What are the Tax Obligations for Foreigners who Own a Property in Spain?

Owning property abroad, including in Spain, is a significant convenience, but it also comes with a range of tax obligations. It is essential to understand these regulations thoroughly to avoid issues with tax authorities and safeguard your investment.

Here is an overview of the main tax obligations for foreigners owning property in southern Europe:

Property Tax in Spain (IBI)

Property tax in Spain is called Impuesto sobre Bienes Inmuebles (IBI). This is a local tax that property owners must pay once a year. The amount depends on the cadastral value of the property (valor catastral), which is usually lower than the market value.

• IBI Payment – This tax is paid to the municipality where the property is located.

• Rates – The IBI rate varies by location, typically ranging from 0.4% to 1.1% of the cadastral value.

• Who Pays? – Both residents and non-residents are required to pay the IBI.

  
  

Non-Resident Income Tax (IRNR)

If you own property in Spain but are not a tax resident there, you are required to pay Non-Resident Income Tax (Impuesto sobre la Renta de no Residentes - IRNR). This tax is due even if you do not rent out your property.

• When the Property is Not Rented – In this case, you pay tax on the potential rental income that could be earned from the property. The rate is generally 19% for EU and EEA citizens (including Poles) and 24% for non-EU/EEA individuals.

• Calculation – Taxable income is calculated as a percentage of the cadastral value.

• Annual Declaration – The IRNR declaration must be submitted annually by December 31 for the previous year.

  
  

If you’re unsure about your tax residency in Spain, check out this article. For assistance with non-resident tax reporting, contact us.

Income Tax on Rental Income

If you rent out your property in Spain, you are required to report the rental income and pay income tax on the earnings.

• EU/EEA Residents – You pay 19% tax on net rental income, i.e., the amount earned from rent after deducting costs (e.g., maintenance fees, repairs, insurance).

• Non-EU/EEA Residents – They pay 24% tax on gross rental income without deductions for expenses.

• Tax Declarations – Rental tax returns can be filed quarterly or annually, depending on the case.

• 
  

Capital Gains Tax (Plusvalía)

When selling a property in Spain, you must also consider the Capital Gains Tax (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana - Plusvalía). This tax is calculated based on the increase in property value at the time of sale.

• Plusvalía – This is a local tax, calculated on the increase in land value and the time you have owned the property.

• Capital Gains Tax Rate – Additionally, capital gains from the sale are subject to a 19% income tax for EU and EEA citizens.

• Withholding Requirement for Non-Residents – If a non-resident sells property in Spain, the buyer is required to withhold 3% of the sale price and pay it to the Spanish tax authorities as an advance on the capital gains tax. Cooperation with the buyer is essential to ensure correct tax calculations and declarations, and a tax specialist should oversee the process for minimal complications.

  
  

Other Fees and Costs Related to Property in Spain

Owning property in Spain also involves various administrative fees and maintenance costs, such as:

• Utility fees (electricity, water, gas).

• Common area maintenance costs (if the property is part of a residential community).

• Property insurance.

• Property management fees (e.g., for rental or maintenance services).

  
  

Summary

Foreigners owning property in Spain must comply with both Spanish and their country's tax regulations. Property owners are required to pay property taxes, taxes on potential or actual rental income, and capital gains tax upon selling the property. Additionally, usually they must report their income in their country, although sometimes the tax treaty prevents double taxation. It is essential to regularly file tax declarations and stay updated on regulation changes to avoid fines and delays in settlements.

If you need help with your property tax filings in Spain, contact us – we’ll help you submit the necessary declarations smoothly and in compliance with regulations.