One of the primary concerns when acquiring, purchasing or owning a property as a foreign citizen in Spain, is to understand the impact that taxation will have on a given situation.
The determining factor for the type of taxation applicable, is residential status. A taxpayer considered to be RESIDENT shall be subject to Personal Income Tax (IRPF), whereas a taxpayer considered to be NON-RESIDENT shall be subject to Non-Resident Personal Income Tax (IRNR).
Therefore, the first factor to decipher is how Spanish regulations establish that a citizen shall be considered to be resident for taxation purposes.
The current Regulations establish that a citizen shall be considered to be resident in Spain, given without distinction any of the following circumstances:
- Permanence on Spanish territory for 183 days or more per calendar year. In order to calculate the length of stay, occasional absences are counted, with the exception that fiscal residence in another country is certified. In the case of states or territories classified as tax havens, the Tax Authorities may require proof of residence in the given tax haven during 183 days of the calendar year.
When determining the length of stay, temporary periods in Spain shall not be calculated provided they are due to obligations falling under international agreements, such as cultural o humanitarian entitlements with the Spanish Public Authorities.
- Where the main core or base of business or professional activities or financial interests lay in Spain, directly or indirectly. Likewise, in the absence of proof to the contrary, it shall be considered that the taxpayer is resident in Spain if in accordance with the aforementioned criteria, his or her spouse (unless legally separated) or legally dependant children are resident in Spain.
A citizen shall be considered to be resident or non-resident throughout the calendar year, due to transfer of residence not interrupting the taxation period.
Taxation scenarios
From the range of revenue scenarios that could give rise to tax liability, we are only going to explore those that are directly related to the condition of being a property owner in Spain:
Due to owning a property in Spain
Spanish regulations establish that, non-resident taxpayers, owning urban real estate for their personal use on Spanish territory, shall be subject to Non-Resident Personal Income Tax (IRNR) for taxable income corresponding to that property.
Taxable income shall be the resulting amount after applying the corresponding coefficient to the cadastral value of the property (2% as a general rate and 1,1% for revised cadastral values). The cadastral value can be found on your annual Property Tax (IBI) receipt.
This tax should be settled in the calendar year following the date of accrual. For example, the amount payable for the calendar year of 2017, should be paid at the latest by the 31st of December 2018.
The proporcional amount shall be declared if you were not the owner of the property throughout the calendar year, or if during a period of time the property was leased.
Due to Taxable Profits deriving from property sale (capital gains)
Capital gains tax derives from the sale of a property. The taxable profit shall be taken into account as from the moment the property ownership is transferred.
In general terms, the taxable profit shall be established as the difference between the acquisition price and the sale price.
The acquisition price is comprised by the actual price for which the property was acquired, plus any expenses and taxes inherent to acquisition (excluding interest rates) that have been paid.
The transfer value is comprised by the actual price for which the property was sold, minus expenses and taxes inherent to acquisition, paid by the selling party.
The taxation rate applicable to the total amount of profit made shall be 19%.
The purchasing party, whether resident or not, shall be required to retain 3 percent of the total purchase price. This retention is a downpayment on behalf of the selling party for the capital gains tax corresponding to the property ownership transfer. The purchasing party shall provide the selling party with taxation Form 211 (as proof of the aforementioned payment) in order for the selling party to be able to deduct the retained amount from the total amount of taxable profit. If the amount retained proves to be more than the total amount payable, the difference shall be reimbursed.
The payment period is of three months, as from the deadline for the purchasing party to settle the capital gains retention (30 days following the sale date).
Expert advice
When a property is jointly owned, either due to marriage or other reasons, each and every part-owner shall be considered a taxpayer in his or her own right, and must therefore make a separate tax declaration.
At MSG Legal, as highly experienced lawyers specialising in Property Law and in safeguarding your interests when carrying out property purchase and sale transactions in Spain, we are at your disposal to provide you with advice on fiscal liability resulting from the purchase, sale or ownership of a property as a fiscally NON-RESIDENT citizen in Spain.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.
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