Non-resident tax returns
After the wealth tax was amended after the 2007 tax year, most non-resident owners of property in Spain are under the misconception that they do not need to submit their annual tax forms anymore!
It would be great but it is not the case. However as from 1st Jan 2008, the law changed and the taxes payable are less than people paid in previous years.
Up until the end of 2007 non-residents with property in Spain were liable to pay a “wealth tax” (Patrimonio) which was calculated on the value of their assets in Spain.
The law, which ironically was published in the Spanish Government Official Gazette (BOE) on Christmas Day 2008, applies to tax years starting 1st January 2008 onwards which, under the previous scheme would have been payable in arrears in 2009. The mechanics of the new law mean that the obligation to submit a wealth tax return (Modelo 214) is terminated by applying a 100 per cent deduction to the taxable base.
By reducing the tax to zero but not abolishing it, is the Spanish Government retaining the option to re-introduce the tax in the future? That may well be the case!
So to reiterate, the Patrimony “wealth tax” has to all intents and purposes been done away with. But that does not mean that there are no annual property taxes for Non-Residents to pay. You may remember noticing on previous year’s Modelo 214 forms that there were 2 separate calculations: The Patrimony amount and the “Declaración de la Renta” amount.
The “Declaración de la Renta” or “Non Resident’s annual tax return” must still be made and paid.
Taxation, and particularly dual taxation issues are an extremely complicated subject and it is also advisable to obtain professional help from an expert in calculating exactly how much you should be paying.
However, in general terms the earnings from rented property or sub-let property are calculated on 24 per cent of the gross income received from the tenant, excluding IGIC.
If the property is only rented out for part of the year, the earnings are calculated as above for the rented period. For the part of the year that it lies empty, the calculation is made as for “Deemed Rental Income”: see below.
See if your Catastral Value has been updated since 1994 if the answer is yes the coefficient to use is 1.1 if the answer is no then use 2.Multiply the Catastral Value by 1.1 or 2 (as above) per cent Take this value and multiply by 24 per cent – thats how much deemed rental income tax you pay. Sound complicated ?? Well, it is and that´s precisely why someone else has to present these forms and calculations for you.
Example: Catastral Value 150,000 revised since 1994 = yesx1.1 % = 1650x 24% = 396 euros tax payable
If your property is left empty, even though you do not let out your holiday home for gain, Spanish law assumes you have what is called a “Deemed Rental Income” which is subject to non-resident Income Tax.
The “Deemed Rental Income”, which used to be included on the old Modelo 214 form, is now declared on a Modelo 210 form.
The amount you pay is calculated using the “Valor Catastral” (Rateable Value) of your property in Spain. This can be easily ascertained by looking at the receipt for your “Impuestos Sobre Bienes Inmuebles” or IBI, (often referred to by English speakers as “Rates”) – which is paid to your “Ayuntamiento” annually.
This receipt will also tell you whether the rateable value of your property has been revised since 1st January 1994. This is critical because the percentage used to calculate “Deemed Rental Income” is higher if your rateable value has not been revised since that date. Tax payable on the “Deemed Rental Income” is 24 per cent. The deadline for the submission of form Modelo 210 is the June 30th 2009 for income deemed or actually derived in 2008.
All of the above applies to Non-residents with no permanent residence but who own a holiday home in Spain
So as you can see, it is important that non-resident homeowners are aware of their legal obligation to submit an annual income tax declaration in Spain. What holds true for all, is that no non-resident home owner, whatever their circumstances, are exempt from making a non-residents Income Tax return.
You probably know someone who has owned property for years and never made a declaration? However, if they are caught, and computerised records are making that ever more likely, they are liable to pay the last four year’s tax and probably a hefty fine. If this is the case for you and particularly, if you may be thinking of selling the property at some time in the future, you can submit your missing tax returns and pay the fine applicable on late submissions. In any case, when that property is eventually sold or passed on as part of an inheritance, the Spanish Tax Office can and will check their records, which will show that the property is owned by a non-resident and that no tax declarations have been received. The taxes will then need to be paid, including any fines imposed, before the property can be legally transferred.
If you need help with any of the above, please contact us for more information.