It is important to establish your tax residence in Spain if you have an investment or property in the country as whether you are classed as resident or non-resident will determine the amounts of tax you are liable to pay. If you don’t correctly establish your resident or non-resident tax status in Spain, miscalculate the tax you have to pay or miss a deadline for filing a tax return, you could be liable for significant fines.
Spanish Non-Resident Tax Calculator
There are a number of free online Spanish Non-Resident Tax Calculators but please be wary about relying on them to calculate the tax you think you need to pay. As there are so many complex variables regarding your tax residency status, the type of income you receive, the type of property you own etc the results from these calculators can often be inaccurate. The fact you used an online calculator will not help you if the Spanish tax officials issue a fine for an inaccurate tax declaration.
For both your peace of mind and to avoid any nasty surprises in future, it is always worth getting professional advice on your Spanish Non-Resident Tax. Tax and legal professionals may also be able to suggest tax mitigation steps you can take that can actually help you legitimately reduce your tax bill.
Paying Non-Resident Tax in Spain
The Spanish taxation system is complicated and you will probably need professional tax advice on how to pay non-resident tax in Spain in order to avoid potential fines from incorrectly declaring what taxes you think you owe.
The Spanish Government also regularly changes its tax rules, making it hard to keep on top of all the nuances of the system. Unfortunately, those that often get it wrong are expats holding assets abroad.
If you are classed as a non-resident for tax in Spain there are a number of taxes that you may be liable to pay including:
- I.B.I (Impuesto Sobre Bienes Inmuebles) Tax – similar to UK council tax this annual payment to the local town hall or SUMA office is based on the rateable value of the property, also known as the Valor Cadastral. The rate of tax is dependent on the region but ranges between 0.4 to 1.1% of the Cadastral rateable value.
- NRIT – Non-Resident Income Tax, which is a form of ‘benefit in kind’ annual tax collected at the end of each year, even if you do not rent out your property. If you sell your property the Spanish authorities will review your record to ensure that NRIIT payments are up to date. If not, the tax office will take the outstanding amount from the 3% that is withheld by the buyer and paid into the tax office on completion of the sale of the property.
- NRIT – Non-Resident Income Tax is also applicable if your property is rented out on either a long or short term let. It is due quarterly even if the property is not being rented out during that period.
- Non-Resident Wealth Tax is chargeable on your assets and investments located in Spain even if you are non-resident.
- Capital Gains Tax – you will need to pay capital gains tax for any properties, investments or other assets that are located in Spain. The current rate of capital gains tax for non-residents is 19% for 2020.
- Inheritance Tax – Must be considered if you own property in Spain
Non-Resident Property Tax Spain
If you are thinking of buying property in Spain there are a number of ways to mitigate Non-Resident Property Tax liabilities, but obviously, this has other tax and legal implications that need to be considered. The most suitable solution will depend on your particular circumstances. Your tax residency in Spain and elsewhere, how you own the property, what type of property it is and how long you stay in Spain each year will all have a factor.
If you are a non-resident and own a property or investment, for example, a holiday home or rental, you are liable to pay taxes to the Spanish tax authorities on property you own and other assets and investments. If you do not pay the appropriate tax to the Spanish authorities your property may build up a debt against it on which interest is also due, which often leads to difficulties in selling it and your bank account could be embargoed. If you own a property in Spain but don’t rent it out, an annual tax levy of Renta Imputada de Inmuebles Urbanos will be made. This is calculated in relation to the rateable value of your property.
Spanish taxes for non-residents
In general, non-resident taxpayers are taxed at a flat rate on income obtained in Spanish territory or which arises from Spanish sources, at the general rate of 24% for work income and at the rate of 19% on capital gains and financial investment income arising from Spanish sources. Specific rates apply to certain other types of income.
Spanish income tax and non-residence rules must be considered carefully when buying property or investing in Spain. Essentially there are three categories of foreign resident in Spain:
- Those who are fully tax resident and declare their worldwide assets and income annually in Spain;
- Those who live mostly in their home country and have maintained tax residency there;
- A considerable number of ‘others’, whose status is not always certain as a result of spending roughly half of their time in Spain and half in their home country.
Capital gains tax on property in Spain for non-residents
If you are buying real estate in Spain but not planning to live there, you still need to be aware of Spanish property taxes for non-residents. If you are a Spanish non-resident and sell property in Spain you will likely be liable for capital gains tax at a fixed rate of 19% for non-residents from EU/EEA countries or 24% for non-residents from other countries, including the UK.
Deductions and allowances are available but they are quite complicated and vary by region so you should consult with a Spanish tax specialist for more information.
Inheritance Tax in Spain For Non-Residents
Spanish Wills and Inheritance Tax are both important considerations for non-residents if you have Spanish property, assets and/ or investments. It is normally recommended that Spanish Non-residents draft a Spanish Will to cover assets located in Spain and a foreign Will to cover any assets in other countries.
It is important that there are no legal or tax conflicts between the application of the Spanish Will and the international Will. Spanish laws governing inheritance tax are complex, for example, in Spain there is no legal concept of a person’s ‘estate’ and all beneficiaries are liable to inheritance tax in some form or other.
It is important to note that inheritance tax is not included in the double tax treaty between the UK and Spain. Therefore, when drafting a Will, the Spanish Inheritance and Gift Tax (ISD) must be considered together with the UK’s Inheritance Tax Rules.
As with all tax regimes, it is very important to accurately ascertain your tax status and understand what taxes are, or are not due, to the Spanish authorities. If you get it wrong, you could be subject to fines or penalties. Del Canto Chambers specialist legal and tax advisors can help you gain a better insight into Spanish residency requirements, liabilities and how to efficiently manage for tax purposes any investments and assets you may have In Spain or elsewhere.