Overview:
National, regional (autonomias) and municipal authorities all have tax levying powers in Spain, meaning property owners must deal with several different tax offices.

There is a double taxation agreement between Spain and the UK. This treaty sets out the general principle that revenue from real estate is taxed in the state where the property is located.

For tax purposes, anyone who lives in Spain for at least 183 days during a tax year or has his/her centre of operations based in Spain is considered a resident; the 183 days do not have to be consecutive and can include large periods away from Spain. Spain has a residence-based system of income taxation and the concept of “tax domicile”, as understood in British system, does not exist. Spanish residents must pay tax on all their worldwide income and gains, even if these have not been remitted to Spain.

Non-resident property owners are not legally obliged to appoint a tax representative, if they provide the tax authorities with their permanent residence. However, Spanish deadlines can be very tight and it is nonetheless advisable for non-residents to appoint a representative in Spain to liaise with the various Spanish tax authorities.

Some useful terms:

• NIF (numero de identificacion fiscal): The Spanish equivalent of National Insurance number, the tax reference number for Spanish nationals
• CIF (codigo de identificacion fiscal): Similar to NIF but for legal entities
• NIE (numero de identificacion de extranjeros): The tax reference number for foreign nationals, including both Spanish residents and non-residents

In Spain , owners must bear the following property-related costs:

• Taxes
• Annual municipal real estate tax
• Income tax
• Notional letting value tax
• Wealth tax
• Other property costs
• Utility costs
• Lettings and management charges
• Other

TAXES

Annual municipal real estate tax:
All owners of Spanish property (including both residents and non-residents) must pay annual real estate tax to the local municipal authorities (Impuesto sobre Bienes Inmuebles, IBI). After buying a Spanish property you must report your purchase to the local tax office (delegacion de hacienda) which will then assess your tax liability based on the rateable value (valor catastral) of your property.

Spanish law stipulates that the rateable value should be equal to or lower than the current market value, although in most instances, it is significantly lower than the market value. Real estate tax ranges between 0.3-1.1% of the rateable value of the property. Owners are subject to the tax on Jan 1st of the respective year. You can pay your IBI by direct debit.

Income Tax:
Spanish law differentiates between income taxation for residents (Impuesto sobre al renta de las Personas Fisicas, IRPF) and income taxation for non-residents (Impuesto sobre la renta de los No Residentes, IRNR).

Spanish residents have to pay income tax on their global income; the concept of “tax domicile”, as understood in British system, does not exist in Spain. Income tax in Spain varies from 15 - 45% but it looks likely that the higher rate will be lowered to a standard 30% rate in the near future. Capital gains on resale are also subject to income tax in Spain (see "Selling Costs" section for details).

Non-residents only have to pay income tax on their money-earning activities which are based in Spain.

Notional Letting Value Tax:
Non-residents and Spanish second home owners must pay notional letting value tax (Impuesto Sobre la Renta). Owning a non-primary residence in Spain is deemed to produce a notional income equal to 1.1 - 2% of the rateable value (valor catastral) of the property. A 25% income tax is then levied on this amount, with no possibility for deduction, although the tax payable will be prorated according to ownership period in the given year. Non-residents who let out their properties will have their gross income taxed at 25% with no possibility for deduction. The only exception to this is if you run a rental business that is registered in Spain. You should consult a tax advisor to consider your options.

Wealth Tax:
All Spanish property owners must pay wealth tax (impuesto sobre el patrimonio, IP). This tax is charged annually at 31 December of the given year on the net value of your worldwide wealth if you are a resident or your Spanish assets alone if you are non-resident. There are no allowances for non-residents although some deductions are available. Wealth taxation varies between 0.2 and 2.5% of the assessed value of the property. It is charged on a progressive basis such that more expensive properties are subject to a higher level of tax.

Wealth taxation can be reduced by lowering the net value of the property, for example, through mortgage finance. Also there is no net wealth taxation on companies, so buying property through a company structure can be a way for non-residents to avoid net wealth tax entirely although companies are then subject to corporation tax. You should consult a tax advisor to properly consider all the options available to you.

OTHER PROPERTY COSTS

Utility Costs:
In Spain, water and electricity consumption are metered at similar rates to those in the UK. You have to pay for electricity on a bi-monthly basis with minimum usage levels specified. The cost of initial connection for water could be anything from €50 to €500. Mains gas is only available in the larger cities; elsewhere gas bottles are delivered to your home once you have signed up for a contract.

Lettings & Management Charges:
There are lots of rental and property management agencies to choose from along the Spanish costas and many estate agents will also offer a property management service. Agencies offer a comprehensive range of services including cleaning and maintenance. They may also offer a tenant-finding service for you, at an extra charge. Agents' commissions vary but most charge around 15% of the gross rental income. Any repairs, cleaning and maintenance costs incurred by the agent will be extra.

Other Ownership Costs:
There are various company structures through which you can purchase property in Spain . Although Spanish companies are not subject to wealth tax or plusvalia tax, the cost savings at the end of the process may not be sufficient to justify the effort of establishing and maintaining a company. All foreign corporations – regardless of whether they are registered in a foreign country or an offshore tax haven – are subject to an annual 3% special taxation for legal persons on the cadastral value of the real estate. You should consult a tax advisor to see all the options.

Some local authorities charge “tasas y cargas” to raise additional revenue for the services they supply in the area. Municipal authorities also have the right to charge for the use of a vehicle in the area, although when they do the amounts are not usually high.

If you purchase real estate on a community development, community charges will apply covering things like maintenance, swimming pool cleaning and gardening.

Sources & Resources:

• BuyAssociation
• Del Canto, L. F. & Elattar, C. (eds.) (ICEX, International Abogados) – How to buy your home in Spain
• www.deloitte.com
• Foster, A. I. – The Complete Guide to Buying a Property in Spain (8 th Edition)
• www.idealspain.com
• Kalin, Christian H. – International Real Estate Handbook
• King, Harry (The Daily Telegraph) – Going to Live in Spain – A Practical Guide to enjoying a new lifestyle in the sun
• Merricks Media Ltd - Red Guides: Buying a Property in Spain
• www.propertyguidespain.com
• www.real-estate-european-union.com
• Rider, N, Holtom, H & Howell, J (The Sunday Times) – Buying a property SPAIN