Renting out holiday properties
Non-resident owners of a Spanish holiday property who rent it out on a year-round or temporary basis must pay tax on their rental income in Spain. The tax return is made using tax form 210.
Below we answer several frequently asked questions about the taxation of rental income:
- How should rental income be declared?
- How much tax is payable?
- What expenses are taken into account when determining the tax?
- What part of the property value can be depreciated?
- What to do if the form has not been filed in time?
How should rental income be declared?
Non-residents ‘income tax on rental income is calculated quarterly. If applicable, a tax return must be filed, and the resulting tax rate paid:
- If the tax base (net rental income) is positive in the quarter, a quarterly tax return must be filed. The deadline for filing them is 15 April (1st quarter), 15 July (2nd quarter), 15 October (3rd quarter) and 15 January (4th quarter).
- If, on the other hand, the net profit of the quarter is negative, no quarterly return must be filed (as no tax rate is payable). In such a case, only one return (with tax rate equal to zero) must be filed by 20 January of the following year. Losses incurred in one quarter may not be offset against profits from the next quarters (unlike residents).
How much tax is payable?
When renting out property in Spain, tax is payable on the net income. The tax base is therefore the difference between the rental income and the deductible expenses.
Since 2016, a tax rate of 19% applies to residents of the European Union, Iceland and Norway. For all other taxpayers residents outside the European Union (including Switzerland), the tax rate is 24%. These also cannot deduct rental expenses and are therefore taxed on gross income.
What expenses are taken into account when determining the tax?
Deductible expenses are only the following, although some expenses can only be deducted from tax on a pro rata basis:
- Interest on bank loans, directly related to the purchase of the property in question or to a renovation project.
- Property tax and other municipal charges (e.g. refuse charges)
- Costs of the property management or the owners' association (water, electricity, telephone, if paid by the owners)
- Insurance of the property
- Estate agent's, tax advisor's and lawyer's fees (in connection with the rental property)
- Those incurred for the replacement of previous building parts (repairs)
- Depreciation of the buildings
What part of the property value can be depreciated?
The depreciation is the result of applying the percentage of 3% to the highest of the following values:
- Cadastral value, excluding the value of the land.
- Acquisition cost, distinguishing:
- in the case of purchased properties: the acquisition price including expenses, including expenses and taxes inherent to the acquisition (notary's office, registration, non-deductible VAT, Transfer Tax and Stamp Duty, agency fees, etc.) without including in the calculation the value of the land, as well as the cost of investments and improvements made to the property acquired.
- in the case of properties acquired free of charge by inheritance or donation: the part of the expenses and taxes inherent to the acquisition that correspond to the construction and, if applicable, the totality of the investments and improvements made.
What to do if the form has not been filed in time?
The Spanish tax office has a period of 4 years to check and demand payment of taxes that have not been filed. This happens regularly when the property is sold without having paid the taxes of the previous years. In addition to the tax amounts, the tax office can demand late payment surcharges and interest on arrears and impose a penalty of 50% of the unpaid tax quotas. However, tax penalties are excluded if the taxpayer voluntarily submits the tax returns subsequently and pays the tax quotas. In these cases, only late payment surcharges of 1 to 15% of the tax quota are payable, or interest on arrears if payment is made after more than one year.