Tax Planning

The Spanish tax system operates by self-assessment. The most important taxes in Spain are as follows:

• Personal Income Tax
• Wealth Tax
• Corporate Income Tax
• Inheritance and Gift Tax

• Value Added Tax (IVA): This tax is applicable when buying from a promoter, developer or habitual trader. The rates are; 16%, 7% and 4%. The VAT of 16% is applicable to most sales of goods and services, and specifically when purchasing plots of land or garage spaces, VAT of 7% is applied to sales of new, private houses.
• Transfer Tax (ITP) is applied at 7%
• Stamp Duty Tax (AJD) at 1%

Both residents and non-residents with property in Spain are under an obligation to file tax returns in Spain. For tax purposes, persons become officially resident in Spain if they live more than 183 days in the calendar year on Spanish territory, or if the principal centre or base of his economic interests are in Spain. A presumption of residence arises if an individual´s family lives in Spain.

Residents are taxed on world-wide income and non-residents are taxed on their gross Spanish source income and on capital gains arising for assets located in Spain. However, non-residents may also be taxed on deemed income in certain cases.

Appointing a Representative

Except in cases of residents in countries or territories where an effective exchange of tax information does not exist, there is no obligation to appoint an agent to act on your behalf when dealing with the tax authorities. Nevertheless, should you choose to do so, you may appoint whoever you wish. This appointment should be communicated to the Branch or Administration of the Tax Agency corresponding to the location of the property.

Tax Identification Number (Numero de Identificación Fiscal - NIF)

In Spain everybody is assigned a Tax Identification Number, which must appear on all tax returns and in all communications with the tax authorities. In general, for people with Spanish nationality, the NIF is the number of their National Identity Card (DNI) and, in the case of foreign nationals, the NIF is the Foreign Nationals' Identification Number (NIE). This identification is processed by the Police General Directorate. However, those foreign citizens who do not have a NIE, either temporarily or permanently, since they are not required to have one, should request a NIF be assigned to them by the tax authorities in order to complete tax operations.

Non-Resident Income Tax

Non-residents in Spain are required to declare income earned in Spain at a general rate of 24% and 19%-21% on Capital Gains of assets located in Spain.

A non-resident who has a property in Spain may have the following circumstances:

If the property is used by the owner or not rented, then the law establishes that there is a presumed yield of 1.1% or 2% of the catastral value (depending if the catastral value has not been updated from January 1994). If the property does not have a catastral value yet, then a 1.1% is applicable to 50% of the acquisition value of the house, over which 24% is payable on an annual basis. The filing period is the whole calendar year (1st January till 31st of December) following the accrual date.

If the property has been rented for any period, or if ownership has not been the whole year, only the proportional part of the above amount is declared.

If the property is rented then 24% is applicable on the income, deducting expenditures directly related to income for renting. The period for filing the tax return is either a date designated by the lessor or the date when the rent is collected.

Several different incomes earned by the same taxpayer may be grouped together so long as the incomes:

• correspond to the same income type code;
• come from the same payer;
• the same tax rate is applicable to them;
• if the incomes derive from an asset or entitlement, that they come from the same asset or entitlement.

The grouping period will be quarterly in the case of self-assessment, with taxes owing (1st – 20th of the months April, July, October and January) or annual in the case of self-assessment resulting zero (1st – 20th January) or refunds due (as of 1st February of the year following the accrual of the income declared).

When the property is disposed of in the future, the non-resident is liable to pay 19–21% as “Capital Gains Tax”. The taxable gain is reduced by a percentage that varies depending on the period that the asset is held ( this reduction is only applicable for properties purchased before 31st December 1994). The period for filing the tax return is within four months from the completion date. Furthermore, when a non-resident disposes of Spanish real estate, 3% must be withheld by the purchaser from the sales price and the purchaser pays this amount to the tax authorities. This withheld tax is on account of the final tax liability (Capital Gains) of the seller from the sale.

Refund of excess withholdings In the event of capital gains loss, or in the event of a withholding greater than the amount that should have been deposited, there is a right to a refund of the excess amount retained. The refund procedure is initiated by filing the tax return form. The refund is paid by bank transfer to the account indicated on the tax return. The holder of the account will be the non-resident taxpayer or their representative; in the event of the person being a representative, they must be expressly granted powers to receive the refund in the documentation showing their status as representatives. The “for non-resident transferors” copy of form 211 used to pay the withheld tax should be attached to the tax return.

The Administration may make a provisional settlement within a period of six months from the end of the period established for filing the tax return. When the tax return is filed outside the period, the six months will be calculated from the filing date. If the provisional settlement is not made in the said time period, the Tax Administration will proceed to refund the excess on the amount self-assessed, without prejudice to any later settlements that may be relevant. If the refund has not been ordered once six months have elapsed and for reasons not attributable to the taxpayer, the amount pending refund shall accrue late payment interest.

Wealth Tax

This tax has been eliminated since the 2008 fiscal year.

Property Tax

IBI is a local tax levied annually on the ownership of rural or urban real estate properties. The tax is based on assessed property values known as the catastral value (valor catastral).

A bill is sent out for payment of this tax every year for every property on the tax register. Usually, Councils accept payment of the tax by direct debit from a bank account, which facilitates payment within the time period set and thus avoids any possible surcharges.

The payment deadline depends on the Council, although it is normally around the months of September, October or November each year.

Plusvalia Municipal is a local tax based on the increase in the value of urban land whenever land is transferred. According to the law the seller must pay this tax but it can be agreed by the parties involved in the transaction that the purchaser is responsible for paying this tax.