Spanish income tax & residence rules must be considered carefully when buying property, investing or having a business in Spain. If you own a property or investment in Spain, for example a holiday home or rental, you are liable to pay taxes to the Spanish tax authorities on property they own and other assets and investments here.
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, you will have difficulties in selling it and your bank account could be embargoed.
Tax Residence in Spain
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 as this will determine the amounts of tax you are liable to pay.
Spanish Tax Residency Rules
Under Spanish law, you will most likely be classed as a tax resident in Spain of the follow apply:
- You spend more than 183 days in a calendar year in Spanish territory.
- Your centre of financial interests is located in Spain.
- Your spouse and/or underage children reside in Spain.
Becoming a Spanish Resident
To legally become a permanent Spanish resident, you need to secure three things:
- Residencia, or Spanish residency card – An official document that registers you as living in Spain and is issued at the Foreigner’s Office or police station. You will need to have all the necessary paperwork which varies from region to region. You must be able to demonstrate that your life in Spain is financially sustainable.
- Padrón – a three-monthly certificate registered at the local town hall that enables you to apply for a SIP (health card) and other local benefits. You should renew your padrón at least every five years in order to ensure that your name is kept on the register.
- SIP (health card) – the exact requirements will depend on your age and the region you wish to live.
If you meet the Spanish residency requirements you will need to pay a Wealth Tax that is measured on the assets that you own in Spain rather than your income and includes things such as property, savings, investments, art, jewellery, furniture, cars and boats etc. The Spanish wealth tax will only affect you if you have assets in Spain worth over €700,000 per person. The rate you pay will depend on the area in which your assets are located and can range from between 0.2% to 3.5%.
Residents in Spain can also get an additional allowance of up to €300,000, which can be offset against the value of their main home (not including properties owned through corporate structures – see our pages on Buying Spanish property through a company).
Spanish Non-Resident Tax
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.
- NRIIT – Non-Resident Imputed 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 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.
- 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.
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 here.