Congratulations, so you now own your Spanish property, the utility bills, the IBI taxes are at your name, and you have arranged insurance cover. For me the most prudent thing you should do is once your advised that the escritura is at your name and registered at the land registry is order a copy of the new nota simple online from the property registration website (https://www.registradores.org:444/propiedad/propiedad.jsp) – this is your first and best way to ensure that the property is at your name and any debts, other than a mortgage you agreed, have been removed. It is also the most prudent way to see that there have been no mistakes in that transcription of names, property description and title, cadastre reference and NIE number; inaccuracies that may take months to sort if left too late to rectify.
No doubt you have had your first taste of Spain’s bureaucratic system. A system of operating the state that has a long tradition; in part due to the volume of public servants whose purpose is to produce work between them and their various departments. Whether you decide to be resident or not, you will find it difficult to avoid the system of paperwork required.
After obtaining your NIE the next valuable document you will need is empadronamiento: that is a process of registering yourself as citizen of the local municipality. This is particularly important if you are re-locating and need access to schools and health facilities, are purchasing a vehicle, or need to register a birth. Usually there is no charge for this document; which is an important legislative method for a town hall to register its occupants – the numbers being the basis for regional and state funding of services like police, fire, medical provision, etc.
To obtain the empadronamiento document your first point of call should be the town hall; they will guide you through the process and form filling. But you will need to take copies of your NIE, passport, utility bill (contracted at your name if you are owner) or rental agreement (contracted at your name if you are the tenant). Within a few days you will have the document; and be welcome to register with the local school, doctor, and so on. However, thereafter you may still require the services of a gestor to assist you in the various paper chains required say for buying a car, registering for a Spanish driving license, changing your vehicle plates to Spanish.
Now, depending on whether you live in Spain full-time or not, own or let the property, or are fiscal resident then you also need to consider your tax obligations here in Spain. To this end I am reproducing a document that I first researched and published on Tropicana Properties web site; and given the detail and content have left faithfully to that original.
There are two local property taxes which are both based on the property's theoretical rental value according to the local land registry, and are adjusted in line with inflation. The rates of tax will vary from region to region, and municipality to municipality, due to the varying rates of tax imposed by the regional and local governments and provided infrastructures.
Local property tax (Impuesto Sobre Bienes Inmuebles (IBI))
This is the main local property tax affecting owners of properties in Spain payable annualy to the Town Hall. The amount of the tax is calculated by reference to the valor catastral (official value of the property) registered in respect of all properties in Spain. The percentage charged varies from area to area, and is roughly 0.5% to 1%. Note that in many new build developments the IBI may not be calculated for the first year or two of occupation; and therefore remain unpaid. Payment is not, for the moment, back dated. However, in the last 18 months many local authorities have been looking at the system of payments and reimbursement to the extent that they are now back dating due payments up to the point of first occupation of the dwelling. Buyers of such properties need to be sure that all possible and known prior payments have been searched and duly settled. NOTE: As of January 2012, the Spanish government has announced that it will be reviewing the IBI payment, recovery and land valuation system in general since the present system of calculation no longer reflects the present market values and an increase would considerably assist Local Authorities to raise independent finance for their towns. Many observers agree that rates will increase before the year end – possibly as much as 50% in some regions.
Local mains drainage and refuse collection tax (basura y alcantarillado)
This is a local tax payable by a property owner and is related to rubbish collection and drainage. The amount to pay varies from area to area, and should be paid to the local Town Hall every 3 or 6 months. This tax may be between 20 Euros and 100 Euros per year. Also, if your Spanish property has a garage entry you are obliged to pay an annual contribution for that too. It may also be collected by the local water company in village communities with small populations.
As a non-resident property owner in Spain, you may be liable for income tax, value added tax, wealth tax, capital gains tax and inheritance tax. Individual situations vary considerably and it is best to seek specialist advice from a tax consultant who has knowledge of the Spanish tax system.
Income Tax (Impuesto sobre la Renta de las Personas Fisicas (IRPF)
The income derived on property in Spain should be declared in Spain. If you sell your Spanish property within one year of purchasing it, then the profit you make is considered an income and not a capital gain, and you would have to pay Spanish income tax on any profit made. If you rent out your Spanish property, then you have a "rental income" from the Spanish property and will have to pay Spanish income tax.
The rates of income tax payable by a resident and non-resident are being modified. An individual is considered a Spanish resident if they spend more than 183 days within a year in Spain. A non-resident is taxed at the standard rate of corporate tax. A resident is taxed in accordance to a sliding scale.
NOTE: The personal income tax law has undergone significant amendments, many of which are still in the process of being incorporated within Spanish Parliament. These amendments could slightly affect some of the contents of this article, and will also modify some aspects of the corporate tax law and the non-residents’ income tax law.
Deemed rental income tax (Rendimientos del capital inmobiliario)
If you are non-resident a "deemed rental income" is levied by the Spanish tax authorities for urban real estate not rented out or used as a second residence. Therefore, if your Spanish property is not rented out or not your primary residence (i.e. a holiday home), you will be liable for the "deemed rental income tax" even if you do not let out your Spanish property. The local town hall will charge you according to the valor catastral (rateable value) of the Spanish property. They will assume you are making 2% of this value each year from letting your Spanish property and charge you 25% of that "income", which equates to a total of 0.5% of the valor catastral (rateable value) of the your Spanish property. For example, if you own a Spanish property with a valor catastral (rateable value) of 100,000 Euros and you are not renting it out, you will still be liable for 25% of 2000 Euros, which equates to 500 Euros.
Wealth Tax (Patrimonial)
You will pay wealth tax (Patrimonial) at a percentage that depends on the value of your wealth (i.e. property plus savings in the bank, etc.). The wealth value associated to a property is based on what the declared value of the property was when you purchased it. For residents, the first 108,182 Euros is not taxable. There is also a 150,253 Euros exemption on main home status for residents. This wealth tax increases on a sliding scale. The wealth tax sliding scale is "cumulative". For example, if you purchased a property for 300,000 Euros then you would be liable for wealth tax every year according to the following calculation:
The first €167,129 at 0.2% is €334.26 plus the remaining €132,871 (€300,000 - €167,129) at 0.3% is €389.61. Therefore the wealth tax on a Spanish property worth €300,000 is €732.87.
Capital Gains Tax
If you sell a Spanish property more than one year after purchasing it, then you are liable to pay Spanish capital gains tax (GGT) on the difference between the amount that you sell the property for and the amount that you declared having purchased it for previously, minus any inflationary gain. As of January 1 2007 both resident and non-resident will be liable for Spanish CGT tax at 18%. Also you may have the option to ''roll'' the tax into another property provided that it is a single main residence.
Currently, homeowners are liable for a "cautionary" retention tax of 3% when they come to sell their Spanish property. For example, when a non-resident sells their Spanish property their buyers pay 3% of the sales price (retention tax) directly to the Spanish tax authorities and will only receive 97% of the sales price. This retention tax is kept "on account" by the Spanish tax authorities, as a provision of funds, until the non-residents capital gains tax is calculated and declaration duly presented within a maximum of 120 days from the date of exchange at the notary. Once the capital gain is determined (i.e. the profit minus any inflationary considerations for the period that the property was owned) and the appropriate CGT is calculated, the Spanish tax authorities will deduct the retention tax from the CGT that is liable. If the CGT liable on the sale of the Spanish property is more than the 3% retention tax that is held "on account" then the non-resident has to pay the difference. If, however the CGT liable on the sale of the Spanish property is less than the 3% retention tax that is held "on account" then the non-resident is reimbursed the difference by the Spanish tax authorities. A Spanish property bought and sold in a quick timescale will gain virtually no capital gains tax relief.
Plusvalia is a tax levied by the local Town Hall based on the particular area where the property is located, on the surface area of the land, on the Catastral value and on the date of the previous title deed. This tax is essentially a tax on the increase in value of the land may range from a few approximately 12 Euros to as much as 12,000 Euros on significantly larger properties with a large plot of land. By law the vendor (seller) is obliged to pay this tax.
Your beneficiaries will become liable to pay the somewhat horrendous death duties that are applicable in Spain (usually amounting to a figure between 15% and 50% of the value of the gift to each beneficiary) except in the case of the gift house (or half of a house) by a deceased spouse to his/her survivor (in the case only of the single main residence) where a tax discount of 95% is available. The duty is based upon the value of the property at the date of death. It is therefore, very important, to as soon after completing your property purchase in Spain that you make a will protecting your asset(s) for you, your spouse and your family.