A Spanish non-resident but EU resident is anyone whose tax residence is in an EU country, Iceland, Norway or Liechtenstein. In all other cases, they are Spanish non-residents and non-EU residents.
If you own property in Spain but you are not a tax resident it is important to have a clear picture of your tax obligations. The different taxes you will have to pay will vary depending on the type of income obtained and whether you are a Spanish non-resident but EU tax resident or Spanish non-resident and non-EU resident.
Marc O’Neill and Carlos Calvo, expert tax advisers, are going to briefly explain in this post the basic concepts to avoid any surprises or problems with the Tax Agency:
The first concept that is important to be clear about is that, as a non-resident with properties in Spain, you can obtain three different types of income: rental, capital gains/sale and notional income. Below, you will see how each of these is treated for tax purposes.
The second important concept is to know that income obtained must be declared on separate forms 210, according to each type of income and that the frequency of filing will vary as well. It is perfectly possible that in one tax year you pay tax on all three types of income and this will mean filing form 210 for each of the different types of income.
Income Type 1: RENTAL
Income obtained from renting out your property in Spain as a non-resident must be informed and paid on a quarterly basis. The taxation of rents received during the quarter is different depending on whether you are an EU, Norway, Iceland and Liechtenstein or non-EU tax resident, as mentioned above.
This distinction is important for two reasons: the tax rate and the deductibility of expenses.
To see this in more detail, we are going to explain briefly and with examples the two cases that may arise.
Non-Resident, EU, Norway, Iceland and Liechtenstein
An EU resident will be taxed at 19% on the net income obtained during the quarter. The net income figure is obtained by subtracting all deductible expenses from the gross income obtained.
Margaret is a tax resident in Ireland and has a flat in Barcelona which she rents out and obtains €1,000 each month. During the quarter she has the following expenses: €150 insurance, €300 repairs and €50 property taxes (IBI in Spain).
To work out the tax payable, as she is a tax resident in an EU country, she has to add up all the rental income obtained and subtract all deductible expenses. Taxable income is then taxed at the rate of 19%.
Rental Income = 1,000€ x 3 = 3,000€
Deductible Expenses = 150€ + 300€ + 50€ = 500€
Taxable Income = Rental Income - Deductible Expenses = 3,000€ - 500€ = 2,500€
Tax Patable = Tax Income x 19% = 2,500€ x 19% = 475€
A non-EU resident will be taxed at 24% on gross income earned during the quarter. No expenses can be deducted.
Nicholas is a UK tax resident and has a flat in Malaga which he rents out and receives €1,000 per month. During the quarter he has the following expenses: €75 insurance, €125 repairs and €80 property taxes (IBI).
To work out the tax payable, as he is a tax resident of a country outside of the EU, he has to add up all the rental income obtained, and he cannot subtract expenses. In other words, the taxable income will be the amounts received as rent and the rate of 24% will be applied.
Rental Income = 1.000€ x 3 = 3.000€
Taxable Income = Rental Income = 3.000€
Tax Payable = Taxable Income x 24% = 3.000€ x 24% = 720€
In both cases, form 210 must be filed on a quarterly basis and within 20 calendar days after the end of the period.
Income Type 2: SALE
If, as a non-resident in Spain, you decide to sell your property, you will have to pay tax on the capital gain you obtain from the sale.
This capital gain is calculated by subtracting the purchase price from the sale price and the deductible expenses of both the purchase and the sale. In these cases, there is no distinction between EU and non-EU residents as in the case of rental income; the expenses incurred can be deducted by all non-residents regardless of the country of their tax residence, in addition to the fact that the tax rate is the same for all non-residents, 19%.
John is a US tax resident and is the owner of a house in Madrid which he bought in 2017 for €500,000 and now decides to sell. Sue, who wants to move to Spain, wants to buy it. The agreed price is €700,000, and John has incurred €1,250 in notary fees and €2,200 in consultancy fees for the sale, both of which are related to the transfer of the property. When John bought the property he also incurred notary fees of €550.
In order to fulfil his tax obligations, John is informed by the consultancy firm he has hired, GD, that before filing form 210, he has to wait for Sue to file form 211, which is used to withhold 3% of the total sale price. There is this obligation for the buyer of the property to withhold since the seller is a non-resident for tax purposes in Spain.
Once Sue has filed form 211 and paid the withholding tax to the Spanish Tax Agency, John can file form 210 declaring the sale of the property.
The deadlines for filing the forms are as follows:
- Form 211: One month after the date of the deed of sale of the property.
- Form 210: Three months from the end of the deadline for form 211, which translates into 4 months from the date of the deed of sale of the property.
Having seen all the particularities of selling a property located in Spain as a non-resident, let's see how John's form 210 would look like in our example.
Sale Price = 700.000 €
Pursache Price = 500.000 €
Deductible Expenses Incurred During the Pursache = 550 €
Deductible Expenses Incurred During the Sale = 1.250 € + 2.200€ = 3.450 €
Capital Gain = 700.000€ - 500.000 € - 550€ - 3.450€ = 196.000€
Capital Gains Tax= Capital Gain x 19% = 37.240€
Tax Payable = Capital Gains Tax - Tax Whithheld = 37.240€ - 21.000€ (form 211) = 16.240€
The €21,000 of withholding tax is taken from form 211 filed by Sue. The calculation would be as follows:
Withholding Tax = Sale Price x 3% = 700.000€ x 3% = 21.000€
Income Type 3: NOTIONAL INCOME
This last one is undoubtedly the strangest income and is often overlooked by non-residents in Spain. It is notional income: potential income your property could generate if you had rented it out. You must pay such tax if you do not sell or rent out your property in Spain.
Notional income is based on the fact that anyone who owns more than one property demonstrates financial solvency and therefore, in the eyes of the Spanish tax authorities, the ability to pay more tax. Tax paid is based on income that does not exist but is assumed. In other words, if a non-resident whose main residence is located outside the Kingdom of Spain has a second residence located in Spain for his or her use and enjoyment, the non-resident must pay tax on that notional income.
In order to calculate the taxable base, it is necessary to have the property’s cadastral value (valor catastral in Spanish). In Spain, each property has a unique identification number (known as a Cadastral Reference, Referencia Catastral in Spanish) to which the cadastral value is assigned. This value can be found in the Property Tax (IBI in Spain) receipt, hence the importance of saving such receipts.
Once we have this value, we have to multiply the cadastral value by 1.1% if it has been updated in the last 10 years, or by 2% if it has not been updated in the last 10 years.
This result is the taxable base. In order to find out the tax payable, the taxable base must be multiplied at the rate of 19% for all residents of the European Union, Norway, Iceland and Liechtenstein, and 24% for all other residents. In either case, there is no deductible expense.
The deadline for filing form 210 for notional income is 31 December of the following year in question.
Agatha lives in Helsinki and has a flat in Palma de Mallorca where she spends the summer with her family. Agatha receives a quarterly IBI (Property Tax) bill showing the cadastral reference of her flat, as well as the cadastral value assigned to it, which is €92,250.00 and has not been updated in the last 10 years. Agatha, who neither rents out nor sells her property, believes that she should not have to pay tax in Spain because she does not earn any income from the property. Fortunately, she contacts her trusted advisors at GD, who advise her on the obligation to pay income tax through the 210 tax form.
Thus, the taxes that Agatha must pay are as follows:
Taxable Base = Cadastral Value x 2% (1,1% if applicable) = 92.250€ x 2% = 1.845.00€
Result = Taxable Base x 19% = 1.845.00€ x 19% = 350.55€
On the other hand, if Agatha moves to Mexico, the result will change as follows:
Taxable Base = Cadastral Value x 2% (1,1% if applicable) = 92.250€ x 2% = 1.845.00€
Result = Taxable Base x 24% = 1.845.00 x 24% = 442.80€