Antonio Flores’ Blog

With the advent of the crisis and the coffers of the Spanish Inland Revenue drying up fast, foreign property owners now seem to be the target of a renewed tax levy campaign, judging by the content of tax office letters received by a few clients. Because whereas before property owners that did had never paid Non-Residents Property Income Tax, an annual tax based on the ratable value (valor catastral), were deemed to be under the radar of the taxman, they are now being specifically pinpointed.

The letters sent by the Hacienda are not openly threatening, if that is possible at all, but a reminder that taxes have to be paid by virtue of owning a Spanish property. The written request states: “based on the information we hold, it appears that you have owned a property in Spain during the years 2008, 2009, […], and, according to our records, you have failed to submit a tax return for Non-Residents Income or Wealth Tax“.

The letter then says that this is neither a tax request nor the commencement of an investigation. However, they seem to have all the information owners were hoping would not be picked up by the taxman, not until the property was sold (time when it would have had to be disclosed, and taxes paid up, if one wants to claim the 3% Capital Gains Tax retention back successfully).

This obviously does not affect tax-abiding property owners, who file they annual returns prior to the 31st of December of the following year (2010 tax is to be paid by the end of 2011), and are expected to pay an average of between €200 to €800, depending on size of property and the municipality; with larger villas paying substantially more. Resident property owners, on the other hand, are exempt from this tax.

Wealth Tax to be reintroduced in 2012

With effect as from 2011 and during the next year, property owners will be taxed again on Property Wealth Tax, having to submit the tax returns in 2012 and 2013, respectively. Residents for tax purposes will have tax breaks on their habitual home, up to a certain value, and an allowance of €700,000, which means that most Spanish residents will effectively be exempt from it.

Finally, nonpayment of due taxes will attract penalties, surcharges and interest and ultimately, a charge on the property so, to avoid unpleasant surprises, we suggest you act promptly by talking to a qualified professional.

If you have questions, you can read this FAQ about non residents tax in Spain.

Documents

• Non resident tax letter being sent by the taxman (PDF – 238Kb)

Antonio Flores Taxes Income and Wealth Tax, Modelo 210, tax spain, Taxes in Spain, valor catastral

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.

Antonio Flores Taxes 210 form, 214 form, form 210, form 214, Income and Wealth Tax, Modelo 210, modelo 214, spanish pit, Spanish Property Income Tax

This is one of the measures implemented by the Spanish government to improve the economic situation. It also affects non-residents, to whom a special mention is made, and it will be immediately applicable (1st January 2008). This means that if you have purchased your property this year you will only have to pay Property Income Tax (PIT) next year, and if you purchased prior to 2008 this will be the last year in which you have to pay both taxes, paying only PIT next year.

On a 250,000 € property owned by two persons with a 100,000 € mortgage the measure will save them 300 € approximately, and on a 500,000 € property with no mortgage owned by one person the saving is of 2,000 €. I tend to subscribe to the notion that ‘every little bit counts’ and so we can only welcome the measure. Properties owned by Spanish or foreign companies are unaffected by the measure.

As December is quickly approaching, we recommend that you get in touch with your Spanish solicitors as soon as possible in order for them to start arranging the payment.

If you don’t have a solicitor and would like to be assigned one who can offer you this service, please visit the Fiscal Representation page on this site.

Antonio Flores Property, Taxes Income and Wealth Tax, modelo 214, spanish income tax, spanish income tax rates, Spanish Property Wealth and Income Tax, spanish wealth tax, Wealth and Income Tax Spain