TAXATION OF INDIVIDUALS IN SPAIN
Taxation of non-residents in Spain
The tax department of CREGO ABOGADOS has many years of experience in non-resident taxation. We offer to our clients a global service of tax calculation, settlement and payment, as well as tax representation in Spain.
A lot of individuals which own a holiday home or property in Spain believe that that they do not have to pay taxes in Spain because they are not tax resident there, but this is not correct.
Non Resident Income Tax
The rental income of non Spanish residents should be declared in Spain even it is properly declared in the country where you are tax resident (e.g. the UK which does expect its residents to declare any income from holiday rentals).
There is a special form for non resident Spanish property owners called modelo 210 and the rent should be declared on one of these forms every time some is received. Alternatively you can group all the rentals from a quarter together e.g. 1st April – 30th June and declare on one form. Forms must be in 15 days after the quarter end.
If you jointly own the rental property with someone else (e.g. your spouse) both must submit forms. The names and NIE numbers of the people who rented the property should be included, along with the amounts involved and expenses that can be deducted. Typically deductible expenses might be community fees and rates.
From tax year 2016 the general rate for non-residents is 24%. Furthermore, for those tax payers residing in a member state of the European Union the rate from 2016 is 19%.
One issue that can occur with non-resident rentals is that the property is only rented out for part of the year, maybe even only a few weeks in the summer. In this case the rent must be declared in the manner described above but the period during which there is no rental is also subject to a separate tax – the non resident tax that all holiday home owners who don’t rent out their properties face.
Note that UK taxpayers who declare the income on both their Spanish and UK tax returns can make a double tax claim to prevent them being taxed twice. This is made on the UK return and is equal to the Spanish tax paid or the UK tax liability whichever is the smaller.
- Own use
If the property is for one’s own use or is empty, the applicable rate for 2016 is 24%. In the case of tax payers residing in a member state of the European Union the rate in 2016 is 19%. The taxable base will be 1,1% of the property’s cadastral value, if that value has been revised or modified after the ten previous years, and 2% of the cadastral value in all other cases. Likewise, a proportional calculation will be made according to the number of days of the year in which the person has been the owner of the property in question.
The deadline for submitting and paying the income tax in the case of properties for own use is between 1 January and 31 December of the year following the year it accrued, and the tax form is the modelo 210.
The Non-resident Income Tax must be paid by self-assessment, i.e., the tax payers (or their appointed representative) are under obligation to personally make the calculation, fill in and validate the corresponding form online, and arrange payment. The Spanish Tax Authorities do not send non-residents any communication, advice of payment or settlement regarding this tax.
Lastly, it is important to mention that, as a result of recent measures introduced by the Spanish Government to prevent tax fraud, the Tax Authorities have started a campaign to notify property owners who have not submitted any statements or returns on this issue of the need to rectify their tax situation so as to avoid any significant economic penalties.
In case of Residents in Spain, Wealth Tax is applicable on the total net assets one person possesses, regardless of where the assets are located. The statement is made individually. A joint assessment between spouses is not possible.
Non-Residents are also liable for the Spanish Wealth Tax on the real estate properties they may own in Spain. Other kind of assets (even they are located in Spain) are not taxable.
In order to determine the value of the assets the law gives the rules for that:
- Properties: The higher of the following values:
By the tax authorities or other public body fixed value (tax control)
- Economic activity:
After the net assets in accordance with the accounting. But if real estate properties are present in the Balance, their value has to be determined in accordance to the rules stated in the previous point.
If no accounting exists, the assets are valued individually according to the value determination rules applicable for each of the assets.
- Bank accounts: The higher of the following values
Specified balance at 31st December of the year.
The average balance of the last quarter of the year.
- Shares in companies that are not traded on the stock exchange
If the last balance sheet was audited, this theoretical value of balance sheet applies.
If the balance has not been audited or a qualified opinion report was given by the auditor, the higher of the following values apply:
nominal value of the shares
the theoretical value from the last closed balance
the result of the capitalization of 20% (divide by 0.20) of the average gains from the last 3 years.
- Shares in companies that are traded in the stock exchange market (including bills of exchange, obligations and other similar securities):
The average value from the 4th quarter of each year.
- Investment Funds:
The liquidation value settled at 31st December of each year.
Other assets which have to be added to the total amount of wealth for Wealth Tax purposes are receivables from loans, rights like usufruct, pawn, securities and warrants, vehicles, life insurance, and short-term and long-term bonds.
Of the assets determined in accordance with these rules, burdens and liabilities, including loans at nominal value will be deducted (without interests), including the debt one may have with the tax office.
ALLOCATION OF THE FREE AMOUNTS
For 2016, in the Murcia Region there is an allowance of 700.000 Euros per person. In addition, 300.000 Euros will be credited as for the ordinary residence. After deducting the allowances, the result is the tax base. On this base the tax rates are applicable in order to obtain the Tax debt.
Very wealthy people are currently subject to a quite high Wealth Tax in Spain. Article 31 of the Law provides that the Wealth Tax and the Income Tax summed together may not exceed 60% of the tax base for the Income Tax. This limit cannot exceed 20% of the Wealth Tax.
Real Estate Tax (IBI)
The responsible for its payment is the person who is listed as the owner on 1 January every year.
The charge paid by the citizen for IBI (Property Tax) depends on two variable elements, the cadastral value and the tax rate or coefficient set by each Town Hall. To arrive at the charge payable by the property owner, the cadastral value is multiplied by the tax rate.
The cadastral value is a value for administrative purposed that appears in the official, Government-approved land register, the “Catastro” (details and statistics of rustic and urban properties) and is taken as a reference in respect of certain calculations made by the public administrations.
The cadastral value is calculated through a complicated, regulated procedure, the rateable assessment method. The cadastral value of urban properties is made up by the value of the land and of the buildings and is adjusted according to the specific characteristics of the property.
The settlement and collection of the IBI is the exclusive competence of each Council, which can set the tax rate, as well as any exemptions and discounts that it deems appropriate. Nevertheless, the tax rate set by the Council cannot be below 0.4% or above 1.1% of the property’s cadastral value.
Every year we have to attend to the payment of IBI (Property Tax) within the time limit set by each Town Hall if we do not wish to incur surcharges, although we should take special care to remain up-to-date with payments of the property tax if we intend to sell our property, because we will be required to demonstrate that the property is free from this and any other charge.
CREGO ABOGADOS recommends placing an order for the direct debit of this property tax and to periodically check that there is no amount that has been left unpaid, in order to avoid surcharges.
Usually, the charge for IBI (Property Tax) goes up each year and on many occasions the tax rate is the same as for previous years. This is due to the variations in the cadastral value made by the official land registry (Catastro) and corresponds to an evolution of the market values of properties, the depreciation of the value of money, or the changes in local town planning.
Rubbish Collection Fee (Tasa de basuras)
Each Council sets their own payment deadline and method (annual, six-monthly, etc.), but is generally frequent that this tax was included in the water supply bill.
Taxation of residents in Spain
Personal Income Tax
According to current legislation, a person is considered to have their usual residence in Spain when any of the following cases are met:
Where they spend more than 183 days of the year in Spain.
Where the main core or basis of their business activities or economic interests are in Spain.
Where their spouse and underage children live in Spain.
If any of the above circumstances are met, the person will automatically be obliged to submit their income statement in Spain as a tax resident, regardless of whether they have or have not officially applied for residence before the relevant body of the Ministerio del Interior (Spanish Home Office).
This statement must include all of the person’s income and expenditure (income from work, from equity, from economic activities, annuities, etc.), whether they have been produced or paid in Spain or any other country. The pensions of some civil servants and officials are exempt, as these must always be declared at source.
Nevertheless, you don’t need to submit a Spanish tax return if you have employment income of less than €22,000 from one source. If you have more than one source, and the income of the second and following sources is more than €1,500, the limit to do not submit a Spanish tax return is €12,000.
This exemption is meant to apply to income that has already been taxed. So if someone has an untaxed foreign employment (e.g. occupational pension) income of less than €22,000, we would still advise that they file a Spanish tax return.
There is also an exemption from filing where the taxpayer only has a small amount of investment income, of less than €1,600, and this must have already been taxed at source.
The general filing deadline for Spanish tax returns is June 30th, however if there is tax payable and you wish to pay by direct debit (domiciliación) from your bank account, then your return must be filed by June 25th, and the tax form is the modelo 100.
The aforementioned does not imply that the tax payers must pay twice for income that has been generated abroad. In these cases, an exemption from the tax at source would be requested or the amounts paid there for this item would be claimed back in the country where the income was generated.
Information Statement on Assets and rights abroad
The Law 7/2012, of 29 October, amending the tax and budget policy and adequacy of financial regulation for the intensification of actions in preventing and combating fraud, introduced new reporting obligations on assets and rights located abroad.
- Assets whose ownership must be reported:
Obligation to report on accounts in financial institutions located abroad
Obligation of information on values, rights, insurance and income deposited, managed or obtained abroad
Obligation of information on real estate and rights on real estate located abroad
- Deadline and presentation:
It will take place from January 1st to March 31th of the year following to which the information is related.
The tax form to full fill with this obligation is modelo 720, and the presentation must be done necessarily by electronic way (via digital certificate).
- Parties obliged to file:
This form must be filed by all persons, natural and legal resident in Spanish territory, permanent establishments in the territory of non-resident persons or entities and entities referred to in Article 35.4 of the General Tax Act, who own, have power of disposal or are authorized of any of the assets mentioned above.
As exceptions to the general rule are included, among others:
In connection with the obligation to report accounts in financial institutions, there is no obligation to report any account if the amount at December 31th and the average balance of the last quarter of them does not exceed collectively the 50.000 Euro. Furthermore, the filling of the statement in subsequent years is only mandatory when it increases more than 20.000 Euro in respect of the amounts of the latest statement. It is important to consider that the amount of 50,000 Euro is for the total amount in the accounts, not per owner.
The same limit and the obligation to file the return in subsequent years, mentioned in the previous paragraph applies to all the assets of this category: values, rights, and deposit insurance, managed or income earned abroad.
The same limit and the obligation to file the return in subsequent years, it is appropriate for all goods in the following categories: real estate and real property rights.
Those assets hold by legal persons and other entities resident in Spanish territory and permanent establishments of non-resident in Spain that are recorded in their accounts individually and sufficiently identified.
Those assets hold by individuals resident in Spanish territory to develop an economic activity and keeping accounts in accordance with the provisions of the Commercial Code, recorded in their accounts individually and sufficiently identified. This exception does not apply to securities, rights, insurance and rents.
- Failure to inform, sanctions regime:
In the case of not filling the form, there is applied a system of penalties which provides for a fine of 5.000 Euro for each item or set of data, based on each account or equity item omitted or provided for incomplete, inaccurate or false, with a minimum of 10.000 Euro. This penalty is reduced to 100 Euro per data or dataset, with a minimum of 1.500 Euro, in the case of late submission without prior notification, or in the case that it has been submitted by means other than electronic, computer and data transmission, when obligations to do so by such means.
Additionally, the breach of the obligation of information has consequences in Income tax and in the Corporate Tax (CT), because the undeclared assets will be taxed under the income tax or the corporate tax as a result of undeclared assets are considered as capital gain or income unreported, and additionally with the penalty consisting of a proportional fine of 150% of the amount of the total tax liability resulting from the assignment in income tax or CT.
Exposed and undeclared income is charged to the last tax period among non-expired, and the novelty of special importance to emphasize that these undeclared income “will not expire”, that is, they will always be attributable to last year not prescribed (whatever that its origin may be demonstrated in a period as expired).
In the event that the property was acquired through declared income or generated when taxpayer was not resident in Spain the penalty will not be applied.