DEDUCTIBLE EXPENSES
For non resident owners the law limits the expenses which may be deducted from the taxable base in those cases where the property is not let to the Local tax charged each year on the Real Estate (El Impuesto Sobre Bienes Inmuebles or IBI for short)
THE PROPERTY INCOME TAX RATE
The taxable base arrived at is then multiplied by the tax rate of 25% to give the tax due. The tax year runs from
1 st January to 31 st December and is payable in the month of January in the following year. The tax is calculated on the same base as it is for residents and is calculated in proportion to that part of the year for which the non resident owner has held title to the property.
PROPERT OWNED BY A NON RESIDENT COMPANY
Where the title owner of the property is a non-resident company the property does not produce any taxable rent but since 1-1-1992 the non-resident company will have the property taxed under the Special tax on real property owned by non-resident companies. As from 1996, the rate applicable is 3% and is charged on the Catastral Value of the property Nevertheless, where shareholders use the property, the non resident company will be imputed a market rent earned in respect of periods of use of the property by the non resident company shareholders. The non-resident company will then be taxed at the rate of 25% on the deemed income earned.
PROPERTY WEALTH TAX
The non-resident owner of real estate in Spain will be taxed on the value of the real estate on account of Wealth Tax. The same is applicable to residents save that residents have an exemption of € 100.000, which the non-resident does not.
IN GENERAL
The taxable base will be whichever of the following three is the highest:
a. The Catastral Value
b. The value imposed by the Tax Authorities
C. The real or market value, the purchases price.
(i.e. that which figures on the title deeds)
PROPERTY UNDER CONSTRUCTION
Where property is under construction the taxable base is the value of the amounts invested in the construction to the 31 st December of the tax year plus the value of the plot of land in accordance with the rules outlined above.
PROPERTY BOUGHT THROUGH TIME SHARE SCHEMES
The taxable base
of property bought through time-share will be calculated in
accordance with the rules above where legal title to the property is
held in the name of the owner. Where the owner holds a share
certificate or other form of equitable title, the taxable base is
the price paid for the time share or share certificate.
PROPERTY LET WITH A CONTRACT, WHICH WAS CELEBRATED PRIOR TO 9TH MAY 1985
In this case and provided the contract subsists at the 31 st December of the tax year, to calculate the taxable base the owner must take the lower of the following two:
a. The taxable base arrived at through the application of the general rules outlined above
b. The result obtained from capitalizing the rent by 4%
EXAMPLE:
A non-resident buys a villa in January 1985 and in the same month rents the property out to Mr. Peacock who in 1996 pays € 600 per month. The Catastral value in 1996 was € 300.000. The owner must value his property in the amount of € 180.000. (€ 300.000 x 12/0.04 = € 180.000).
The tax rate in respect of Wealth Tax.
The base is then taxed on a sliding scale as follows:
TAXABLE BASE:
up to a 160.951 ... 0,20%
from a160.951 to a321.902......... 0,30%
from a321.902 to a643.804..........0,50%
from a643.804 to al.287.608... ….0,90%
from al.287.608 to a2.575.217 ... .1,30%
from a2.575.217 to a5.150.433 ... 1,70%
from a5.150.433 to n10.300.867 .. 2,10%
from a10.300.867 ………up-wards 2,50%
This article serves only as a guideline to some of the tax laws affecting the ownership of real estate by non-residents in Spain. Spanish laws are complex and the above is not exhaustive. We recommend that you consult fiscal advisor or a lawyer when it comes to taxes, conveyancing and indeed any other areas of Spanish law. |