TAXATION OF NON-RESIDENT NATURAL PERSONS NON-RESIDENT IN THE SPANISH STATE
Taxation of non-resident natural persons (without permanent establishment) in Spain in relation to yields and profits gained from the ownership and transfer of real estate located in Spain.
[CONCEPT OF NON-RESIDENT. INCOME OBTAINED IN SPANISH TERRITORY]
Legislation does not define NON-RESIDENTS as it invokes, in the case of natural persons, Article 9 of Act 35/2006 of 28 November which regulates Personal Income Tax (IRPF) and establishes the following:
A natural person is deemed to be resident in Spanish territory when any of the following situations arise:
a) When, in the course of a calendar year, they spend more than 183 days in Spanish territory. In determining the period of time spent in Spanish territory, occasional absences will be included, unless the taxpayer can demonstrate that their fiscal residence is in another country.
In the case of countries or territories deemed to be tax havens, the Taxation Authority can demand that proof be given of residence there for 183 days in the course of a calendar year.
b) That the main core or base of their direct or indirect business or professional activities or economic interests lies in Spain.
It will be assumed, unless evidence to the contrary is provided, that the taxpayer’s habitual residence is in Spanish territory when, in accordance with the above-mentioned criteria, non-legally separated spouses and their children who are minors and dependents of such natural persons have their habitual residence in Spain.
Otherwise, where none of the aforesaid circumstances apply, a natural person will be deemed to be NON-RESIDENT in Spain.
A natural person shall be resident or non-resident for the entire calendar year, as changes of residence do not mean that the taxation period is interrupted.
Persons who are non-resident and obtain income in Spanish territory are deemed to be taxpayers for the purposes of IRNR (Non-Residents Personal Income Tax).
Yield deriving from real estate situated in Spanish territory and increases of net worth deriving from the transfer of real estate situated in Spanish territory are in principle deemed to have been obtained in Spain.
Persons who are non-resident for tax purposes in Spain and who own any urban real estate situated in Spanish territory will be subject to:
- Non-Residents Personal Income Tax, regulated by Royal Decree 5/2004 of March 5.
- Capital Gains Tax by effective obligation, regulated by Act 19/1991 of June 6. It should be taken into account that, as from 1-1-2008, Capital Gains Tax has been subject to a rebate of 100% under Article 3 of Act 4/2008 of December 23, which modified Article 33 of Act 19/1991 and which was later temporarily reinstated through Royal Decree 13/2011 of 16 September. From 1st January 2016, the deduction of 100% has been reinstated.
- A local Property Tax (IBI).
[FOREIGN-RESIDENT TAX IDENTIFICATION NUMBER (NIE)].
In Spain, everybody is assigned a tax identification number that has to be entered on tax returns and in communications sent to the Taxation Authority. In general, in the case of persons of Spanish nationality, the tax ID number (NIF) is the same as that of their Spanish Identity Document (DNI), while in the case of persons of foreign nationality, the tax ID number is that of their Foreigners Personal Identification Number (NIE), which is obtained from the Directorate-General of Police or from the Spanish Embassy or Consulate in their country of origin or residence.
Natural persons are obliged to appoint a representative in the following cases:
a) When they have a permanent establishment in Spain.
b) In general, when economic activities or operations are carried out in Spain without permanent establishment, whenever the tax base is the difference between the gross income and the expenses for personnel, procurement and supplies.
c) When, due to the amount and characteristics of the income obtained in Spanish territory, it is required by the taxation authorities.
[DETERMINING THE TAX BASE, TAXATION RATE]
In general, the tax base corresponding to yield will be the gross amount earned with no deduction of any kind of expense.
Residents in another European Union member state and for earnings gained from 1 January 2015 in a state of the European Economic Area with which an effective exchange of fiscal information exists, may, should they be a natural person deduct those expenses detailed in Act 35/2006 of 28 November from their Personal Income Tax whenever the taxpayer can prove that they are directly related to yield gained in Spain and that there exists a direct, inseparable link with the activity undertaken in Spain.
In the case of capital gain, this will be determined by the difference between the price of transfer and that of acquisition.
The tax rates laid down in Spanish domestic legislation applicable to income and gains from property and transfers of real estate are as follows:
a) In tax year 2015, in general, 24%; 20% for residents in the European Union, Iceland and Norway until 11-07- 2015, and 19,50% from 12-07-2015. The general rate for tax year 2016 is 24%, while for residents in the European Union, Iceland and Norway it is 19%.
b) In the case of capital gains, 20% for the period between 1-1-2015 and 11-07-2015; from 12-07-2015, 19.5%; from January 2016, 19%.
The tax becomes due when the income is deemed to be obtained, and the general principle is that of due date. In the case of yields on real estate for own use, the attributed yield falls due on the last day of the calendar year. In the case of increases from capital gains, the tax falls due when the asset increase arises.
[TAXATION ON REAL ESTATE LOCATED IN SPAIN WHOSE OWNERS ARE NON-RESIDENT NATURAL PERSONS]
a) Rented properties, for own use and unoccupied: taxation will depend on whether or not the property is rented:
1. If the property is rented, then in general the tax base will be the gross amount of all concepts the lessee or sub lessee receives, including, when applicable, the amounts pertaining to all goods assigned with the property and excluded from Value-Added Tax.
If the property is only rented for part of the year, the tax base will have to be calculated as indicated in the preceding paragraph and for the rental period. For the remaining unrented period, the real-estate attribution shall have to be made in accordance with point 2, below.
When determining the tax base for rented properties, taxpayers resident in other member states of the EU may nevertheless deduct the expenses set out in the Personal Income Tax Act (35/2006 of 28 November), as long as they can show that they are related directly to the income obtained in Spain. When deducting expenses, evidence and certification of fiscal residence in the corresponding EU member state must be provided.
The resulting tax base will be taxable at the general rate.
2. For income obtained after 1 January 2015, should the property not be rented (used by the owner or left unoccupied) it will be deemed to provide a yield of 2% of the cadastral value, and the general taxation rate of 24% will be applied to this base. For residents in the EU, Iceland and Norway, this is 20% until 11-07-2015, 19.5% from 12-07-2015 and 19% from 2016. In the case of properties whose cadastral values were revised or altered and came into force during the tax period, or during the 10 preceding tax years, the estimated yield will be 1.1%. For income obtained in 2014, the tax rate will be 24.75%.
The tax becomes payable on the last day of the calendar year.
b) If the property is transferred:
In general, capital gains obtained by non-residents without permanent establishment will be determined by the difference between the transfer value and the acquisition value. In order to calculate these values, the following rules must be taken into account:
The acquisition value will include those expenses (registration, notary public) and taxes (VAT, Asset Transfers, etc.) paid by the acquirer.
The acquisition value will be reduced by the amount of depreciations made in accordance with regulations (should the property have been rented), duly updated and always calculating the minimum depreciation.
The transfer value will be reduced by those expenses and taxes inherent to the transfer paid by the seller.
The difference between these two values will determine the capital gain subject to taxation, on which a tax rate of 20% will be applied for the period between 1-1-2015 and 11-07-2015; 19.50% for the period between 12-07-2015 and 31-12-2015 and 19% from tax year 2016.
[APPLICATION OF THE REDUCING PERCENTAGE RATES SET OUT IN THE NINTH TRANSITORY PROVISION. NEW SYSTEM].
A new transitory regime is introduced for capital gains generated by goods acquired prior to 31-12-1994.
The new regulations maintain application of these coefficients, but establish a new calculation system, submitting that part of the increase generated from 20 January 2006 to taxation.
More specifically, when capital gain is obtained, a distinction will have to be made between that part of the gain:
- Generated before 19 January 2006.
- Generated from 20 January 2006.
The increase is deemed to have been obtained in a straight-line manner over time, i.e. each day of the year is considered to have generated the same profit. Thus, a daily benefit is obtained by dividing the gain by the number of days elapsed between the date of purchase and the date of sale.
That gain generated prior to 19 January 2006 will be entitled to the reduction coefficients, while these will not be applied to that part of the gain generated from 20 January 2006.
[PERSONAL INCOME TAX DEDUCTIONSTO BE BORNE BY NON-RESIDENT NATURAL PERSONS]
a) Deduction for rental of premises.
As stated above, the income paid to a non-resident for the rental of business premises is subject to Non-Residents Personal Income Tax at the general rate of 24%; in the case of residents in the European Union, Iceland and Norway, this is 20% for the period between 1-01-2015 and 11-07-2015, 19.50% for the period between 12-07-2015 and 31-12-2015 and 19% from tax year 2016. The deduction applicable on this type of income will be that of the corresponding tax rate. Should the deduction be made, non-residents can deduct this from their gross tax payment.
b) Deduction when a property is acquired from a non-resident.
Acquirers of property from a non-resident without permanent establishment are obliged to deduct and deposit 3% of the agreed payment, under the concept of payment on account of the tax corresponding to the non-resident. The payment has to be made within a period of one month from the transfer date and using form 211. Nonetheless, acquirers are not obliged to make the deduction and payment of 3% in the following cases:
1. When transferrer can show by means of certification issued by a competent body of the Taxation Authority that they are subject by personal obligation.,.
2. Where the real estate is provided in the incorporation or capital increase of companies resident in Spanish territory.
Refund of excess deducted:
Should the deduction made exceed the amount to be paid in, the taxpayer will be entitled to a refund of the excess deducted. The refund procedure begins on presentation of tax return form 210 at the Tax Office corresponding to the location of the property transferred. The refund is made by bank transfer into the account stated on the tax return. The account-holder will be the taxpayer themselves or a representative thereof; should the account-holder be a representative, a document will have to be provided giving the representative express authorization to receive the refund. If the taxpayer does not have a bank account in Spain, they may request that the refund be paid by cheque. Tax return form 210 must always be accompanied by the “for the non-resident" copy of form 211, that through which the payment is made.
The Taxation Authority is obliged to make a provisional settlement within six months of the final date established for filing form 210. If that provisional settlement is not made within this period, the Taxation Authority will proceed ex officio to refund the excess amount paid over the self-assessment tax payment. If this six-month period elapses without payment of the refund having been ordered for reasons attributable to the Taxation Authority, the unpaid refundable amount will be subject to interest in arrears.
[CAPITAL GAINS TAX].
Capital Gains Tax regulated under the terms of Act 19/1991 of 6th June.
It should be noted that, as from 1 January 2008, Capital Gains Tax is subject to a 100% rebate under Article 4 of Act 4/2008, of December 23.
Update: In accordance with Royal Legislative Decree 13/2011 of 16 September, Capital Gains Tax for tax periods 2011 to 2015 is temporarily reinstated.
Non-residents must file a return for this Tax for those assets located in Spanish territory they possess on 31 December each year and with a minimum exemption of €700,000 (each Autonomous Community does, however, have the authority to change these limits). Catalonia has set the exemption limit for tax year 2012 at €500,000. This tax return must be made in May and June of the calendar year immediately following that referred to in the tax return, it must be filed telemetrically.
Urban real estate is included in the return, the value of which is the highest of the three following:
- The cadastral value that appears on the annual Property Tax receipt
- The price or value at acquisition
- The statement by the Administration should the value have been verified for the purposes of other taxes.
This amount constitutes the taxable and payable base of the Tax whenever there are no debts or other charges associated with the property. The tax quota is calculated by applying the tax scale for the corresponding year to this base.
A) Property tax (IBI)
This is a local tax, i.e. it is levied by Town Councils and payable by owners of real estate. All the real estate in each municipality is included in a census and has a value assigned to it (the cadastral value). The amount payable is calculated on the basis of the cadastral value by applying the tax rate set by the Town Council. It is payable annually on each real-estate item included in the census, and an invoice is issued for payment of the tax. The payment deadline varies from municipality to municipality.
B) Municipal capital gains
This is another municipal tax that Town Councils may apply should they choose, levied on the theoretical increases in value of urban sites. It becomes due on the transfer date. In onerous transfers of real estate, should the taxpayer be a non-resident natural person, they are deemed to have the status of taxpayer in substitution of the natural or legal person who acquires the property.