Taxes On Foreigners In Spain

    The Taxes

A foreigner buying a property or intending to become resident in Spain should inform himself on the taxes. There are taxes on the purchase, yearly taxes on properties, income taxes, wealth taxes, vehicle taxes, as well as taxes on selling and inheriting. We shall just briefly mention the taxes you may have to pay, as a property owner or resident.


    Taxes On The Purchase Of Property

Buying From A Promoter

If you buy a dwelling from a promoter, you pay IVA (VAT).

Buying From A Private Person

If you buy a property from a private person, you pay ITP (Impuesto de Transmisiónes Patrimoniales - transfer tax on private assets).

Rate Of IVA (VAT)

The IVA is 7% for buying a dwelling, but can be 16% on buying a plot, a garage or a swimming pool, separate from the purchase of the dwelling.

Rate Of ITP

The ITP is 6 or 7%.

Value On Which Tax Is Calculated

The tax is always calculated on the value declared in the public title deed (escritura publica).

Notary Fees And Registration Costs

In addition to the tax, you must also pay notary fees and registration costs (around 2%). Normally, it is the buyer both paying the tax and costs.


    Taxes On Construction

Municipal Tax

You may have to pay the municipal tax on construction, if you build a house, or make improvements or extensions to it, or even work done in the garden.

Rate Of Tax

This tax is basically 2% on the real costs of the work, but increases in municipalities with a greater number of inhabitants.

IVA (VAT)

Moreover, you have to pay IVA (VAT) on the construction, but only the reduced type of 7% if it is for constructing or reforming your dwelling, the same for building garages and/or swimming pools, if they are built at the same time as the dwelling.


    "Plus Valía"

A Tax On The Increase In The Value Of The Land

This is a municipal tax on the increase in the value of residential land (not on the building), from one 'escritura' (title deed) to the next. The basis for the calculation of the tax is the fiscal value (valor catastral) of the land at the time of the transfer.

Calculation Of The Tax

A set of percentages are applied on this value for the number of years that have passed since the previous transfer, up to 20 years, in relation to the number of inhabitants of the municipality.

Who Pays

This is a tax to be paid by the vendor, but it can be agreed between vendor and buyer, that the buyer pay.

Finding Out What The Tax Will Be

One can find what the tax will be by going to the town hall with the 'escritura'. They can calculate the figure in a few minutes.


    IBI - The Yearly Rates

The Local Property Tax

IBI (Impuesto de Bienes Inmuebles) is the name of the local property tax. It is based on the "valor catastral" (fiscal value), determined by the "catastro" (cadaster office in the provincial capitals). The valor catastral is revised every 10 years, and adjusted every year in relation to inflation. With the strong increase in property prices over the last years, the fiscal values have started to rise strongly, as have the tax.

Percentage Charge

This yearly tax is 0,4% on residential property (fincas urbanas) and 0,3% on agricultural properties (fincas rusticas). However, municipalities may increase this percentage in accordance with the number of inhabitants and the services given.

Collection Agencies

Often the IBI (and sometimes other local taxes or charges) are being collected by provincial tax collection agencies. For instance, in the province of Alicante, the agency SUMA collects most of the local taxes for most of the municipalities.

A Standing Order Is Recommended

It is recommendable to have a standing order for the IBI payment with your Spanish bank. Special forms for doing so can be found in the banks, as well as in the town hall or tax collection office.


    Tax On Vehicles

Customs And IVA (VAT)

If you bring your car registered on normal plates in one of the countries belonging to the European Union or the European Economical Space to Spain, and register it on Spanish registration plates, there are no customs to pay and also no IVA, only the special registration (see Short-Information on Cars). If you import your car registered outside the European custom area, you must also pay customs and IVA on the present value of the car.

Local Vehicle Tax

When you have a car registered on Spanish licence plates, you must pay local vehicle tax, based on the volume of the motor. For a private car, the basic tax ranges from 13 Euro per year up to 90 Euro, increased by certain percentages in municipalities with a greater number of inhabitants.

Bill Presented By The Municipality (Or Tax Collection Agent)

This tax is also a local one and the bill will be presented at a certain time of year by the municipality or the tax collecting agency. Again, it pays to instruct your bank to pay it, and inform the tax authorities.


    Business tax

IAE - Impuesto de Actividades Economicas

If you go into business in Spain there is a local tax called IAE (Impuesto de Actividades Economicas), in addition to charges and special rules for IVA (VAT) and Income Tax. We shall not deal with the situation of businesses in this Short-Information. The Government has decided to abolish this tax for a great number of small businesses.


    Income Tax (Renta)

Foreigner Resident In Spain

Any foreigner resident in Spain must make an Income Tax return for personal obligations and on his world wide income. If you reside more than 6 months per year in Spain, you are considered a tax resident even if you have not taken a residence permit. However, certain types of income (like public pensions for complete and permanent invalidity) are exempt from Income Tax in Spain, and there are tax agreements between a number of countries and Spain, defining in which country to pay which taxes.

Tax Rates

The tax rates at present (fiscal year 2005) goes from 15 to 45%. Income under 7.813 Euro is exempt and under certain conditions, if you have an income of less than 21.000 Euro, you are also exempt from paying income taxes.

Non-Resident Property Owner - Income Tax On Letting Value

A non-resident property owner must pay income tax on the letting value of his dwelling, even if he does not rent it out. The letting value is calculated as 2% of the fiscal value (valor catastral), and a non-resident pays 25% tax on this every year.

No Bill Will Be Sent For Income Taxes

You will not yet get a bill for the income taxes in Spain, but must present the declaration yourself, or use a tax representative.

Non-Resident - Tax Representative

For the non-resident, tax representative is obligatory, if he does not accept to have communications directed to his property in Spain.

Period For Presenting The Tax Declaration

The period for presenting the declaration for the preceding tax year (same as calendar year) is May-June each year for fiscal residents, and during the year for non-residents.


    Wealth Tax (Patrimonio)

A Tax On Your Assets

The "patrimonio" is a tax on your assets (mainly property, bank account, car, bonds, stocks and shares). The fiscal residents pay wealth taxes on their world wide assets, but are exempt from including their dwelling in the taxform, if it has a value of less than 150.000 Euro.

Non-Residents

The non-residents pay wealth taxes only on assets in Spain.

The Rates

The rates are 0,20% for assets up to approximately 167.129 Euros, increasing with higher values.

Returns

The return for the wealth tax is done together with the one for the income tax.


    Capital Gains Tax

Property

Capital gains tax is in reality part of your income tax. It refers to increases in value of your assets. For property it is calculated as the difference between the value declared in your purchasing escritura and the value to be declared in the sales escritura with certain reductions for cost of registration and sales commission.

Reductions

Moreover, the capital gains are reduced in accordance with the number of years you have had the property in an escritura. This is the rule for properties bought before the end of 1996. For the years from new legislation in 1996, an inflation correction figure on the investment must be used.

Properties Registered Before End Of 1986

There are no capital gains tax on properties registered on an unchanged title deed from before the end of 1986.

Resident Selling Main Residency To Buy Another Home

A resident selling his main residency to buy another home, can write off the costs of the purchase of the new home from the capital gains in accordance with a special calculation. Never make the title deed to the new home before you have made the title deed for the sale of the previous one!

Non-Resident Vendors - Retention By Buyer

Non-resident vendors must permit that the buyer makes a retention of 5% in the registered sales price, and pay this to the tax authorities as a guarantee for tax payments. A retention need not be made if the vendor has bought the property in an "escritura" previous to 31 December 1986.

Resident Need Not Make A Retention

A resident need not make a retention and includes the capital gains (or losses) in his income tax return.

For more details, see Capital Gains Tax.


    Other Taxes

IVA (VAT)

You are of course paying IVA (VAT) on almost all goods and services in Spain. The IVA is 16%, but has a reduced rate of 7% and even 4% on some items.

Property In An Old And Maybe Illegal Urbanisation

If you have bought a property in an old and maybe illegal urbanisation, the town hall may impose "contribuciones especiales" (special contributions) to upgrade the infrastructure in the area and make the urbanisation legal. Of the real costs of the works, at least 10% must be paid by the municipality, the rest by present owners, if the original promoter has disappeared.

Inheritance Taxes

When someone holding assets in Spain dies, his heirs must pay Inheritance Taxes. There are certain deductions for inheritance between close family. The situation is different for persons from various countries, but as a general rule it pays to make a will in Spain. For more details study the Short-Information on Inheritance.