Every year, thousands of people flock to Spain for the weather, the sights, its fantastic culinary experience and culture. Many of these fall in love with the way of life here and decide to invest in a property of their own to enjoy as often as they able to get away, however, many fall foul of the Spanish tax system and without realizing it, do not fulfil some of their obligations as property owners.
If you own property in your own country, you know there are various expenses that are constants such as house insurance, utilities, council rates, community of owner fees but non-residents in Spain must also declare their property asset(s) on a tax form that is presented at the National Tax Office and which is unfortunately often confused with council rates which refers to Municipal Property Tax and Domestic Refuse Collection ( the famous IBI and Basura).
Those who have not established their primary residence in Spain and are recognized at the National Tax Office as Fiscal Residents here are liable to file Tax Form 210 to declare their property asset and in the event of a sale, the transfer of said asset. Even if in the past you obtained the green residencia certificate or card, it does not mean that legally you are considered a fiscal resident in Spain.
There is quite a bit of confusion surrounding this subject because the catchphrase seems to be if you “spend more than 183 days in Spain you are automatically considered a tax resident” but it is not as black and white as that and it is the taxpayer’s responsibility to ascertain their status so as not to commit tax fraud. To be acknowledged as a fiscal resident:
- Spain is your centre of vital interests, which means the primary base for your economic or professional activities
- Your spouse resides in Spain (you must not be legally separated), even though you yourself may spend less than 183 days of the year here
- You have declared in your previous country of residence your decision to transfer your primary residence to Spain and as a result, you are liable to pay tax or your worldwide income and worldwide assets here. If there are double taxation treaties between Spain and your country, they would come into effect
So, how does the Non-Resident Income Tax declaration work? Well, it has been a number of years since it is obligatory to obtain your N.I.E. number prior to purchasing property but you must ensure said number has also been registered to you at the National Tax Office as this is mandatory.
If the property is jointly owned, either by a spouse or other persons, each one is an independent taxpayer and must file separate declarations for their share (%) of the property but now we must establish the use you give to the property which could either be (1) personal use or (2) for rental purposes.
Whenever I send out a mailing of this Consultancy’s Annual Non-Resident Tax Campaign, I always ask for the council rates bill (IBI) as issued by the Town Hall because it contains cadastral information necessary for the calculations. This document confirms the tax value of the building and the land on which it is built. A series of calculations are performed using these tax values, and if the taxpayer is an EU member, from Iceland or Norway, the resulting tax liability is 19%, however taxpayers from other countries have a higher tax liability of 24%. This particular declaration must be filed annually. The tax year in Spain is a natural year, 1st January to 31st December and it can be filed at any time within that period but remember, you would be declaring ownership during the previous year so in 2019, you would declare activity in 2018.
If the property is also used for rental purposes, the full income received from this activity must be declared. Since 1st January 2015, taxpayers from EU member states as well as Iceland and Norway may deduct expenses that are directly related to the rental activity. Depending on the number of properties, tenants etc, it may be necessary to file more than one Tax Form 210, and, in this case, the taxpayer is obliged to file quarterly returns (20th April, 20th July, 20th October and 20th January of the following year).
What happens when you sell the property? In this case, the purchaser is obliged by law to retain 3% of the sales price from your final cheque and deposit said amount at the National Tax Office. This serves as an advanced payment towards your tax liability and it is the tax office’s method of ensuring at least some tax is paid given that many do not comply with this requirement. The purchaser has one month from the property sale to deposit the retained amount and from there, you have three months to declare Capital Gains, the result of which may be to pay additional tax or if your liability is inferior to the 3% retention, you may apply for a partial or full refund. If this obligation is not met, any liability will be recorded at the Land Registry Office.
As a general recommendation for those who have not fulfilled this tax obligation despite owning property in Spain, file the last four tax years as the National Tax Office cannot claim for the years prior if they have not officially notified you in writing. Of course, filing outside the deadline will incur penalties but not as much as the penalties incurred if the Tax Office notifies you first so it is best to get back on the right side of the law before that happens. Even though Spain has been known for being extremely slow in the past, this is changing and it is becoming very apparent because they are now notifying certain infractions in record time and are very strict with procedures and methods to force taxpayers into complying with their obligations so it is not worth the risk.
To the best of your ability, do your own research when you purchase so you can be sure to observe all your responsibilities and consult with an advisor to avoid problems further down the road.