In case you are offering, in addition to the rental, any services like: cleaning, change of bed linen and towels, breakfast, etc. 10% VAT applies and has to be paid to the tax department.

 

You can arrange the cleaning service before or after your guests arrive or delegate it to a professional company, so you may deduct their invoice with no infringement of the law.

 

Thanks to a recent case in court, one may deduct annual costs like, IBI, depreciation, house insurance, etc. even the property is not rented out every week. This only applies if the property is used generally to be rented out.

If a property is offered for renting only a couple of months per year, then only the costs which correspond to the rental periods may be deducted; a prorate of the annual costs has to be calculated.

 

How do I declare when my property is rented out as well as used by myself?

 

The profit of a rental has to be declared at the end of the correspondent quarter, as explained above.

The periods of the year where the property was empty or at the disposal of the owner have to be declared until 31st December of the following year, using the same calculation as in the example, but applying a prorate.

 

 

 

 

®by Thomas Muhmenthaler, April 2016


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