TAXATION REGULATIONS APPLICABLE TO PERSONS NOT RESIDENT (i.e. without permanent establishment) IN SPAIN IN RELATION TO INCOME AND PROFITS FROM PROPERTY AND TRANSFER OF PROPERTY SITUATED IN SPAIN.
[THE CONCEPT OF NON-RESIDENT, INCOME OBTAINED IN SPANISH TERRITORY]
Persons are considered resident in Spain when any of the following situations apply:
a) They remain in Spain for more than 183 days during the course of the calendar year. Temporary absences are reckonable for determining the period of residence in Spain, unless normal residence in another country for 183 days of the calendar year can be proven.
b) The main core or base of their business or professional activities or financial interests lay in Spain.
c) Their lawful spouse and children under legal age and dependent upon them normally live in Spain.
Persons will be considered non-resident in Spain, on the other hand, where none of the situations set out above apply to them.
Persons who, while non-resident, obtain income in Spain are subject by real obligation. Income deriving from real estate situated in Spain and capital gains deriving from the transfer of real estate situated in Spain shall be considered to have been obtained in Spain.
Persons not resident for tax purposes in Spain but owners of urban real estate in this country will be subject to Personal Income Tax and Capital Tax, by real obligation, and to a local tax, the Real Estate Tax (rates).
[TAX IDENTIFICATION NUMBER (NIE)]
Everybody in Spain is assigned a tax identification number, which must be used in tax returns and in communications sent to the tax authorities. Generally speaking, in the case of persons of Spanish nationality, their tax identification number (NIF) is the same number as that of their national identity card (or DNI), whereas for persons of foreign nationality their number is their foreigners identification number (or NIE), which is obtained from the Directorate-General of Police.
[REPRESENTATIVE]
A representative must be appointed in three cases:
a) When a person has a permanent establishment in Spain.
b) When certain expenses may be deducted in determining the tax base subject to taxation in Spain.
c) When, due to the complexity of a taxpayer’s operations, this is required by the Government.
[DETERMINING THE TAX BASE, TAXATION RATES AND ACCRUAL]
Generally speaking, the tax base of the income will be the full amount accrued without deduction of any expenses. In the case of capital gains, this will be the difference between the transfer value and the acquisition value.
Taxation rates.
The taxation rates laid down in Spanish domestic regulations and applicable to income and capital gains deriving from ownership or transfer of real estate are as follows:
a) General rate, 24%.
b) In the case of capital gains, 18%.
Accrual refers to the moment at which the income is taken to be obtained, the general principle being that of when it falls due for payment. In the case of income deriving from real estate for one’s own use, accrual takes place on the last day of the calendar year. In the case of capital gains, it takes place when the change in capital arises.
[TAXATION OF REAL ESTATE SITUATED IN SPAIN WHOSE OWNERS ARE NON-RESIDENT INDIVIDUALS]
a) Rented real estate, for personal use and unoccupied: taxation will depend on whether or not the real estate is rented out:
1.Where the property is rented out, the tax base will be the amount received under all headings from the letter or subletter, including, where applicable, the amounts relating to all goods assigned with the property but excluding Value Added Tax. No expenses may be deducted against that entire income thus obtained, and the applicable tax for each accrual is 25%.
2. Where the property is not rented out (is used by the owner or is unoccupied) the reckonable income will be 2% of the rateable value of each property, and a general rate of 25% will be levied on that base. In the case of property whose rateable value has been revised or modified with effect from 1.1.94, the reckonable income will be 1.1%.
This amount accrues on the last day of the calendar year.
b) Where the property is transferred.
As a general rule, capital gains obtained by non-residents without permanent establishment are determined by the difference between the transfer value and the acquisition value. In calculating those amounts, account should be taken of the following rules:
The acquisition value must include the expenses (registry, notary public) and taxes (VAT, Capital Transfer Tax, etc.) paid by the purchaser. In order to correct for the effect of inflation, the acquisition value is also increased by means of updating coefficients.
The transfer value is decreased by the expenses and taxes inherent to it and paid by the seller. The difference between these two amounts will be the tax base of the capital gain and will be subject to taxation at the rate of 35%.
In the case of assets acquired before 31-12-96, however, once the difference between the above-mentioned two amounts has been calculated the pertinent reducing coefficients will have to be applied to it according to the period of possession of the property from the time of acquisition up to 31.12.96. The period of occupancy will be the number of years over and above 2 years between the date of acquisition and 31 December 1996, the latter taken by excess. The reducing coefficient for real estate is 11.11% annually.
[CAPITAL GAINS NOT SUBJECT TO THE TAX]
As stated above, the period of occupancy is calculated by taking the number of years there are between the date of acquisition of the property and 31 December 1996, rounded upwards. Consequently, for a capital gain to be exempt from tax the aforesaid period would have to be more than 10 years for property or rights over same.
[WITHHOLDINGS ON ACCOUNT OF PERSONAL INCOME TAX (IRPF) THAT MUST BE BORNE BY NON-RESIDENT INDIVIDUALS]
a) Withholding on rental of premises
The amounts paid to a non-resident for rental of business premises are subject to taxation in Spain, by real obligation, as we have seen above, at the general rate of 24%. The withholding applicable to this type of yield is 18%. Where a withholding is made, the non-resident may deduct the amount of the withholding borne from his/her gross tax liability.
b) Withholding when a property is a acquired from a non-resident.
The purchaser of real estate owned by a non-resident without permanent establishment is obliged to withhold and pay to the tax authorities 3 of the agreed price under the heading of payment on account of the tax payable by the non-resident. The amount withheld must be paid in to the tax authorities using tax form 211, within one month of the date of transfer. Notwithstanding this, the purchaser will not be obliged to withhold and pay in the 5% in the following cases:
1. Where the transferor can prove his/her personal-obligation tax status by means of a certificate issued by the competent body of the Tax Authorities.
2. Where on 31.12.96 the property had been in the assets of the taxpayer for more than 10 years, without having undergone improvements during that period.
3. Where the property is contributed towards the incorporation or capital increase of companies resident in Spain.
Refund of any excess withheld:
In the event of reductions of assets or of the withholding made being greater than the gross tax liability, the taxpayer has a right to receive refund of the excess withheld. The refund procedure starts with presentation of tax form 212 at the Tax Office of the district in which the property transferred is situated. The refund is made by means of bank transfer to the account stated on the tax return form. The holder of the account should be the taxpayer himself/herself or his/her representative, although where the account-holder is the representative he/she will have to be expressly empowered to receive the refund in the document showing representation. If the taxpayer has no account open in Spain, then he/she may request that the refund be made by cheque. The tax return on form 212 must always be accompanied by the “copy for the non-resident” page of form 211, the one used to pay in the amount withheld.
The Tax Authorities will be obliged to make a provisional settlement within six months of the end of the period laid down for presentation of form 212. Were the provisional settlement not to be made within that period, the Tax Authorities will proceed to make an ex officio refund of the excess over the self-assessed tax. If this six months elapses without payment of the refund having been ordered, for reasons attributable to the Tax Authorities, then the amount pending refund shall accrue the corresponding late-payment interest.
[CAPITAL TAX]
Non-residents must make a return for this tax, for the assets in Spain which they own as of 31 December of each year, whatever the value of such assets.
Value:
The value accorded urban property included in the tax return shall be the greatest of the three following:
- The rateable value shown on the annual bill for Real Estate Tax (rates).
- The acquisition price or value.
- That found by the Government, if a valuation has been made for the purpose of other taxes.
This amount constitutes the net tax base for the Tax, as long as debts or other liens do not encumber the property. The tax liability is calculated by applying to that base the scale of tax rates approved for the particular year.
[SIMPLIFIED TAX RETURN BY NON-RESIDENTS]
(Dwelling for own use).
Non-residents whose sole asset subject to tax consists in a dwelling basically for their own use may use a single form to make the Capital Tax return for their dwellings in Spanish territory and Personal Income Tax for the estimated yield from such dwellings.
The period for making the tax return is the entire calendar year immediately following the one to which the return relates.
[LOCAL TAXES]
A) Tax on Real Estate (IBI)
This is a local tax, that is, one required by the Town Hall, which owners of real estate must pay. All the real estate in each municipality is included in a census and has a value assigned to it (rateable value). The amount payable is calculated by taking the rateable value and applying to it the tax rate set by the Town Hall. The payment is annual, on each item of real estate included in the census, and a bill is issued for paying the tax. The payment period varies according to the municipality.
B) Municipal Capital Gains
This is another municipal tax that Town Halls may choose to charge, and is levied upon a theoretical increase in the value of urban sites. It becomes payable on the date of transfer. In the case of transfers of real estate against payment, if the taxpayer is a non-resident individual, the status of substitute taxpayer is accorded to the individual or corporate entity acquiring the real estate.
