Spanish Taxes

Hi,

I have just received the below from an associate of my solicitor in Spain. Is this really such a problem or am I getting worried over nothing? Have I read this correctly or is there a possibility that that I will be landed with a bill of approximately 1000 Euros a year based on a purchase price of 182400 Euros?

I am considering setting up a UK limited company to transfer this property for my name to a company to reduce future inheritance implications. Is this the same or something different?

1. Any non-resident person owning a property in Spain is liable to Deemed or Presumed Income Tax.

2. This tax must be paid annually.  If you purchased your property in 2009, you must start paying taxes in 2010.

3. Should you fail to pay your Deemed Income Tax annually to the Spanish Inland Revenue, you will be unable to recover the 3% capital gains tax (CGT) retention on the sales price when and if you sell your property in Spain. We are referring to the 3% on the sales price of the property which must be withheld and lodged with the Inland Revenue to cover capital gains tax, if any, on the transaction. Even if you were to make no profit whatsoever on the sale, the Inland Revenue would still retain the 3% and use this to settle your unpaid wealth tax and income tax for the preceding five years. You would also be liable to pay interest on the unpaid taxes over that five-year period, in addition to a fine.

4. Any non-resident person owning a property in his/her name is liable to Income Tax of 2% (or 1,1% if the rateable value has been revised) on the value of the property. This tax currently stands at 24%. In simple terms, the Inland Revenue considers that the owner of the property is receiving an annual taxable income equal to 2% of the value of the property and consequently charges a 24% tax on this income.

5. Under Spanish law you can appoint a Fiscal Representative to file all the applications and handle all the formalities involved

Mark,

I am no expert on tax but as far as I understand things the two obvious tax issues are the community maintenance fees that you will pay to RPM currently and the IBI tax which is the Spanish Council Tax equivalent that you wil pay to Alhama Council and roughly will amount to about 100 euros per owner per year. If you miss a year, there may be a penalty of around 3 euros - ouch.

The only other major tax issue would be capital gains tax which currently stands around 30% of any profit you make on a sale. However, this does not aply for a property you have owned for 10 years or more, consequently this tax would only affect those looking for a quick turnaround profit - highly unlikely in the current climate.

Watch out for a whole host of solicitors and accountants trying to scare new owners with complicated spanish tax legislation. They will all offer to take care of your afairs for around 25o euros (each) but for aliability of around 100 euros each, just doesn't make economical sense at all. There are other theads on this forum on how to pay Alhama Council so don't worry I am told it is easy to do.

Manania rules in Spain. I have been an owner for over a year and still have not received my Certificate of Habitation. When I do I will see about paying my back tax. I have friends - not on CDA - who have owned properties in Spain for years and have never paid any IBI tax. I would not recomend this approach but it gives you an idea of the hapless way Spanish authorities run their affairs in relation to tax.

Health warning - as I say I am no tax expert and may have missed something. However, too much sun and sangria has resulted in me adopting the Spanish attitude to these things - why worry - manania rules.

Jon Faulkner

Hi Mark

I have reprinted below a quick guide taken from Property Tax International Limited.

Hope this helps, like most other pleases in the world the Tax Man will always have his share.

Regards

Phil

Spanish Property Tax Information

Under current legislation, non-resident individuals are taxed in Spain on income arising from Spanish sources only and are liable to a number of other property related taxes outlined below. Individuals living more than 183 days in Spain in a given tax year (1 Jan – 31 Dec) are considered as residents for tax purposes, even if they have not obtained a Spanish residence permit. Non-residents may also be liable for tax on the same source of income in their home country of residence, where taxes are levied on worldwide income. Relief for double taxation may apply.

Taxes payable when purchasing a property in Spain:

Spanish Transfer fees are payable on purchases and depend on the region where the property is located but generally range between 6% - 7% of the title deed price.

Stamp Duty tax is payable @ rates ranging from 0.5% - 1.1% of the title deeds price for second-hand properties.

Spanish VAT (IVA) @ 7% is payable on the title deed price of the property if it is been sold for the first time and the seller is a property developer.

For second-hand properties, VAT is not applicable but Transfer Fees will apply.

Ongoing property taxes payable in Spain are as follows:

Spanish Rental Income Tax is payable at 24% of gross income with no deductions permitted for expenses. Income must be declared and paid one month after the rent is received. Quarter returns are also allowed. Spanish Income tax returns must be submitted by 31st December the following year after income was first received. 

Tax on Deemed Rental Income is payable on urban property that is not let. This is calculated @ 2% of the property’s rateable value that has not been evaluated since January 1994; otherwise rate is calculated at 1.1%. You must pay 24% tax on deemed rents. Deemed rental income returns also have to be filed by 30th June.

Spanish Wealth Tax is a direct tax levied on your net assets located in Spain as at 31st December each year with rates varying between 0.2% - 2.5%. It must be filed between 1st May & 20th June ie depends on the type of property and is based on the higher of

       The purchase price;

       The assessed value set by the Tax Authorities; or

       The rateable value

NB: Wealth tax was abolished in January 2009 effective for year 2008.

Spanish Local Property Taxes (rates) are based on the rateable value of the property and generally vary between 0.4% - 1.1%. Rates depend on whether the property is urban or rural and varies per region. They are generally due from September to November each year. An annual local tax on mains drainage & refuse collection is also payable.

Other applicable taxes are as follows:

Spanish Capital Gains Tax (CGT) on the sale of property is charged @ 18% of the gain. The purchaser must withhold a Public Treasury tax @ 3% of the purchase price and pay it to the Tax Authorities within a month of transfer. A Spanish CGT tax return should be filed within 3 months of the withholding tax paid.

Spanish Inheritance Tax (IHT) is payable depending on a number of factors: the inherited amount, the relationship between the parties involved and the level of current wealth before receiving the inheritance. Spanish IHT rates vary from 7.65% - 34%.

Worldwide income

If resident in the UK or Ireland you will have to declare any income received in Spain in your annual resident tax return. There is a double taxation agreement between Spain, Ireland and the UK so double taxation relief applies in some cases. Please contact us for further details regarding double taxation relief and/or filing your Resident Tax Return.

Property Tax International can organise the completion and filing of your Spanish tax returns in addition to advising on your property tax obligations in your home country.

The information provided here is intended as a guide only. While Property Tax International Limited makes every effort to ensure that the information contained herein is accurate, we take no responsibility or liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon.

I haven’t used this service myself so not able to recommend personally but I will be considering them. The firm I think may be worth looking into for property tax issues is this one?  www.spanishtaxforms.co.uk  If anyone has used them please post your experience?

Regards

Phil

I used them back in December - they were excellent!!!!  English speaking, I sent scans of the required documentation and transferred the funds into their account, good price, and excellent service, will cost less next year as initial details now complete. 

Nice friendly e-mail and telephone manner, couldn't recommend them highly enough.

Lindsey

I can concur.  We used them this year, and first rate service, both by phone and email.

You provide all of your details, and they complete all of the tax forms for you.  In our case, we didnt have a Spanish tax code, so they took care of that for us, as we werent going over to Spain in time.  They also even made the payments on our behalf, so the whole thing was taken care of without us having to lift a finger.

In terms of costs, I think we paid £20 for completion of the forms (this include both mine and wifes), £20 for them sorting out our tax codes (this is a one off as we are now registered for future), and I think we paid a further £20 for them to make the payments to the tax authority.  Both of the latter two we could have sorted ourselves had we been in Spain, but have to say, for £40 extra, no hassle at all.

John Bosdet is the guy who runs this company, and he has been brilliant.  I will definitely be using them each year, and would recommend the same to anyone.  Anyone who tells you to get a spanish solicitor to do this....think again.  Fraction of the cost, and hassle free service

Hi

Just been looking on the Spanish Tax Forms site.  The form asks for your cadastral and directs you to your IBI receipt for this.  Having looked at our receipt our apt in J5 is showing a value of just under 39000 euros - does this seem right (wouldn't want to quote the incorrect figure)?

Thank you

MG

That sounds like the right amount.