Spanish Property Tax – Warning, the tax office is looking for you!

Are you a non-resident of Spain? Do you have a property here? If so, then each year you need to pay the revised property tax that has recently been strengthened due to Spain’s economic difficulties.
If you haven’t paid your property or income taxes, you may be liable for a considerable fine.

Here, legal tax expert, Antonio Diaz of De Cotta Law explains the tax and the law.

In accordance to Spanish law on taxes for non-residents, all non-residents that have a property in Spain have to pay income tax on the property known as “La Renta”.

This tax applies to all property owned by non residents across all Spanish territories. One is considered a non-resident if they spends less than 183 days per year in Spain. However if you are not registered as a resident and declare your income tax here (which is obligatory if you live in Spain full time) then you will be considered to be a non fiscal resident and liable for this tax even if in actual fact you permanently reside in Spain.

All non-residents have to pay the Property Income Tax as follows:

a)    Income from Lettings at 24% of the gross rent received with no deductions allowable (up to end of 2011).
b)    Now, with the revision of the Tax Law 2/2011, from the 4th of March, non residents can offset many of the legitimate expenses against income; for instance, water & electricity, insurance, interest on mortgage, community and rates (IBI).
c)     Deemed income on property, when the property is used privately by the owners there is a deemed income assessed at 2% or 1.1% of the ratable value (Valor Catastral that is stated on the IBI receipt) depending on the municipality and the amount of time you have owned the property. This deemed income is taxed also at 24% and
 
The amount due to be paid must be lodged with the tax authorities before the 31st December of the year subsequent to declaration.  This tax is a personal tax, so if a property belongs to two people, each one has to present a tax declaration separately.  There is no method to set up an automatic payment of this type of income tax, as it cannot be paid by standing order as the taxpayer has the obligation to personally pay the tax by completing the necessary forms.  Once completed, they have to be presented to the bank for payment.

To comply with these regulations non resident property owners should appoint a tax representative in Spain (a lawyer or tax advisor). This legal representative will liaise with the tax authorities and will be responsible for presenting the annual tax return and arranging payment.

It is also worth noting that due to the recent emergency budget laws published by Spain’s new government, designed to address the nation’s deficit, La Renta will increase from 24% to 24.75% for 2012 and 2113; so this will affect next year’s declarations.

There is also another property tax known as Wealth Tax or ‘Patrimonio’ tax.

While in 2009 the Wealth tax was eliminated, recent economic difficulties have forced the Spanish State Government of Spain to re-establish the tax and collection is now more aggressively applied.


So, now, in 2012 owners must declare their tax obligation relating to the year 2011.

However, it is worth noting that whereas La Renta has to be paid by all non resident property owners, the obligation to pay the wealth tax will affect only owners that have properties worth more than 700,000 euro, or 1,400,000 euro in the case of a home being in the shared names of a couple. The value of housing is based on that stated as the purchase price on the deeds of sale or the assessed value shown on the IBI bill, whichever is greater.

Generally speaking the wealth tax is calculated by applying 0.20% of the purchase price up to 167.129,45 euro, as declared on the Deed of Purchase.  Over that amount, the calculation applied depends on the amount of the purchase price declared in accordance to the percentage scale of the Tax Office which is stated in the Spanish Wealth Tax Law.  The Wealth Tax covers the full tax year and not just the period of ownership.

We have evidence that the tax authorities in Spain are investigating all property owners, resident and non resident to make sure that owners are complying with relevant property and income taxes.
 
If you are a resident, then you too must be aware that income taxes and property taxes are being scrutinised and compliance is compulsory.

Many residents and non residents of Spain have already received letters from the tax authorities confirming that if payment is not duly made, the authorities may initiate a grievance procedure for the unpaid tax together with a surcharge (between 5 and 20%) plus interest for late payment.

Finally, if the taxpayer does not pay when required, owners could face seizure of their bank accounts in Spain or even the property, resulting in the auction sale of the property.
 
De Cotta Law is qualified and experienced to act as your fiscal representative in Spain notifying you annually of the requirement to pay taxes and on receipt of the necessary funds from you, the taxes will be paid and full receipts and fee notes issued.  In order to proceed, we require written confirmation that you wish us to act as your fiscal representative together with a copy of your deed of purchase, the last IBI, (local town hall rate), receipt.  If it is a newly constructed property, it is more than likely that no IBI receipts would have been issued yet.   We will also need copies of your NIE, (Fiscal), numbers.

It is also worth noting that due to the recent emergency budget laws published by Spain’s new government, designed to address the nation’s deficit, Capital Gains Tax on property sales has been increased from 19% to 21% for this year, 2012.


Antonio Diaz is Partner at De Cotta Law, a law firm offering support with all aspects of Spanish Law for English speaking clients, with offices in Mijas-Costa, Coín, Nerja and Tenerife.

De Cotta Law Head Office Spain:
Centro Comercial Valdepinos 1 y 3ª
Urb. Calypso
29649 Mijas Costa (Málaga)

Tel.: +34 952 931 781
Fax: +34 952 933 547
 
antoniodiaz@decottalaw.net

Comments

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Wow, this one is a little bit scary. It is the responsibility of the person to pay his/her tax to avoid penalty? Thank you for sharing this very helpful information. I hope many readers can read this article for them to be aware too.