> TAXATION FOR NON- RESIDENTS. GENERAL OVERVIEW

TAXATION FOR NON- RESIDENTS. GENERAL OVERVIEW

27 Febrero, 2015

Written by Dr Crespo

This guide do not substitute professional advice, which we will be happy to provide on request.
 

Introduction
The information contained in this document relates only to people not resident for tax purposes in Spain. A person is resident for tax purposes if he/she, under other circumstances, is physically present in Spain for more than 182 days in any calendar year.

It is impossible to give tax advice without detailed knowledge of your personal circumstances.

You should, therefore, treat this document as no more than background reading designed to give you some idea of the structure of the tax system in Spain.

We can accept no responsibility for any action that you take or fail to take as a result of reading this document.

The machinery of tax collection in Spain

The Spanish Authority responsible for the collection of taxes is the “Agencia Estatal Tributaria” (AEAT-Hacienda). This is organised on a provincial basis. In each province there is a main office of Hacienda.

In many provinces there are also one or more sub-provincial offices.

There is an important difference between the way in which the Spanish and the British collect their taxes.

In Spain it is your responsibility to obtain a tax form. It is your responsibility to complete the form and to calculate the amount of taxes that you owe to the State. It is then your responsibility to submit the form to Hacienda together with the appropriate amount of tax payable.

Taxes payable on the transfer of property
Impuesto sobre Transmisiones Patrimoniales (I.T.P.)

This is a tax payable when you purchase either agricultural land or a house/apartment/building plot from a private owner.

It is generally 7% ( this  depends on regions) of the declared value of the property as expressed in the Escritura de Compraventa (Deed of Conveyance).

This has led people to be tempted to under-declare the value of the property. Though this practice was and is widespread, it is a mistake. Penalties are payable in respect of abusive under declarations which, in addition, can lead to Capital Gains Tax headaches at a later date, as the declared value on your purchase is the base line used by Authorities when assessing the Capital Gain you make on the disposal of the property.

Impuesto sobre el valor añadido (I.V.A.)

This is the Spanish equivalent of VAT.

It is paid instead of I. T.P. when you buy from a Promoter rather than the private individual.

At present, the tax is charged at the rate of 21% on building plots and on additions carried out subsequent to the construction of properties.

It is charged at the rate of 10% on the construction of a house and any associated buildings, excluding commercial premises.

It is also charged at the rate of 10% on both the plot and the house if you purchase both at the same time.

In addition to IVA you will also have to pay a document tax or stamp duty (IAJD) at 1% ( this  depends on regions) of the purchase price on your purchase from a developer.

Land Registry Fees
These vary according to the locality, type and value of the property. They are not strictly taxes but rather administrative fees but, for the sake of completeness, are referred to in this document.

Property taxes

Impuesto Sobre Bienes lnmuebles

This is the main local property tax affecting owners of properties in Spain.

The amount of the tax is calculated by reference to the “valor Catastral” (official value of the property) registered in respect of all properties in Spain.

The percentage of that valor catastral charged as tax varies from area to area.

The official values were, until recently, very very low. They are now rapidly rising, pursuant to a policy of the Spanish Govemment that will result in the official values approaching the real value of the property.

Tasas

Some Municipalities raise additional taxation in relation to the services that they supply to people in the area. These may include rubbish collection, cleaning of the streets and beaches etc.

Municipalities also have the right to raise a charge for the use of a vehicle in their area.

The amounts of these tasas y cargas are not generally high.

Personal taxes

Impuesto sobre Patrimonio (Wealth Tax)

A person not resident in Spain for tax purposes must every year, submit a wealth tax return.

This must show the value of all of that person 's assets located in Spain. This will normally be the person’s house, car and some times the balance on his bank account, notwithstanding movable assets and accounts are excluded according the Treaty to avoid dopple taxation between Spain and the UK

The value to be used when declaring the house is the higher amongst official cadastral, declared in deeds or assessed by Tax Dpt.

Free allowance is 700,000 euro

The wealth tax return must be paid to the Authorities indifferent times depending the situation of the non-resident.

Impuesto sobre la renta de las Personas Fisicas (lncome Tax)
A person not resident in Spain for tax purposes must still make an annual declaration for income tax.

The Spanish Authorities are only concerned with the income you derive from activities in Spain, not your world-wide income.

Typical examples of this will be your income derived from letting your apartment or house. (See also, “Tax on the Notional Letting Value of Your Property” below).

As this income is part of your world wide income it will have to be declared to the British Tax Authorities but double taxation relief does exist as a result of a Treaty between the two countries.


Capital Gain Taxes
The Spanish do not have a separate system of assessing Capital Gains Tax. For people resident in Spain for tax purposes, Capital Gains are treated as part of their taxable income for the year in which the gain occurs.

For people not resident in Spain for tax purposes, Capital Gains Tax is payable, generally, at a flat rate of 20% on the difference between the price for which the article was sold and the price paid for it.

In the typical example of the sale of property, the prices used to calculate the tax liability are those declared in the Title Deed.


Tax on the Notional letting value of your property

In addition to the ordinary income tax return, which you must submit in appropriate cases, you will in all cases be required to make a tax return in respect of the notional letting value of your property.

This tax return has to be made whether you have actually let the property to anybody or not.

If you have actually let the property and received money for it, then the money you have received will have been declared in your ordinary income tax return.

The return in respect of your notional income from your property is made on a form called form 210, which is obtainable from from your local Tax Office.

The amount of the tax is calculated by reference to the valor catastral (see above) of your property.

Taxes Payable on Death
As in most countries, in Spain the State likes to take a chunk of your assets when you die. How much they will receive depends largely on how well you plan your affairs.

The whole system of taxation on death is very different from the English system and so poses a real danger to English people who subconsciously assume that similar provisions will apply and arrange their affairs accordingly. Some differences are: In Spain there is no automatic inheritance by a wífe or other joint owner of the deceased joint owner's share in any property. If it is left by will or on intestacy to the other joint owner, the gift will be taxable.

The amount of tax paid is determined not by the size of the whole estate -as in Englnad- but by the size of each individual inheritance. The tax is progressive -the more you inherit, the higher the rate of tax you will have to pay.

Near relatives pay tax at a lower rate than more distant relatives who in turn pay less tax than total strangers.

Near relatives are also entitled to receive a sum tax-free. More distant relatives and strangers are not.

Those who are already wealthy when they inherit pay more tax than those beneficiaries who are poor- although, as in the case of foreigners the only wealth taken into account is their Spanish wealth, this seldom produces difficulties in practice.

Penalties are imposed if the tax due is not paid within 6 months of the date of death.

In many cases where sizeable tax payments are going to be a problem it is possible to dispose of the assets during the owners lifetime much more cheaply than in his death.

In many regions there are important allowances when both, deceased and beneficiaries, are residents in the region. When beneficiaries are near relatives there could even no payment of inheritance tax.

VAT

As in England, most transactions in Spain involve the payment of VAT. The normal rate is 21%.

Transactions involving basic necessities carry VAT at a rate of 4%. Certain items are VAT exempt.

Fiscal representatives

The Spanish Law until recently required any person who had dealings within Spain but who was not a full time resident in Spain to appoint a fiscal representative.

Although this is no longer strictly necessary, we still consider that it is a step well worth taking.

A Fiscal Representative is a person who undertakes on behalf of the taxpayer all dealings with the Spanish Tax Authorities.

The appointment of a Fiscal Representative is the only way in which you can be sure that the Spanish Tax Authorities, unable to contact you because you are not in the country, do not take damaging and expensive action against you to collect any sums of taxes which they allege to be due. Also the Spanish taxation management authorities have not the standard of English one, therefore mistakes in your tax bill are very frequent and this could lead to serious troubles.

 Appeals
As in most countries, if you disagree with the amount of tax that you are required to pay you can appeal against the decision of the Tax Authority. We can advise you concerning this.

N.I.E. (Numero de Identificacion de Extranjeros).
This is an identification number for use by foreigners in Spain.

If you have dealings within Spain -even if you are not full time or tax resident -you are required to have a number.

This is obtained from your local Spanish Police Station at the foreigners' department or Spanish consulates. However tempting it may be not to bother obtaining this number you will find that it will cause you great inconvenience in the future if you do not have one.

 

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