I’ll tell you the secret about taxes for non-residents renting out their property in Spain.
Hello friends, how are you doing?
In the previous blog, I explained the taxes that a resident in Spain must face when they decide to rent out their property in Spanish territory. But what happens if they don’t reside in Spain? Today, I reveal the secret about taxes for Non-Residents renting out their property in Spain.
Residency status significantly influences tax treatment, but renting out a property in Spain can be a great way to generate income, even if you don’t reside in the country. However, it is crucial to be aware of the tax obligations to avoid any unpleasant surprises.
I am going to explain to you, in the clearest and simplest way, how taxes for non-residents work, the differences between living inside or outside the European Union (EU) and the expenses you can deduct.
1. What tax do you have to pay?
When you rent a property in Spain as a nonresident, you are subject to the Non-Resident Income Tax (IRNR).. This tax is levied on income generated in Spanish territory, including income from rentals.
2. Tax rates: how much will you pay?
The tax rate varies depending on where you live:
- If you are a resident of the EU, Iceland or Norway:
- You will be taxed at 19% on net income, i.e. after deducting allowable expenses.
- If you reside outside the EU:
- You will be taxed at 24% on gross income, without the possibility of deducting expenses.
3. What expenses can you deduct?
Deductible expenses allow you to reduce your taxable income and therefore pay less tax. However, they are only available to residents of the EU, Iceland or Norway. Here are some examples:
- Maintenance and repair expenses: such as painting, repair of installations or replacement of appliances.
- Utilities and community expenses: water, electricity, gas (if paid by the landlord).
- Interest on mortgage loans.
- Taxes and fees: such as IBI.
- Insurance: home or renter’s.
- Amortization of the property.
- Professional fees(real estate personal shopper, real estate agents or lawyers).
In other words, what you need to keep in mind is that only expenses directly related to the rental are deductible. Expenses like electricity, water, legal advice, furniture replacement, depreciation, etc., are deductible because they come from the income generated by the rental. Therefore, any other expense that does not directly stem from the rental cannot be deducted.
Another important thing is that not all expenses are deductible at 100%, as the current tax criteria state. Some expenses are deductible based on the number of days the property has been rented.
Non-residents outside the EU cannot deduct any of these expenses.
4. Practical example
For a better understanding, let’s look at two examples:
Case 1: Resident in Germany (EU)
- Rental income: €12,000 per year.
- Deductible expenses: €4,000 (repairs, supplies, insurance, etc.).
- Net income: 8.000 €.
- Tax (19%): 1.520 €.
Case 2: Resident in the United States (outside the EU)
- Rental income: €12,000 per year.
- Deductible expenses: Not applicable.
- Gross income: 12.000 €.
- Tax (24%): 2.880 €.
As you can see, the difference is significant, and this makes knowing the tax rules essential.
5. Tax obligations
In order to declare this income, you must file the following form Form 210. The statement is quarterlyand the deadlines are April 20, July, October and January.
To sum up, owning a property in Spain as a non-resident can be very profitable, but it’s important to understand how taxes affect your rental income.
- If you live in the EUtake advantage of deductions to reduce your tax burden.
- If you reside outside the EUPlease note that you will be taxed on gross income.
A tax advisor is highly recommended to help you comply with regulations and optimize your taxes.
If you have any questions or need help managing your property in Spain, feel free to reach out! I’d love to make sure you get the most out of your real estate investment in Spain and guide you through the entire process to make renting your property easier and more profitable.
Ciao bell@s.
