I just bought a small apartment in Barcelona, planning to renovate it for a long-term rental to earn some passive income. However, I’ve been looking into Spanish taxes recently, and it feels a bit overwhelming. I was particularly unsure about how much tax I’d have to pay on the rental income. Since there isn’t much discussion about this on the forums, I’ve decided to organize my findings here to get the ball rolling and would appreciate it if the experts here could point out any misunderstandings.
What tax do you pay on rental income?
The main tax is the Personal Income Tax, known in Spain as Impuesto sobre la Renta de las Personas Físicas, or IRPF. How you pay this tax depends critically on whether you are a tax resident or a non-resident, and the difference is quite significant.
Tax Residents
If you live in Spain for more than 183 days a year, or if your main center of economic interests is in Spain, you are likely a tax resident. As a tax resident, you must declare your worldwide income in Spain, including rental income. The good news is that for income from renting out your main residence, you can get a 60% tax reduction! This means you only pay tax on 40% of your net profit. The tax rate is progressive and depends on which income bracket you fall into.
Non-Residents
For most of us who invest in property here but don’t live in Spain permanently, we would be considered non-residents. In this case, you pay Non-Resident Income Tax (IRNR). The tax rate is more straightforward: 19% for residents of the EU, Iceland, and Norway; and 24% for residents of other countries. The key point is that non-EU residents cannot deduct any expenses. You are taxed directly on 24% of the gross rental income, which is quite harsh. This topic of paying taxes on rental income is crucial for foreign investors.
What expenses can be deducted?
If you are a tax resident, you can deduct many related expenses from your gross rental income when calculating your “net profit,” which is the key to saving on taxes. I’ve put together a simple table listing some common deductible items:
| Expense Type | Description |
|---|
| IBI (Property Tax) | Impuesto sobre Bienes Inmuebles, the annual property tax. |
| Community Fees | Gastos de comunidad, building management fees. |
| Home Insurance | Seguro del hogar, such as fire and liability insurance. |
| Repair and Maintenance Costs | Gastos de reparación y conservación, like painting or plumbing repairs, but not including extensions. |
| Waste Collection Fee | Tasa de basuras. |
| Real Estate Agency Fees | Si se utiliza una agencia inmobiliaria para alquilar (If a real estate agency is used for the rental). |
| Mortgage Interest | Intereses de la hipoteca, note that this is only the interest portion, not the principal. |
| Depreciation | Amortización del inmueble, generally calculated at 3% of the property’s value. |
Once you’ve calculated these, you’ll have a good idea of how much tax you’ll need to pay. For example, a tax resident with an annual rental income of €12,000 and deductible expenses of €2,000 has a net profit of €10,000. After the 60% reduction, the taxable base is only €4,000. However, a non-resident would have to pay tax on the gross income of €12,000 at 24%, which comes out to €2,880, with no expenses deductible. The difference is huge. I hope this information is helpful, and please feel free to correct or add anything!
