Taxation for Non-Residents with rented properties.
It´s becoming increasingly common for foreigners from different countries to be interested in Spain as a country to invest in, and although there are different means, the most common is still the purchase of properties.
While many owners buy the property with the intention of enjoying it all year round, others opt to rent it out during the months when they are not using it in order to get a return on their investment. This is when the rental tax for Non-Residents comes into play.
Who has to pay the tax?
First of all, you will need to know if you are considered tax resident in Spain or another country and the implications of both scenarios. Without going into much detail, you will be a Spanish tax resident if:
- You stay in the country for more than 183 days in Spanish territory per calendar year.
- The main core or base of your activities or economic interests, directly or indirectly, is in Spain.
- Your spouse or minor children have their habitual residence in Spain, unless there is proof to the contrary
If you do not meet any of these requirements, you are deemed Non-Resident for tax purposes and you will have to account for your rental income in a different way to residents.
This tax is included in the framework of the Non-Resident Income Tax (IRNR), and the taxpayer is obligated to file the declaration of the income received from the rental income on form 210 (modelo 210).
As its name indicates, is applicable to all those individuals and legal entities that do not have their tax residence in Spain but obtain income from the country, so they are having certain benefits from assets located there. Precisely, this is what the territoriality of the tax refers to: the source of the income (Spain) and not the taxpayer one.
For this reason, the income obtained from the rentals (which are originated in Spanish territory) will count for the non-resident’s taxation purposes.
Applicable tax rate and fiscal implications.
The IRNR Law quantifies the tax payable with distinction between income obtained through a permanent establishment and income obtained without a permanent establishment. In order to be considered a permanent establishment, the Non-Resident individual must have at least one full-time employee in Spain with a valid contract to carry out the commercial activity associated with the property.
Otherwise (which is usually the most common case), the taxation will be subject to form 210 depending on the income generated by the rental of the property, whose total will be the taxable base on which, depending on your residence when the tax is filed, you will have to apply a tax rate or another that will make the investment more or less worthwhile financially speaking.
The main difference is the different tax rate for EU and non-EU citizens. Resident citizens of an EU country, Iceland, Norway, or countries included European Economic Area (EEE) will be taxed at a rate of 19%, while Non-EU residents will be taxed at a rate of 24%.
Another peculiarity between the EU citizen consideration has to do with the possibility of deducting expenses. If the owner of the property resides in any EU member state, Iceland or Norway or countries included European Economic Area (EEE), he/she will have the opportunity to deduct the expenses foreseen in the corresponding IRPF regulations as a reason derived from the rental.
The situation is different for non-EU citizens, who will not be able to deduct any expenses and will have to declare the total amount of income for their corresponding taxation.
Submission of the tax.
At this point you are probably wondering whether it would be possible to somehow declare this tax in your country, as it may after all be seen as a benefit of your person.
At the moment it is not possible, and it has an explanation. Due to the double taxation agreements signed between the different countries and Spain, the Spanish State has the power to tax the profits obtained by the properties located in the country in accordance to the Spanish legislation in force at the time.
The deadline for declaring the income obtained from rentals by Non-Resident owners will be quarterly, being the first 20 days of the months of January, April, July and October respectively. Make sure you keep these dates in mind or have an advisor taking care of processing it, as not submitting this tax or doing so after the established deadline entails financial penalties that can reach up to 150% of the amount owed.
Contact our team if you have any doubts regarding the payment and filling of your tax and for any other tax purposes.