Antonio Flores’ Blog

A recent report by the Association of Tax Inspectors in respect of rental income highlighted what we all knew: that very few landlords do actually declare any rental income. According to the inspectors, the biggest tax evaders are in Andalucía, where it is believed that only 26% of property owners declare this income to the Spanish Inland Revenue (of which, ostensibly, foreigners amount to…0 percent!). In total, €2,450 million of lost tax revenue.

It is not clear however how have they reached these conclusions but one thing is clear to me: I don’t know of anyone on the Costa del Sol (mostly foreigners) who has ever asked where should they pay their taxes.

The reasons, below:

1. Unwillingness to pay taxes (obvious).
2. Untraceability of the transaction as most of the deals are done in cash or are paid into non-resident bank accounts, of little interest to the Spanish Inland Revenue. Also, the sums are small and periodical so banks are not obliged to report back to the Central Bank of Spain.
3. Tenants are not obliged to withhold the tax and lodge with the Spanish Inland Revenue if the tenancy agreement is not of a commercial nature (Conversely, where a real estate agency is involved in the payments they will have to deduct the 24%).
4. Ignorance as to how to about paying the tax in the case of a non-resident.
5. In the event of willingness to pay, many non-resident owners are put off by the tax (24%), with no possibility to deduct costs (maintenance, etc.)
6. Lack of fear of the Spanish Inland Revenue.

But this blissful scenario is likely to change because the Spanish Inland Revenue is on a mission to trap tax dues with a clever and original proposal. They will force utility companies (water, electricity, gas) to supply details of consumption to identify the properties which are apparently empty but house a tenant in them.

This seems once again a futile attempt to convince owners that they need to pay taxes and judging by how it is released it looks more of a newsletter or circular carrying a declaration of intention, no more.

Antonio Flores Property, Taxes rental income in Spain, Spanish Inland Revenue, spanish property taxes, Spanish Tax Office, Spanish Taxman