Spanish Property Income Tax in 2009
Contrary to what has been divulged by some, Property Income Tax (PIT) for 2008 will not have to be paid in June but prior to the 31st of December, as has been the case in previous years. Property Wealth Tax (PWT) has now been abolished and will not have to be paid alongside PIT.
PIT will also be calculated in the same manner as before, that is, by applying 2% to ratable value (or 1.1% if it this value has been revised after 1994) and applying a 24% on the resulting amount. Form 214 is no longer used, and instead Property Income Tax will have to be filed using Modelo 210.
If the property is being let (and the income declared to the authorities!), Property Income Tax is not applicable and if it is only let for part of the year, the tax is only applicable for the part of the year that the property is vacant from tenants. In this case the income is taxed at a flat rate of 24%, without possible deductions.
The elimination of PWT by the Spanish Government was a consequence of the economical crisis and seen as a measure to boost foreign investment. The reality is that very few investors get to know that this tax ever exist prior to deciding to purchase a property and even if they had known it was still applicable it is doubtful that it would have had any influence on the decision to purchase property. In any event the elimination of PWT has been welcomed by owners.
Property owners who have bought a property through a foreign company will need to provide a certificate from the Tax Office in the country of domicile proving fiscal residency of the company and shareholders in a country with a Double Taxation Agreement (all UE countries are), in order to avoid the Special Tax on Foreign Companies, currently at 3% of the ratable value. We will provide assistance in this matter. Property owners who have bought through a Spanish company are exempt from payment of taxes for owning property.
As in previous years, from Lawyers of Spain we will be offering the Fiscal Representation Service to all our clients as from September. The service includes not only the calculation of the taxes and filing of the forms and payment of tax due but also acting a fiscal representative for the duration of the fiscal year (calendar year), notification of any communication from the Spanish Tax Office in relation to the tax and free consultations in respect of any tax matter.
Property taxes in places like Spain are being reduced so to encourage investors to move into the over 1 million empty new houses no one is buying.
Antonio; thank you for your summary of the tax situation regarding property. We have a property purchased by a company based in the UK so tax certificates should be easy to provide. Recently two of the four owners were transfered to Dubai for work how would this impact the tax liability. If the income is still received in the UK they would be taxed as if they were in the Uk so my undersatnding is that for the purposes of the Uk company they are still paying UK tax on any income.
Do you have a view on this??
Hello Peter,
If 2 of the owners are posted in Dubai but are still being paid in the UK and have not changed their residency the Inland Revenue should not have a problem issuing a certificate of residency in the UK.
This will allow you to be exempt from the 3% Special Tax.
Not totally related but how would fractional or shared ownership affect the tax position as far as Spanish residents are concerned as this may be a way forward for people looking for second holiday homes?
Shared ownership would be taxed in the same manner as regular ownership (for example, a couple buying a property is a shared ownership scenario). Fractional ownership is not any different from shared ownership according to Spanish law (called “proindiviso”) and so only if this ownership is structured through an offshore company, as seems to be the idea many REA have, the tax position will become relevant in the country where this company is based.
A different matter is how this company (offshore) is to be taxed as the Special Tax on Foreign Entities envisages a 3% tax on the rateable value, unless all shareholders are residents in a country with an exchange of information agreement with Spain.