1) Property income taxes For non-resident property-owners (natural person or company), when you are letting your property, the taxable base is the total of rental-income generated. Deductions regarding expenses incurred don’t exist. The taxes to pay are 24% of total rental income. So if you are letting your villa for € 10.000 per month, you have to pay € 2400 tax. Non-let Property A property, which is not (sub) let, may be occupied by a friend, by you, or left empty.In these cases the owner does not earn any income from the property in which case the Spanish law has defined an imputed income which is calculated by multiplying the Cadastral Value (an official valuation of the property, by 2% as a general rule or by 1,1% in special cases (described below).

The taxable base is calculated as the difference between this imputed income and certain deductible expenses. This does not apply to non-urban properties in which case the tax will not be imposed.

a) In the case the cadastral value has been revised or has been modified since 1-1-1994

b) Since 1997 there is another possibility in the case the property does not have a cadastral Value or this has not been modified at the time when the imputed income tax is due. The value of the taxable base is arrived at by multiplying the real value of the property (value on title deed or the market value) by 50%.

Right of use

In the case another person has a right of use of the property, that person is also the one to be taxed and not the non-resident owner. The user will be imputed income in the amount resulting from multiplying the value of the property by 2%. To show evidence of the absence of rental income (regarding the owner’s tax return) the owner must provide the agreement granting the right of use of the property to another person.

Letting on a gratuitous basis

In the case you rent out your property gratuitously or for a very low rent there is a special rule the Spanish Tax Authorities may apply. They may consider the person letting the property has obtained a rent equivalent to normal rental prices paid for real estate with similar features. The property-owner needs to demonstrate that the property has been let gratuitously. In the case you can prove that, you will be imputed income based on the assumption that the property had not been let (at 2% or 1,1%). When you are not able to prove it you must pay the normal 24% tax calculated on your (supposed) rental income.

Letting property to relatives

When you let your property to a relative, the rent you charge may not be less than 2% of the Cadastral Value. In case you let the property on a gratuitous basis to a relative but you are not able to prove it, the Tax Authorities will assess the rent at the market rent (which could be more than 2% of the Cadastral value).

Company-ownership of properties

As from 1996, the tax rate is 3% and is charged on the Cadastral Value of the property. The company (who owns the title of the property) will not have any taxable rent but needs to pay a fixed 3% every year no matter what the property was used for. Where shareholders use the property however, the company will be imputed a market rent earned for the periods the property has been used by the shareholders. It will then have to pay a tax at the rate of 24% on the deemed income generated.

2) Local taxes

The annual real estate tax or Impuesto Sobre Bienes Inmuebles (IBI) has to be paid once a year and is a local tax. The rates vary because some municipalities charge less tax than others. For a “standard” apartment it will be between €200-€400 per year.

3) Wealth tax

The owner of a Spanish property who is a non-resident will have to pay wealth tax on the value of the real estate. Residents also have to pay this tax but have an exemption of €108.182 up to €150.253 Euros, which a non-resident owner does not have.

The value on which the tax will be based will be the highest one of the following three:
a) The market value (the purchase price mentioned in the title deeds)
b) The value registered by the Tax Authorities
c) The cadastral value

In case you have invested in a property that is being build, you will have to pay taxes based on the value of the amount you already invested to the end of the (tax) year plus the value of the plot of land.

Wealth tax rates 2005

0,2% up to € 167.129
0,3% from € 167.129 to € 334.253
0,5% from € 334.253 to € 668.500
0,9% from € 668.500 to € 1.337.000
1,3% from € 1.337.000 to € 2.673.999
1,7% from € 2.673.999 to € 5.347.998
2,1% from € 5.347.998 to € 10.695.996
2,5% from € 10.695.996 upwards

Passepartout Andaluz will be pleased to introduce you to a sound (fiscal) advisor.
The (fiscal) law in Spain is complex and therefore we recommend that you consult a fiscal advisor or a lawyer when it comes to taxes, conveyancing or other legal matters.

The information supplied serves as a guideline only.