How is the annual tax calculated? When must I submit the tax return? We are going to talk about non-resident income taxes in Spain.
It’s very important to bear in mind that you become a tax resident, generally speaking, when you spend more than six months a year in Spain in a calendar year. If you become a tax resident, you don’t have to submit the non-residence income tax return. But if you are here for less than six months a year or you are not a tax resident that’s when you have to pay non-residence income tax, regardless if you use the property for yourself/family and friends or you rent it.
When do I have to submit the tax return for IRNR (Impuesto sobre la Renta de No Residentes)?
It really depends on whether you own a holiday home here just for your family and friends or whether you are renting it for rental purposes.
If it’s a holiday home the annual income tax return (modelo 210) must be submitted every year from 1 January until 31-st December for the former year. So, basically by the end of this year you are going to be declaring 2020.
If the property was bought in the middle of the year, for example the purchase was completed in June 2020, there is a duty to submit the tax return for the proportional time you have owned the property.
If the property you own is rented, then the tax form (modelo 210) must be submitted on quarterly basis. This is regardless if you rent it for some time of the year and you use it as a holiday home the other part of the year, you have to submit it on quarterly basis. The calculation will be proportional.
How is the annual tax calculated?
It depends on use of the property and is calculated on the expected rental income if you rented and that you have on the property and it is calculated in reference to the cadastral value of the property.
For 2020 the tax rate is 19% for EU residents, Norway and Iceland, and it’s a 24% for residents of other countries including British citizens. The taxable amount is in general 1,1 % of the cadastral value of your property.
Also, it is important to consider when was the last time that the cadastral value was updated. If it was updated less than 10 years ago then it is 1.1 %, if it’s more than 10 years – then it’s at 2%.
For example:
If your property has a rateable value (“valor catastral”) of 100,000 euros then the tax for 2020 is 209 euros for EU citizens and citizens from Norway and Iceland. It will be 264 euros for other countries. Provided the 1.1% index above referred applies.
When your property is rented out you are required to make a tax declaration for each quarter in which you have had the rental income. For the tax year 2020 the tax rate is 19% for residents EU Norway and Iceland and all rental expenses including, for example, mortgage interest can be deducted for tax purposes.
However, for the residents of the other countries including the UK the tax rate is 24% however all of the rental income is taxable and there are no deductions applicable in this case.
What information do I need to supply in order to prepare annual non-resident income tax returns?
Information needed for tax returns would be:
- The copy of your NIE and passport.
- The copy of the sale purchase titled it that it was signed on completion date for the purchase of the property.
- The copy of the council tax that is to say IBI bill in order to check what is the rateable value of the property cadastral for the said year.
Is it possible to deduct the community fees or other costs related to my property?
These costs can be deducted, if you are renting the property. If you are using it as a holiday home for you and for your friends the costs are not deductible.
An example of some deductible costs , the community fee, the IBI (Town Hall rates), the mortgage cost that you may be paying if you have a mortgage loan and management company fees if you have a management company dealing with it and any accountancy fees incurred.
Just bear in mind that these costs are deductible only if you are residents in the European union. Moreover, if you generate rental income in Spain then you have got to pay tax in Spain on that income. And then you also may have to declare that income in your home country and pay any additional tax there.
Do I need to be registered for tax in order to submit the annual returns?
Yes. Property owners must obtain the Spanish taxes number known as NIF (Número de Identificación Fiscal). So, when you purchase your property you will have been assigned a foreigners ID number, NIE (Número de identidad de extranjero). NIF would be the same number but it’s necessary to register NIE at the tax office. In the majority of cases property owners will already have the NIE registered for tax purposes. However, if they bought the property years ago it is possible that it’s not that case. Anyway you may carry out an online check with the Spanish tax office database to verify that NIF, the NIE are already registered.
What to do when you forgot to submit the annual non-resident income tax returns?
Basically what you can do is submit it now, and it will be considered a late submission. The repercussion will be a penalty. During the first three months of delay the penalty is a 5% charge on top of the amount that you will have to pay. This percentage increases if your tax return is delayed more than three months. So the sooner the better.
I have not paid the non-resident income tax. Can the tax office claim it when I declare the CGT (Capital Gains Tax)?
Yes, that’s correct. In fact the tax office is entitled to claim it for the last four years, because tax liability in Spain lasts for four years. Any time they could look at the former four years. If they find out that someone has not paid the taxes, then they could claim for that. So not necessarily if you are selling the property but any time, that’s the tax office capacity.
What happens when you sell a property?
If you are not tax resident in Spain, it is compulsory for the buyer to retain to you a 3% of the sale price and pay that to the tax office as a payment into account of the capital gain tax. There are cases when you are not making a gain, for example, or your gain is lower than this 3%. Then you can apply for the refund to the tax office. The tax office will normally check what records they have from you. If they have noticed that they do not have any records at all because you have not submitted a tax return, they will claim that you arrange the payment for the last four years. Either you can pay them and they will therefore refund to you. Or you can also apply for the non-residents income tax to be deducted from the refund.
In the case of joint ownership, do we need to submit more than one return?
Tax returns are individual. So if it is a property which is jointly owned then each owner will have an individual tax return. Therefore the tax amount will be calculated proportionally.
If I have inherited a property do I have to pay the NRIT (Non-Resident Income Tax)?
Yes, you have to pay the non-resident income tax. All non-residents in Spain with Spanish property are liable for this tax. It doesn’t matter if you have bought the property or if you have inherited the property. The rights that you have over the inherited property start from the date of death of the person from who you have inherited the property. So, that will be the first year that you will have to submit your non-resident income tax return.