Understanding everything about taxes in Spain

As a future expatriate, you are considering a real estate purchase in Spain . Your objective may be to acquire a house (or an apartment), to spend your retirement there , to find a pleasant living environment there or to make profitable investments. Whatever the nature of your project, know that investing in Spain makes you accountable to the tax authorities. This information may already lead you to ask yourself this question: "what are the different types of taxes in Spain and how to deal with them to succeed in my real estate investment?" "

It is logical: this question worries more than one real estate buyer in Spain. Fortunately, our experts have long conducted their investigation into the Spanish tax system. They give you the results of this survey in this mini tax guide for retirees, workers and real estate investors.

Spanish taxation versus French taxation: what differences?

The major difference between the two tax systems is the withholding tax at source - as mentioned below. In addition, unlike in France, there are no housing taxes in Spain.

The different types of tax regimes in Spain

Taxes are (along with royalties and special contributions), one of the three types of taxation in Spain. Without being exhaustive, these taxes can be listed as follows:

● Income tax (IRPF and IRNR);       

● Property transfer tax (ITP);       

● Property tax or IBI (property tax), etc.       

Income taxes: to whom are they applicable

Spanish tax law distinguishes a resident from a non-resident Spanish. Depending on whether you have one or the other status, you are then taxable differently to income tax. This tax, deducted at source from salary income, must be declared and paid according to a well established tax scale.

However and as far as this can be done, Spanish tax law arranges not to subject to double taxation certain categories of French expatriates (under Franco-Spanish law and in the name of the tax residence). On this subject, you will find more information on the website of the French Embassy in Spain (https://es.ambafrance.org/ Vous-etes-resident-fiscal-en-Espagne).

On the other hand, income tax is not levied at source with regard to the self-employed. It must be paid quarterly to the municipality by the latter - in the form of a tax advance of 20% of their net income.

What type of income tax for a Spanish resident?

Above all, remember that being recognized as a Spanish resident is subject to certain irrevocable conditions, including, among other things, living in Spain for at least 183 days and making it the fief of your economic interests or the center of your professional activities. Thus, all residents must in principle have tax residence in Spain. It is therefore subject to personal income tax (or "Impuesto sobre la Renta de las Personas Físicas" - IRPF - in Spanish).

The lowest rate charged on income tax is 19%. The highest rate is 45%. Are exempt from the IRPF, inter alia, compensation received for breach of employment contract, allowances, benefits and social assistance…

What type of income tax for a non-resident of Spain?

Although not having a tax residence, a non-Spanish resident can have income by owning real estate - intended for personal use, rental or sale. In this case, it is subject, among other things, to income tax for non-residents (or "Impuesto sobre la Renta de no Residentes" - IRNR - in Spanish).

The rate of this annual tax varies according to the use we make of our property. A retired person or a non-resident civil servant enjoying their own accommodation is subject to a tax rate of between 1.1% and 2% of the cadastral value of this accommodation. An economic operator opting for rental investment is subject to taxation of 19% of the income he derives from it.

The ITP: a tax about which little is said?

The tax on heritage transmission (or "Impuesto sobre Transmisiones Patrimoniales" - ITP - in Spanish) is a generally overlooked tax. However, any property purchase in Spain (old property) is subject to the ITP. This “tax on the transfer of title deeds” is payable by the buyer no later than 30 days from the date of purchase or the signing of the sales contract. Each autonomous community, falling within its jurisdiction, sets its own rate.

In Catalonia, for example, it is around 10% (for a property purchase of less than € 1,000,000). It is around 11% (for a property purchase of an amount greater than € 1,000,000). However, the rate of ITP can be reduced up to 5% in some cases.

Taxes in Spain: what about the IBI in practice?

The property tax - or property tax (IBI, "Impuesto sobre Bienes Inmuebles" in Spanish) - is the first compulsory tax that you must face as a property owner in Spain. This annual tax is applicable to residents and non-Spanish residents. It is payable to the municipality housing your property. It varies from one autonomous community to another.

The method of calculating property tax is based on the cadastral value of the property owned. From this calculation, a taxable sum corresponding to a coefficient ranging from 0.4% to 1.3% of said value emerges.

As the list of taxes is not exhaustive here, there are other (indirect) taxes linked to property rights or to the purchase of property in Spain: VAT, wealth tax, act taxes documented legal, etc.

So, as much as you are interested in knowing more about taxes and how to make a success of your real estate investment in Spain, our real estate agency will do the professional duty to help you. A simple contact, and the process is started!