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Taxes in Spain - Non-residents
This guide is, of necessity, both brief and general and is therefore no substitute for proper professional advice, which we will be happy to provide on request.
Introduction
The information contained in this document relates only to people not resident for tax purposes in Spain. A person is resident for tax purposes if he is physically present in Spain for more than 183 days in any calendar year.
Other rules can also render a person tax resident in Spain.
It is impossible to give tax advice without detailed knowledge of your personal circumstances.
You should, therefore, treat this document as no more than background reading designed to give you some idea of the structure of the tax system in Spain.
We can accept no responsibility for any action that you take or fail to take as a result of reading this document.
The machinery of tax collection in Spain
The Spanish Authority responsible for the collection of taxes is the "Agencia Tributaria" (Hacienda). This is organised on a provincial basis. In each province there is a main office of Hacienda. In many provinces there are also one or more sub-provincial offices.
There is an important difference between the way in which the Spanish and the British collect their taxes.
In Spain it is your responsibility to obtain a tax form (usually, but not always, from the local tobacconist!). It is your responsibility to complete the form and to calculate the amount of taxes that you owe to the State. It is then your responsibility to submit the form to Hacienda together with the appropriate amount of tax payable.
Taxes payable on the transfer of property
Impuesto sobre Transmisiones Patrimoniales (I.T.P.)
This is a tax payable when you purchase either agricultural land or a house, apartment or building plot from a private owner.
It is generally 7% of the declared value of the property as expressed in the Escritura de Compraventa (Deed of Conveyance).
This has led people to be tempted to under-declare the value of the property. Though this practice was and is widespread, IT IS A SERIOUS MISTAKE. Severe penalties are payable in respect of under declarations which, in addition, can lead to monumental Capital Gains Tax headaches at a later date, as the declared value on your purchase is the base line used by Authorities when assessing the Capital Gain you make on the disposal of the property.
Impuesto sobre el valor anadido (I.V.A.)
This is the Spanish equivalent of VAT.
It is paid instead of I.T.P. when you buy from a Promoter rather than the private individual.
At present, the tax is charged at the rate of 12% on building plots and on additions carried out subsequent to the construction of properties.
It is charged at the rate of 7% on the construction of a house and any associated buildings.
It is also charged at the rate of 7% on both the plot and the house if you purchase both at the same time.
AJD (Document Tax)
In addition to IVA you will also have to pay a document tax or stamp duty (IAJD) at 0.5% of the purchase price on your purchase from a developer.
Land Registry Fees
These vary according to the locality, type and value of the property. They are not strictly taxes but rather administrative fees but, for the sake of completeness, are referred to in this document.
Notary's Fees
Again not strictly a tax, but something you need to think about. They vary depending on the value of the property and various other factors. Allow 0.5% of the price of the property for initial planning purposes.
Property taxes
Contribucion Territorial Urbana (now Impuesto Sobre Bienes Inmuebles)
This is the main local property tax affecting owners of properties in Spain.
The amount of the tax is calculated by reference to the "valor catastral" (official value of the property) registered in respect of all properties in Spain.
The percentage of that valor catastral charged as tax varies from area to area.
The official values were, until recently, very very low. They are now rapidly rising, pursuant to a policy of the Spanish Government that will result in the official values approaching the real value of the property.
In general terms, Contribucion Urbana will cost less than taxes on a similar property in the UK.
Contribucion Territorial Rustica
This is the same as Contribucion Urbana but for properties located in rural areas.
Tasas y Cargas
Some Municipalities raise additional taxation in relation to the services that they supply to people in the area. These may include rubbish collection, cleaning of the streets and beaches etc.
Municipalities also have the right to raise a charge for the use of a vehicle in their area. Not all do so.
The amounts of these tasas y cargas are not generally high.
Personal taxes
Impuesto sobre Patrimonio (Wealth Tax)
A person not resident in Spain for tax purposes must, every year, submit a wealth tax return.
This must show the value of all of that person's assets located in Spain.
This will normally be the person's house, car and the balance on his bank account.
The value to be used when declaring the value of the house is the official valor catastral (see property taxes above).
The amount of the bank balance is the average cleared balance over the previous year. This information is supplied by your bank.
For the first £100,000.00 (approximately) of assets the wealth tax is 0.2%. Above this level the rates of tax increase slowly.
The wealth tax return must be paid to the Authorities in June of each year.
Impuesto sobre la renta de las Personas Fisicas (Income Tax)
A person not resident in Spain for tax purposes must still make an annual declaration for income tax.
The Spanish Authorities are only concerned (in the case of non residents) with the income you derive from activities in Spain, not your world-wide income.
Typical examples of this will be interest on any money you have on deposit with a Spanish bank or income you derive from letting your apartment or house. (See also "Tax on the Notional Letting Value of Your Property" below).
As this income is part of your world wide income it will have to be declared to the British Tax Authorities but double taxation relief exists as a result of a Treaty between the two countries.
Capital Gain Taxes
The Spanish do not have a separate system of assessing Capital Gains Tax. For people resident in Spain for tax purposes, Capital Gains are treated as part of their taxable income for the year in which the gain occurs.
In Spain Capital Gains Tax on the sale of a house or apartment is payable at a flat rate of 18% for both residents and non-residents on the difference between the price for which the article was sold and the price paid for it. There are various allowances to be set off against the gain that has been made and there is a type of indexation for inflation.
In the typical example of the sale of property, the prices used to calculate the tax liability are those declared in the Title Deed.
If you have under declared the value in your Title Deed on purchasing property you can, therefore, build up a large and entirely artificial Capital Gain which will be taxable UNLESS YOU NOW TAKE ACTION TO REMEDY THE SITUATION.
If you wish us to advise you as to steps that can possibly help remedy the situation please contact us at once.
Tax on the Notional letting value of your property
In addition to the ordinary income tax return, which you must submit in appropriate cases, you will in all cases be required to make a tax return in respect of the notional letting value of your property.
This tax return has to be made whether you have actually let the property to anybody or not.
If you have actually let the property and received money for it, then the money you have received will have been declared in your ordinary income tax return.
The return in respect of your national income from your property is made on a form called form 210, which is not obtainable from a tobacconist but only from your local Tax Office.
The amount of the tax is calculated by reference to the valor catastral (see above) of your property.
The amount to be declared in the form is 2% of the valor catastral.
You will then have to pay tax at 25% of that 2%. Thus, if you have a property worth in reality £100,000 but which has a valor catastral of £75,000 the taxable notional rent of the property will be £1,500.00 (2% of the £75,000), and you will have to pay £375 (25% of the taxable amount).
Taxes Payable on Death
As in most countries, in Spain the State likes to take a chunk of your assets when you die. How much they will receive depends largely on how well you plan your affairs.
The whole system of taxation on death is very different from the English system and so poses a real danger to English people who subconsciously assume that similar provisions will apply and arrange their affairs accordingly. Some differences are:
In Spain there is no automatic inheritance by a wife or other joint owner of the deceased joint owner's share in any property. If it is left by will or on intestacy to the other joint owner, the gift will be taxable.
The amount of tax paid is determined not by the size of the whole estate — as in this country — but by the size of each individual inheritance. The tax is progressive — the more you inherit, the higher the rate of tax you will have to pay.
Near relatives pay tax at a lower rate than more distant relatives who in turn pay less tax than total strangers.
Near relatives are also entitled to receive a sum tax-free. More distant relatives and strangers are not.
An estate of, say, £100,000 can therefore produce a large tax bill if it is all left to one person — especially a non relative — and little or no tax bill if it is divided amongst a number of beneficiaries who are close relatives.
Those who are already wealthy when they inherit pay more tax than those beneficiaries who are poor — although, as in the case of foreigners the only wealth taken into account is their Spanish wealth, this seldom produces difficulties in practice.
Putting all of these things together, there is great scope for minimising tax payable on death. In general terms, dividing your assets between your husband/wife and children tends to produce the lowest tax bills. Take as an example a typical case where the estate comprises a villa and a small bank account — a total estate valued at, say, £50,000. If the estate was left to a stranger — including, for this purpose, a non-related executor and trustee — tax of about £5,000 would be payable. If the same estate was to be left in equal shares to a wife and 3 children no tax at all would be payable. Those who don't have spouses or children can use the same principles to make savings using other classes of beneficiary.
Penalties are imposed if the tax due is not paid within 6 months of the date of death.
In many cases where sizeable tax payments are going to be a problem it is possible to dispose of the assets during the owners lifetime much more cheaply than in his death.
VAT
As in England, most transactions in Spain involve the payment of VAT. The normal rate is 16%.
Transactions involving basic necessities carry VAT at a rate of 7% and transactions involving luxury items can carry a rate of 33%. Certain items are VAT exempt.
Fiscal representatives
The Spanish Law until recently required any person who had dealings within Spain but who was not a full time resident in Spain to appoint a fiscal representative.
Although this is no longer strictly necessary, we still consider that it is a step well worth taking.
A Fiscal Representative is a person who undertakes on behalf of the taxpayer all dealings with the Spanish Tax Authorities.
The Fiscal Representative can be a friend or a professional adviser and does not necessarily need to be a Spanish national.
The appointment of a Fiscal Representative is the only way in which you can be sure that the Spanish Tax Authorities, unable to contact you because you are not in the country, do not take damaging and expensive action against you to collect any sums of taxes which they allege to be due. We can advise you concerning bodies able to act as your fiscal representative in Spain.
Appeals
As in most countries, if you disagree with the amount of tax that you are required to pay you can appeal against the decision of the Tax Authority. We can advise you concerning this.
N.I.Es (Numero de Identificacion de Extranjeros).
This is an identification number for use by foreigners in Spain.
If you have dealings within Spain — even if you are not full time or tax resident — you are required to have a number.
This is obtained from your local Police Station at the foreigners' department. However tempting it may be not to bother obtaining this number you will find that it will cause you great inconvenience in the future if you do not have one.
In some areas the requirement to obtain an NIE is being replaced by the need for an NIF - numero de indentificacion fiscal. This is obtained in a different way but, for the buyer of a home, the effect is broadly similar.
What do I do next?
If you would like further advice, please telephone.
We can then have a brief discussion over the telephone and, if necessary, make an appointment so that we can meet to look at the matter in more detail.
We are used to acting for Clients from all over the world and, generally, find that it is not necessary to meet in order to deal with their tax affairs in Spain. Of course, we are delighted to meet to discuss matters personally if that is convenient for you.
The International Law Partnership LLP
Solicitors & International Lawyers
The Vaults
Holborn Hall
193-197 High Holborn
London WC1V 7BD
Tel: 020 7061 6700
Fax: 020 7061 6701
Email: info@LawOverseas.comInternet: www.LawOverseas.com© John Howell & Co – February 2007
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