Taxes

Non resident taxes

What Taxes Apply if I Own Property in Spain but Don’t Reside Here Full-Time?

If you own property in Spain but do not live here full-time, you are considered a non-resident for tax purposes. As a non-resident, you must pay the Non-Resident Income Tax (IRNR). This tax applies whether or not you rent out your property.

What if I Don’t Rent Out My Property?

Even if you do not rent out your property, you are still required to pay tax based on the property’s “imputed income.” This imputed income is calculated as a percentage of the property’s cadastral value—a value set by local authorities that is usually lower than the market value. The tax rates are as follows:

• 1.1% of the cadastral value if it has been updated within the last ten years.
• 2% of the cadastral value if it has not been updated in the last ten years.

The tax rate on this imputed income is 24% for non-residents.

What If I Rent Out My Property?

The tax treatment of rental income varies depending on whether you are a resident of an EU or EEA country or a non-EU country:

• EU Residents: If you are a resident of an EU or EEA country, you are taxed at a flat rate of 19% on your net rental income. You can deduct expenses related to the property, such as maintenance, repairs, mortgage interest, and property management fees. This means you only pay tax on your income after these deductions, potentially lowering your tax liability.
• Non-EU Residents: If you are a resident of a non-EU country, you are taxed at a flat rate of 24% on your gross rental income, with no deductions allowed for expenses. This results in a higher tax burden compared to EU residents.

Example for Non-EU Rentals

Imagine you own a property in Spain that generates €10,000 per year in rental income.

• As a Non-EU Resident: You cannot deduct any expenses related to the property. Therefore, the full €10,000 is subject to the 24% tax rate, resulting in a tax liability of €2,400.
• As an EU Resident: If your expenses amount to €4,000, you can deduct these from your rental income. This leaves you with €6,000 of taxable income. At the 19% tax rate, your tax liability would be €1,140.

How Can Salvador Tax & Legal Assist Me?

Understanding and managing your non-resident tax obligations can be complex. Salvador Tax & Legal is here to help with accurate tax calculations, deductions, and compliance. Contact us for personalized assistance and ensure that your tax matters are handled efficiently and effectively

Resident taxes

What Taxes Do I Need to Pay as a Resident in Spain?

As a resident of Spain, you are required to pay taxes on your worldwide income. The primary tax you’ll encounter is the Impuesto sobre la Renta de las Personas Físicas (IRPF), or Personal Income Tax. This tax is progressive, meaning your rate increases with your income.

How Does the IRPF Work?

The IRPF applies to various types of income:

• Employment Income: If you earn a salary or wages in Spain, this income is taxed under the IRPF. The tax rate starts at around 19% for lower income levels and can reach up to 47% for higher incomes, depending on the amount you earn and the region where you reside.
• Pension Income: Pensions received, whether from work or other sources, are also taxed under the IRPF. Although the rates are similar to those for employment income, specific deductions may apply based on your age or the type of pension.
• Rental Income: If you rent out property in Spain, you need to declare this income on your tax return. As a resident, you can deduct related expenses like maintenance, repairs, and mortgage interest. The tax rate on net rental income is 19% for the first €6,000 and 21% for amounts exceeding €6,000.
• Investment Income: Income from investments, including dividends, interest, and capital gains, is subject to IRPF. The tax rates are 19% for the first €6,000, 21% for amounts between €6,000 and €50,000, and 26% for amounts over €50,000.

What Deductions and Credits Can I Claim?

As a resident, you are entitled to various deductions and tax credits that can reduce your overall tax liability:

• Mortgage Interest: If you are paying a mortgage on your primary residence, you may be able to deduct a portion of the interest paid from your taxable income.
• Pension Contributions: Contributions to Spanish pension plans are deductible up to certain limits, reducing your taxable income.
• Family and Dependent Deductions: Tax credits are available for families with children or dependents, which can further reduce your tax bill.
• Donations: Charitable contributions to recognized organizations may also be deductible.

How Do I File My Tax Return?

Tax returns are filed annually, typically between April and June for the previous fiscal year. At Salvador Tax & Legal, we handle the entire filing process for you, ensuring that your return is accurate and submitted on time.

The 720 Form: Reporting Foreign Assets

What is the 720 Form?

As a fiscal resident in Spain, you are required to report any significant assets you hold outside of Spain using the Modelo 720 form. This form is essential for transparency and helps the Spanish tax authorities track international assets to prevent tax evasion.

Who Needs to File the 720 Form?

You must file the 720 form if you are a Spanish tax resident and you own foreign assets that exceed €50,000 in any of the following categories:

• Bank Accounts: This includes savings, checking accounts, and deposits held in banks outside of Spain. If the total value of these accounts is more than €50,000 at any point during the year, you need to report them.
• Securities and Investments: This encompasses stocks, bonds, shares in investment funds, and other financial assets held abroad. You must report these if their total value exceeds €50,000.
• Real Estate: If you own property outside of Spain valued at more than €50,000, it must be declared. This includes both income-generating and personal-use properties.

When and How Do I File the 720 Form?

The 720 form must be submitted annually between January 1st and March 31st, covering the previous calendar year. For instance, for assets held in 2023, the form should be filed by March 31st, 2024. The submission is done online through the Spanish tax authority’s website, and it requires detailed information about each asset, including account numbers, asset descriptions, and their values.

What Happens if I Don’t File or Make Mistakes?

Failing to file the 720 form or providing incorrect information can lead to significant penalties. The fines can be up to €5,000 for each piece of missing or incorrect data, with a minimum total fine of €10,000. Additionally, unreported assets may be treated as unexplained income, which can result in further tax liabilities and penalties.

Inheritance Tax

What is Inheritance Tax in Spain?

Inheritance Tax, or Impuesto sobre Sucesiones y Donaciones (ISD), is a tax you need to pay when you inherit assets or receive a gift in Spain. The tax applies to both residents and non-residents, but the rates and allowances can differ based on your residency status and relationship to the deceased or donor.

Who Pays Inheritance Tax?

• Residents: If you are a resident of Spain, you pay Inheritance Tax on all worldwide assets received, whether from a Spanish or foreign source.
• Non-Residents: If you are a non-resident, you only pay Inheritance Tax on assets located in Spain.

How is Inheritance Tax Calculated?

The amount of tax you owe depends on several factors:

• Value of the Inherited Assets: The tax is calculated based on the net value of the assets you inherit. This includes real estate, bank accounts, investments, and other property.
• Tax Rates: The tax rates are progressive and vary depending on the total value of the inheritance. The rates can range from 7.65% to 34%, with higher rates applying to larger estates.
• Deductions and Allowances: Spain offers various deductions and allowances that can reduce the taxable amount. These can include:
  • Family Allowances: Higher allowances are available for close relatives, such as spouses and children.
  • Regional Variations: Different regions in Spain have their own rules and allowances, which can significantly affect the amount of tax owed. Some regions offer reductions or exemptions for certain types of inheritances or gifts

Local Taxes: IBI, Rubbish, and Road Tax

What is IBI?

Impuesto sobre Bienes Inmuebles (IBI) is an annual property tax that property owners in Spain must pay. It is similar to a local property tax and is based on the cadastral value of your property, which is determined by local authorities.

How is IBI Calculated?

The amount you pay for IBI depends on:

• Cadastral Value: This is a value assigned to your property by the local authorities. It is usually lower than the market value.
• Tax Rate: The rate varies depending on the municipality where your property is located. It generally ranges between 0.4% and 1.1% of the cadastral value.

When and How Do I Pay IBI?

IBI is typically paid annually. Each municipality sends out a tax bill, and payment deadlines can vary. You can usually pay the tax at your local town hall, through their website, or at designated banks.

What is Rubbish Tax?

Rubbish Tax is a local tax that covers the cost of waste collection and disposal. It is also known as the Impuesto de Recogida de Basuras. This tax is usually included in your local council tax bill and varies by municipality.

How is Rubbish Tax Calculated?

The amount you pay depends on:

• Property Size: Larger properties often incur higher rubbish tax rates.
• Type of Property: Residential and commercial properties might have different rates.

When and How Do I Pay Rubbish Tax?

Rubbish tax is usually billed annually along with your IBI tax. Payment methods and deadlines are set by the local municipality. You can typically pay it through the local town hall, their website, or at specific banks.

What is Road Tax?

Road Tax, known as Impuesto sobre Vehículos de Tracción Mecánica (IVTM), is an annual tax for vehicle owners in Spain. It applies to cars, motorcycles, and other motor vehicles.

How is Road Tax Calculated?

The amount of road tax depends on:

• Vehicle Type: Different rates apply to different types of vehicles, such as cars, motorcycles, and commercial vehicles.
• Engine Size and CO2 Emissions: Larger engines and higher CO2 emissions can result in higher tax rates.

When and How Do I Pay Road Tax?

Road tax is paid annually. Each year, the local town hall will send out a tax bill. Payment deadlines and methods vary by municipality, but you can typically pay through the town hall, online, or at authorized banks.

How Can Salvador Tax & Legal Help?

Salvador Tax & Legal simplifies your local tax obligations, including IBI, rubbish tax, and road tax. Contact us for expert assistance and ensure all your property-related taxes are handled efficiently