In previous articles (see https://mallorcapropertymarket.wordpress.com/2015/03/09/costs-of-buying-a-property-in-mallorca-part-2/ ) we have covered the costs of buying a property in Mallorca (taxes, fees etc). Here we will cover the key taxes covering the ownership of property for non residents (see below the original source for this article). Don’t expect anyone to remind you to pay these, so be prepared, understand your responsibilities and appoint either a lawyer or Gestor to arrange the calculations and timely payment of each one.

I repeat that this article is about “non residents”. In most cases whether one is Resident or non resident is fairly clear cut but if you are not sure I strongly recommend you seek the advice of a lawyer who will be able to look at your personal circumstances and intentions, post purchase of your new property, as to whether the Spanish Tax Authorities might consider you a resident. As a very broad guideline the tax authorities consider the following criteria:

1. Whether you spend more than 183 days in a calendar year within Spain territory.
2. It is considered that the centre of your financial interests is located in Spain.
3. Your spouse and/or underage children live in Spain.

If any, or all three, above apply you may well be regarded as resident for tax purposes and as such a different tax regime will apply.

Non resident property owing taxes – background

When considering your tax liabilities and the basis of the calculation one should take into account / be aware of the following:

• For tax purposes married couples or joint owners of property (depends on what is on the deeds) will be treated as separately and each will be required to file separate tax returns ie the burden of the tax will be split between the 2 (or more) owners.
• Taxes are based on the catastral value (in the UK we would call this the Rateable Value) of the property (as identified on the Catastral Register as distinct to the main Land Registry). In most cases it is well below the market value of the property so don’t be surprised to find the values on the two registers (Catastro and Registro de la Propiedad) to be very different. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI).

The main Non-Resident Taxes

Broadly speaking there are 5 taxes one needs to consider although in most cases only the first 3 apply / will be relevant.

1. IBI Tax or what in the UK would be called local council rates
2. A separate Rubbish Collection Tax
3. A Non Residents Income Tax
4. The Wealth Tax
5. A Special Real Estate Tax

Taking each in turn:

• IBI Tax (Impuesto sobre Bienes Inmuebles)

This tax applies to both residents and non-residents. Just like the Rates in the UK this is a tax levied by the Town Hall where your property is located. It is annually (normally payable between August and November). It is based on the Catastral Value of your property (normally between around 0.4% and 1.1% of the Catastral Value per annum). Most people coming from other parts of Europe find the figures to be “modest” when compared to what they are used to paying at “home”!

We always recommend to clients that this tax is set up as a standing order (note that in most cases this cannot be done until after the first years payment so don’t forget that one!!). Note: failure to pay may lead to your property being seized and sold at public auction.

• Rubbish Collection Tax

Again this tax applies to both residents and non-residents and like the IBI is a local tax levied by the town hall where your property is located. Payable annually it is usually a few hundred euros a year. As stated above we recommend that you set up a standing order for the payment.

• Non Residents Income Tax

The taxable base is 2% of the Catastral Value of your property or 1.1% if the Catastral Value was revised after the 1st of January 1994. The tax rate varies depending on whether a taxpayer is resident or not in the European Union or European Economic Area (Norway and Iceland)We recommend that you use a Gestor or Lawyer, with appropriate professional indemnity insurance to deal with this calculation and payment (remember don’t expect the Authorities to remind you to pay it so don’t wait for the nasty surprise a few years down the line, or when you come to sell the property when the large tax bill, with accompanying fine, will be presented!!)Where the Catastral Value has not been updated and the 2% tax base applies:

Example (for EU residents) – Tax Form 210:

The tax is 20% (19% from next year onwards) for EU /EEA residents and 24% for “others” payable before the end of each year (Note: If you buy a property mid-year, you are only liable to pay in proportion to the months you have owned the property)

The regime applicable for this tax depends on whether you rent out the property or not but note it is still payable if you do not! Broadly speaking the tax works as follows:

Catastral Value of property 100,000€

2% of 100,000€ = 2,000€

Tax rate of 20%* of 2,000€ = tax liability of 400€

Where the Catastral Value has been updated and the 1.1% tax base applies

Catastral Value of property 100,000€

1.1% of 100,000€ = 1,100€

Tax rate of 20%* of 1,100€ = tax liability of 220€

*For non EU residents change 20% tax rate for 24%

If you rent out the property rather than paying the tax as described above your tax will be based on the rental income received from the property. The tax rates will be the same ie for EU residents 20% on rental income for 2015 (19% as from 2016) and 24% from other parts of the world. Dependent on how you set things up the tax is payable annually or quarterly. Tax form: 210 or 215.

Important Note: for EU residents tax relief applies eg for cost of home insurance, mortgage loan interest payments, property maintenance expenses etc and rental related expenses. Non EU residents get no tax relief ie the tax will be based on gross declared income.

• Wealth Tax

If you own assets in Spain that exceed a net value of €700,000 you are liable for this tax. The first seven hundred thousand euros is a nil rate band and the excess is taxed following a sliding scale. If the property is mortgaged, this amount may be deducted as it is a liability. If you are liable for Wealth Tax, it is compulsory you appoint a fiscal representative in Spain.Tax rate: National scale is 0.2 – 2.5% of net assets. However, it varies from region to region so check with your lawyer / Gestor Payble before the end of each year. Tax form: 714.

Remember that if a property is in joint names the 700,000€ allowance applies to each person so in cases this tax is not relevant.

Until recently this tax had been withdrawn but as a result of the financial crisis it was reintroduced. All indications are that it will be abolished again but don’t hold your breath while public finances are struggling! Note: this tax applies to both residents and non residents.

• Special Real Estate Tax

If you own property in Spain through a corporate offshore structure domiciled in a tax haven you are liable to pay 3% of the property’s cadastral value every year. Again payable before the end of each year. Tax form: 213. If you think you may be liable to this tax we strongly recommend you appoint a Lawyer or Gestor to handle the tax return.

• Other

The only additional “Tax” we would refer to here, effecting buyers, is what is called La Complementaria or ‘bargain-hunter’ tax. This is in fact not strictly a tax and was introduced as a way of penalising purchasers who under-declared the value of their property on acquisition, in many cases as a result of paying a part of the purchase price in “cash”.

Unfortunately an increasing number of buyers are being caught up in this “tax” not because they have done anything untoward like pay part of the price in cash, but simply because prices have fallen significantly and they bought a “bargain” that the Tax Authorities choose not to believe! In some cases these demands can be challenged so again professional advice should be sought.

The above article is taken from an article written by:

Author: Raymundo Larraín Nesbitt, Lawyer.

Link to original article:   Non-Resident Taxes in Spain