I recently bought a small apartment in Spain to rent out, and figuring out the taxes has been a real headache. I’ve seen many people asking about this on forums, so I decided to share the information I’ve compiled. This guide mainly focuses on the situation for non-tax residents in Spain buying investment property. If you’re already a tax resident, some rules will be different.
Purchase Stage
The taxes you pay when buying a property depend mainly on whether it’s a new build or a resale.
- New-Build Property: The main taxes are Value-Added Tax (VAT or IVA) and Stamp Duty (AJD). The general VAT rate is currently 10%, while in the Canary Islands, it’s a 7% IGIC. The AJD rate varies by autonomous community, typically ranging from 0.5% to 1.5%.
- Resale Property: The main tax is the Property Transfer Tax (ITP). This tax is paid to the regional government, and the rate varies, usually between 6% and 10%. This is a major expense, so be sure to check the specific rate for the autonomous community where you’re buying.
Holding Stage
After buying the property, you’ll have to pay taxes annually, regardless of whether you live in it, rent it out, or leave it empty.
Vacant or for Personal Use
If the property isn’t rented out and is either vacant or used for personal holidays, you need to declare Non-Resident Income Tax (IRNR). The taxable base is calculated as 1.1% or 2% of the property’s cadastral value (valor catastral), which is then taxed at a rate of 24%. Although it’s not a large amount, do not forget to file it, as getting caught by the tax authorities can lead to serious trouble.
Rented Property
If you rent out the property, congratulations on the rental income! However, you must also declare this income for Non-Resident Income Tax (IRNR). The good news is that residents of the EU, Iceland, and Norway can deduct relevant expenses from the rental income before applying a 19% tax rate. But if you are a tax resident of another country, this benefit does not apply. In that case, you must pay tax at 24% on the gross rental income, with no deductions allowed. This can be quite a drawback. You can find more details about rental income tax liability.
| Tax Type | Applicable Situation | Tax Rate |
|---|
| Local Property Tax (IBI) | Mandatory for all properties | Set by local council, typically 0.4%-1.1% of cadastral value |
| Non-Resident Income Tax (IRNR) | Property vacant/for personal use | (Cadastral Value x 1.1% or 2%) x 24% |
| Non-Resident Income Tax (IRNR) | Property rented out | Gross rental income x 24% |
Selling Stage
When you eventually sell the property, if you make a profit, you must pay Capital Gains Tax (Ganancia Patrimonial), which is also part of the IRNR. The calculation is (Selling Price - Purchase Price - Related Costs) x 19%. Note that the buyer is required to withhold 3% of the sale price and pay it to the tax authorities as a down payment on your tax liability. After you file for capital gains tax, the difference will be settled (either a refund or further payment). Additionally, the seller must also pay a municipal tax on the increase in land value, known as Plusvalía Municipal, which is calculated based on the increase in the land’s value and the duration of ownership.
The above is a summary of the basic information I’ve gathered. Spain’s tax system is genuinely complex, with variations in regulations across different autonomous communities. Before taking any action, it’s highly recommended to consult with a professional Gestor (an administrative consultant). Spending a little money on professional advice can save you from major headaches down the line! Feel free to discuss and add more information!
