There is a chance that you have decided to invest in real estate in Spain. You know all about the benefits, and little about the legal tax implications that come amongst. It is important to understand the facts. in Spain, you must pay taxes on the rental income you perceive from renting a property. This fact alone might lead to such questions:
- How to calculate the rental income?
- what is the effect of having a holiday renting?
- what happens when you have not rented the apartment for the whole year and the tax rates applicable depending on your Tax Residency?
Navigation of the “know how” regarding how rental income is calculated and tax, might seem complicated at first glance. Therefore, Lexidy has identified the 4 main tax implications to be considered before becoming a Landlord in Spanish Territory:
1. THE RENTAL INCOME
The rental income is the benefit you have on renting an apartment. The tax rates will be applied on this benefit but, how is this benefit calculated?
The profit, obviously, is the difference between the rental income you perceive and the expenses you have had to rent the apartment.
The rental income is the amount you have obtained from the tenant.
The deductible expenses are only the ones directly related to the renting of the apartment, such as:
- Local taxes, such as IBI (local property tax) and wastes tax
- Property management agency expenses
- Owner’s community expenses
- Mortgage interests
- Supplies such as electricity, water, gas or internet (if you are paying them on behalf of the tenant)
- Conservation expenses on the apartment
- Depreciation of the apartment
2. DIFFERENCE BETWEEN A LIVING RENTAL AND A VACATIONAL RENTAL
There is a difference in the renting of an apartment as a living rental and a holiday rental, and this difference, obviously, has a tax effect.
If you rent a property for living purposes, you expect the tenant to be for a long time, and actually live there. On the other hand, if you rent a property for holiday purposes, you already know that the rental will be of a short term, lower than 6 months, or even just a few nights, as happens with AirBnB.
Those who obtain rental income from a living rental get a 60% reduction on the rental income. If you have perceived, at the end of the year a 10.000 Euros profit on the rental of your property, you will only have to pay taxes on 4.000 Euros.
This reduction does not apply when renting an apartment for holiday purposes or through AirBnB.
3.NOT RENTING THE APARTMENT
There is the chance that you decide to have the property for yourself for a period of time or that you have not rented it yet. How does this affect your taxes?
Imputed income on real estate
In Spain you must pay taxes on having a property, even if you have not it rented.
The income you are obtained on being just a sole owner is a percentage (1,1% or a 2%) on the Cadastral Value of your property, allocated to the period of time you have not rented the apartment.
Allocation on deductible expenses
If you have not rented the apartment for the whole year, expenses on the rental income will not be completely deductible. The amount of expenses will have to be allocated accordingly to the period of time that the property has been rented.
4.THE APPLICABLE TAX RATE
The tax rate will depend whether you are a Spanish Tax Resident or Not. (you can check your tax residency status here)
If you are a Spanish Tax Resident, the applicable rate will be a progressive one that goes from 19% to 45%.
As such, you will have to file in an annual 100 Form, also known as Declaración de la Renta, during the months of April, May and June of the year after. This form will include imputed income on and rental income.
If you are a Spanish Non-Tax Resident, the applicable rate will be of 19% if you are an EU, Iceland or Norway tax Resident and of a 24% in all other tax residencies.
As a Spanish Non-Tax Resident, you will 210 Forms on rental income on a quarterly basis and an annual 210 Form on imputed income.