Despite of the sun, the beach and the Andalusian way of life, there are other factors that should be considered when thinking of buying a property in Spain. It is surprising to see how, due to the lack of professional advice, many non tax residents with properties in Spain hardly know anything about their tax obligations and put themselves in a risky situation.
To know if you are or not a non tax resident, it will be useful to clarify the definition of a non tax resident, and we will do so by defining its antonym, a resident. A physical person is considered a resident in Spain under any of the following circumstances:
1. If he or she stays more than 183 days, during the calendar year, in Spanish territory;
2. If the main core or base of his or her business or financial interests is situated in Spain directly or indirectly;
3. If the spouse (unless legally separated) and children under the age of legal majority, who are dependent on that physical person, normally reside in Spain. In this third case, there is room for providing proof to the contrary.
Therefore, a physical person will be considered as non-resident in Spain when none of the above circumstances takes place.
Once you are sure you are a non tax resident in Spain, the first decision to be made if you are thinking of acquiring a holiday home in Spain, is whether to buy it personally or through a non resident company, as the fiscal treatment will vary.
1) Buying a property as an individual
Being a non resident, the tax obligation will relapse on the property and not on the person. Nevertheless the owners of the property will assume the role of the tax payer, in equal parts. Depending on the destination of the property, the fiscal treatment will differ:
– If you rent your property in Spain. As a non resident, you will declare your Income Tax in your home land and not in Spain. Despite this, if you receive rental income in Spain, Spanish Tax Authorities will ask you to declare it and pay the corresponding taxes for it. The submission of the tax declarations will be quarterly. You can will have to submit one declaration per property (Model 210), and the tax rate will be 19% for EU citizens and 24% for Non EU citizens.
Only EU citizens can deduct those expenses related to the rental of the property. – If you don’t rent your property in Spain. If you decide not to rent your property in Spain, Spanish Tax Office will consider a deemed rent, depending on the value of your property, and will apply taxes on it.
Owners of non rented properties in Spain will have to complete an annual tax resume – Model 210- (one for each person), before December 31st of the following year. The deemed rent will be 2% of the cadastral value of the property, or 1, 1% in case this cadastral value is updated. The rate to be applied on this deemed rent will be again 19% for EU citizens and 24% for Non EU citizens.
Non Residents (individuals) with a total value in properties located in Spain above Euros 700,000 will be subject to Wealth Tax, which will result in an annual payment to the Tax Office (Model 714), just for having the ownership.
2) Buying a property through a Non Resident company.
In case you decide to buy your property in Spain in the name of a Non Resident company, the tax implications are different.
– If you rent your property in Spain, tax implications are exactly the same as if you do it as an individual.
– If you don´t rent it, there are few differences:
- Vacant properties will not have to declare a deemed rent on annual basis.
- When the property is used by any related party (directors, shareholders…etc) the Tax Office will require the company to pay taxes on the market value of the rental, which can be very tax expensive.
Non Resident companies are not subject to Wealth Tax.
The most tax efficient way will depend on the value of the property and the purpose of the purchase, depending on the case for some investments it could be advisable to set up a Spanish SL company. A correct tax planning prior to buy a property is essential to save taxes in future.
For more information please do not hesitate to contact MDG Advisors.