Renting in Spain – Landlord’s Taxation Guide

EDITOR’S NOTE: Regular legal-contributor Raymundo Larraín Nesbitt summarises the tax obligations of non-resident landlords in Spain, including the rental reliefs, tax allowances and deductions they can benefit from.


 

 

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of January 2017

Introduction 

In my experience non-resident landlords seem, at best, blissfully unaware of their taxation duties on renting out their properties in Spain; at worst, they are totally baffled by them. So I thought it would be a good idea to start off the year by adding to the mayhem writing up this little article!

For an abridged version of this article, please read my straight-to-the-point blog post without the esoterics.

I frequently get asked to cast some light on the matter, so this guide attempts to lay out all the different scenarios non-resident landlords may be faced with and what exactly are their tax duties as a result.

I take the liberty of introducing the article with the lenient tax allowances EU and EEA residents can now benefit from following recent jurisprudence from the European Court of Justice. British nationals, for the time being, may still benefit from these allowances on filing their Spanish tax returns until Prime Minister Theresa May triggers article 50 sometime in spring 2017.

This article is split into two sections:

  1. Allowances (state and regional) as well as deductions non-resident landlords can benefit from (as physical persons) to mitigate their rental tax bill in Spain.
  2. Tax returns to be filed (in Spain) depending on which case a landlord is classified in (short or long-term rental).

 I. Landlord Rental Reliefs

Following up on my article from February 2015, regarding the ECJ’s landmark ruling of last 3rd of September 2014, which put an end to discrimination between residents and non-residents on taxation matters, these changes also affect rental laws.

Law 26/2014 of the 27th of November amends both the Personal Income Tax Act (I.R.P.F.) and the Non-Resident Income Tax Act (I.R.N.R.). These changes came into force on the 1st of January 2015. I had already referred to these changes in December’s and February’s articles: Taxes on Selling Spanish Property and Changes To Spain’s Inheritance And Gift Tax Law.

Law 26/2014 adapts and transposes the decision taken by the ECJ amending internal Spanish national laws. It brings to an end (fiscal) discrimination between residents and non-residents in a wide array of matters; for this article’s sake, specifically on rental matters. EU-residents are now treated on par with Spanish residents on taxation matters relating to allowances and deductions. This translates into paying fewer taxes (as non-residents now qualify for deductions and tax allowances which were previously barred to them as these were earmarked for Spanish residents alone).

For the purpose of this article, when I make reference to ‘non-tax residents’ I will always be referring to citizens which are either tax resident in another Member State of the European Union or else in the European Economic Area (E.E.A., which is compromised by Iceland, Liechtenstein and Norway). Just to clarify, the below-listed changes do not benefit tax residents outside of the EU or EEA.

I.e. a US national cannot benefit from the tax allowances listed below.

Additionally, it should be noted that non-EU and EEA nationals have a different tax scale levied on them on renting their properties.

As a brief recap:

I) Landlords resident in E.U. or E.E.A.

  • Tax relief: Yes, physical persons may deduct, for example, home insurance, mortgage loan interest payments, property maintenance expenses etc. Legal persons may also deduct rental related expenses.
  • Dates: collected annually or quarterly.
  • Tax form: 210.
  • Tax rate: 19% on rental income for 2016.

II) Landlords resident outside the E.U. or E.E.A.

  • Tax relief: no.
  • Dates: collected annually or quarterly.
  • Tax form: 210.
  • Tax rate: 24% on rental income for 2016.

Rental Allowances – Situation Prior to the ECJs’ Ruling

Non-resident rental allowances were virtually non-existent prior to this ruling for private individuals. There were few instances in which you could offset rental taxes as they required you employed someone full time and had a permanent establishment in Spain. Obviously of little practicality which was not an option for the vast majority of non-resident landlords.

Post-ECJs’ Ruling – Changes to Spain’s Rental Laws

The ECJ’s key ruling of 3rd of September 2014 marks the inflection point which puts an end to (fiscal) discrimination between residents and non-residents. It forces Spain to amend its internal laws and accommodate the European principles on which the EU is grounded on. The significance of the ECJ’s ruling is that it has opened up the opportunity for non-residents to apply as from the 1st of January 2015 to the below-listed state tax allowances and deductions which were previously reserved only to Spanish residents. In addition, non-residents may also benefit from those set by the Autonomous Communities where the property is located which have a penchant of being more generous than state law.

When taxpayers are resident in another European Union Member State, or in the E.E.A., the expenses described in the Law on Personal Income Tax (IRPF) can be deducted when calculating the taxable base, provided that proof is supplied that these expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain. When expenses are deducted, a certificate of tax residency in the corresponding State issued by the tax authorities of that State which must be filed along with your tax return.

So, for example, a British national must request from the HMRC a certificate of tax residency in the UK and submit this to the Spanish Tax Office. This allows to successfully offset the maintenance and running expenses of their Spanish property against their rental income yielding a higher net income. Needless to say, you need a lawyer to organize this on your behalf.

Landlord’s State Reliefs and Deductions for Private Home Rentals

Non-resident landlords can either rent out their properties on a short or long-term basis:

  • Short-term lets are understood to be subject to private holiday rental laws which are covered in detail by my article Holiday Rental Laws in Spain. Moreover, this can be further compounded by whether a rented property is classified as either urban or rural which gives way to a different set of regulations and legal requirements.
  • Long term lets are subject to Spain´s Urban Rental Law better known by its acronym LAU. These long-term lets are covered by my article Urban Rental Laws in Spain.

The main difference between both is that the former is ruled by each of Spain´s 17 Autonomous Regions whereas long-term lets are ruled by a national legal framework which acts nationwide. The significance of this from a practical point of view, is that landlords who rent on a short-term basis using, for example, Airbnb or other similar rental portals should check the minutiae of the regional laws where their properties are located. Some of these laws are fairly restrictive and in fact may even require a landlord to attain a rental licence of sorts or else to register themselves prior to renting out their accommodations. Non-compliance may attract humongous fines in the thousands of pounds.

The following state deductions and allowances can be offset or deducted mitigating a landlord´s tax bill without prejudice of additional compatible allowances set out by the Autonomous Community contingent on where the property is located. Please take legal advice on the latter for your case as for economy of space I will not be listing them below.

The above translates into significantly higher returns for landlords on taking smart advantage of these lenient allowances. Meaning non-resident landlords stand to profit from higher net yields on letting in Spain as from 2015 onwards.

Article 24.6 of the Non-Resident Income Tax Act (I.R.N.R.) makes a direct renvoi on these to art. 23 of the Personal Income Tax Act (I.R.P.F.).

Please take note I will only list in this article allowances which properties are owned by physical persons, not by legal persons. More on ownership of Spanish properties through corporate structures in my article Buying and Owning Spanish Property through Companies: Pros and Cons.

Landlord Rental Tax Relief: Allowances & Deductions (as Physical Person)

 

  1. Rental Tax Relief / Deductible Expenses (Art. 23 I.R.P.F.)

Proof must be supplied that the following expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain.

• Interests arising from a loan to buy the property (i.e. mortgage).

• Local taxes and administrative charges and surcharges that impact on the rental income or else on the property itself (i.e. IBI tax, SUMA tax, rubbish collection tax).

• Expenses arising from formalising rental contracts such as lets or sublets (i.e. Notary and/or Land Registry fees); legal defence (i.e. hiring a lawyer for tenant eviction purposes).

• Maintenance costs may be offset; refurbishment expenses are excluded.

Examples of maintenance costs (deductible): repainting over flaky paint, plumbing, debugging, tennis court green mold cleaning, swimming pool pump replacement, annual lift maintenance, leaking faucet.

Examples of refurbishment expenses (non-deductible): glass curtains, double-glazed windows, parquet, marble floor, extension to property (outbuilding), tennis court, swimming pool, private lift.

Notwithstanding the above, refurbishment expenses may be claimed on selling the property by offsetting them against your Capital Gains Tax liability. Please read my article: Taxes on Selling Spanish Property.

• Home insurance premiums (theft, fire, civil liability etc.). Please read my articles Home Insurance in Spain, Community of Owners’ Insurance Policies and How to Cancel your Home Insurance Policy in Spain. However claims arising from events that diminish the value of a dwelling are non-deductible i.e. fire.

• Utility invoices (electricity, water, gas and landline).

• Concierge, gardening & security services (i.e. gated communities).

• Rental publicity expenses.

• Home depreciation and amortization. The calculation is 3% on the highest value of the following two: home buying costs or cadastral value; the value of the land is excluded.

2. Allowances

  • The 100% tax allowance on letting to under thirty-year-olds is supressed as from the 1st of January 2015. The allowance is now 60% on the net income regardless of a tenant’s age.
  • Other.

II. Tax Returns to be Filed

  

Depending on which classification a landlord falls in, different tax models need to be filed. This section is already covered in detail by my article Non-Resident Taxation in Spain. Notwithstanding, I will do a brief summary for completion’s sake.

  1. Not renting out property.

Regardless you must file and pay an annual tax return called Non-resident Imputed Income Tax. This is tax model 210. It must be filed and paid before the 31st of December of each year. The details are already covered by my above-mentioned article.

  1. Renting out property in Spain
  1. Short-term (Private Holiday Lets)

Besides complying with the above annual requirement, you must file a quarterly tax return for model 210. This has associated higher professional fees from lawyers or economists as it is admin intensive. A tax model must be filed for each tenant. Additionally, a tax model must be filed for each joint owner of the property (think joint property ownership as in couples).

Landlords should note that this option is borderline to running an accommodation business that is advertised in specialized rental property portals over the net.

  1. Long-term Rentals

It suffices to file an annual tax return; again, tax model 210.

  1. Professional Rental Business

Professional rental businesses require VAT is filed on a quarterly and annual basis (tax models 303 and 390.). The business is equated to running a hotel accommodation.

Conclusion

As can be clearly surmised from the above, the taxation on private rentals may be somewhat labyrinthian given the fact that 17 different Autonomous Regions in Spain hold competence over it and rule accordingly. This requires the input of seasoned professionals to wade through the pitfalls and come out successfully.

Which is where we lawyers step in; hand-holding landlords and guiding them through the taxation ordeal to come up on top of it working the system.

“The minute you read something that you can’t understand, you can almost be sure that it was drawn up by a lawyer.” – Will Rogers.

William Penn Adair “Will” Rogers was a Cherokee-American cowboy, comedian, humourist, social commentator, vaudeville performer and actor. He was also the father of a well-known U.S. politician; nobody´s perfect.

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About Raymundo Larraín Nesbitt

After completing his dual law degree in Madrid (ICADE) in 2003 Raymundo went on to work for prestigious Spanish and English law firms in Spain before moving to the UK for several years to work for a British multinational. He is a prolific writer of legal & financial articles in English, with well over 140 articles published and widely used in the Spanish real estate sector. Raymundo now runs his own law practice in Marbella, where he advises local and foreign clients on all legal matters with a focus on conveyancing and non-resident taxation. He is regularly quoted by the international press as a reliable source in his field of expertise.

17 thoughts on “Renting in Spain – Landlord’s Taxation Guide”

  1. bruj68

    I am quite sceptical about the transposition of the sentence of the European Court regarding donations and inheritance to discrimination found in non-residents when they cannot claim the tax relief that residents can applied (60% at present).

    The reason for this is because the Agreement between Spain and UK is predominant and does not allow that tax relief to be applicable. The same agreement betwen France and UK allows it. So, it’s not so much about how Spain discriminates non residents but how those agreements are drawn up in the first place.

    I would be happy to hear from someone who has won a case (as non resident from the UK) who was allowed to apply the 60% tax relief Spanish residents apply when they obtain an income out renting their second home in Spain.

  2. karapuz

    Hi, Raymundo.

    Thank you for the very informative article!

    A question for you: where can I find more info about filing taxes for short-term (holiday) rentals vs long-term rentals?

    On the tax agency’s web site, the page titled “Taxation of urban buildings owned by non-resident individuals”, in section 2.2, only states that taxes for rental income need to be filed each quarter. It would be great if it can be done annually for long-term rentals.

    Thank you!

      1. karapuz

        Thanks! My interest is actually in long-term rentals. Instructions for form 210 seem to indicate that the form needs to be filed quarterly but you mentioned above that for long-term rentals filing is required only once a year. I am wondering if I am misinterpreting the instructions, or perhaps a different form should be used for this instead. Any info/pointers would be appreciated (I can read Spanish).

  3. Ybon

    Hi Raymundo,

    I did submit an application already in June 2016 at the Junta de Andalucia in Malaga for a license to rent out my holiday home in an rural area. We did not get any answer. I went to the office in Malaga, but there were lots of applications, I saw in that office.
    So, how can I pay my rental taxes without having a license to rent out my house?
    Can you answer this question?
    With regards
    Yvonne van der Doelen

    1. Raymundo Larraín Nesbitt

      Morning Yvonne,

      Rural properties, in most cases, do NOT require a rental licence in Andalusia. I dare say you are confusing yourself. So many laws make it a tad confusing, I know.

      Registration and attaining a rental licence are two different things. As a rural landlord, it is compulsory for yourself to register your rural rental but it is unnecessary you attain a letting licence from the Authorities (unless you are running a business such as a hotel or rural resort which you do not happen to mention). When you register your rural property for rental purposes expect no answer.

      As you mention Malaga, the law that applies is the Autonomous Community of Andalusia.

      You also mention your property is rural. Rural and urban properties have each their own different regulations.

      I strongly advise you read my articles to fully understand the significant differences:

      1. Urban holiday rentals regulation in Andalusia:
      https://www.spanishpropertyinsight.com/2016/02/10/andalusias-holiday-rental-decree/

      2. Rural holiday rentals in Andalusia:
      https://www.spanishpropertyinsight.com/2016/04/08/decree-202002-andalusias-holiday-rural-rental-decree/

      Rural properties have a law that goes back to 2002 and is fairly forgiving. Urban holiday rentals on the other hand are subject to a new law that was passed in 2016 and has more stringent requirements from landlords.

      Having clarified that, regardless if you have attained or not a letting licence (which in your case I doubt you need) you are still under the legal obligation to pay Income tax on your rentals. This obligation is clearly explained in my article Non-Resident Taxes in Spain:

      https://www.spanishpropertyinsight.com/2015/12/08/non-resident-taxes-spain/

      Hope that clarifies your query Yvonne.

      Regards

  4. MVVO

    Raymundo,

    Your information is brilliant. It is hard to know what to do when you are an EU resident (not Spanish) having a property in Spain doing sometimes short term rentals. It is clear to me and my full intent to pay my taxes and have approprate registrations done but I find it hard to know where and what to fully comply. Your guide and your other article on the Andalusia rental decree is a must read and very helpful.

    About the tax, one thing remains unclear: As I do shor term rentals, I fill out Modulo 210 with “tipo renta: 01 Rendimientos de inmuebles arrendados.”. To validate such declaracion, you have to enter el NIF de “Pagador/Retenedor/Emisor/Adquirente de inmueble”.

    Can you help me understand what to fill out there if you rent it out 5 times in a trimestre via AIRBNB: Does is mean you fill out the NIF from Airbnb and declare the total income of the 5 rentals? Or would you still need to submit a 210 for each tennant (even those only staying 3 nights)?

    And…If you have to submit for each tenant, would you have any experience how to fill out the NIF from a foreign client (e.g. an American renting the house for a week)?

    It would be great to hear from you, many thanks!

    Marcel

    1. Raymundo Larraín Nesbitt

      Hi Marcel,

      Thank you for your kind words.

      You have to submit a model 210 for each tenant AND joint owner of a property (quarterly). Yes, even if it’s just for one night (let alone three nights). This can be an admin tax nightmare so I strongly advise you hire a law firm like mine to do the accounting on your behalf and file the taxes. We offer competitive rates. More information on holiday rental taxation:

      http://www.en.larrainnesbittabogados.com/service.php?id=13
      http://www.en.larrainnesbittabogados.com/service.php?id=7

      A foreigner does not need to apply for a NIE number if they are just lodging as tourists. NIFs are only for Spanish nationals/residents. More information on applying for NIE numbers:

      http://www.en.larrainnesbittabogados.com/service.php?id=6

      Regards

  5. Indigos

    Hola Raymundo,

    What a well written and informative article! Thank you for publishing this.

    One area that I have been researching at length but can’t seem to find any clarity on (both from the UK and Spanish government taxation pages) relates to renting out apartments in Spain, but from within a company structure, rather than as an individual.

    The general idea would be to set-up a UK Limited Company, and use this to agree a lease contract for managed apartments in Spain which would then be able to be sublet directly to tourists. The running of the company would take place from the UK (i.e. advertising the rental units and taking the bookings), thus satisfying that element of the principle place of business definition. However, the physical apartments that would be rented are obviously in Spain, however it is not clear to me if that would then result in any obligations to the Spanish Tax authorities?

    Any further reading or reference material related to the above situation would be greatly received.

    Regards,
    Indigos

    1. Raymundo Larraín Nesbitt

      Good morning Indigos,

      Thank you for your kind words.

      Regarding your query, the answer is simple; you must submit and pay your rental income taxes in Spain.

      This is not open to controversy and is a moot point following art 6 of the Double Taxation Treaty signed between Spain and the United Kingdom. Specifically, this article clarifies that wherever the immovable real estate asset is located, the taxpayer will have to pay taxes in that country, in your particular case, Spain.

      https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/507409/spain-dtc_-_in_force.pdf

      So you can indeed set up a UK LLC to own these assets, run the administration from the UK and even do all the publicity in the UK but at the end of the day, you will be forced to pay taxes in Spain on the rental income. Also take note that physical landlords have access to generous rental tax relief that offsets a great deal of expenditure. Further details below in my article.

      Moreover, new stringent holiday rental laws have been passed over the last years in Spain; so, depending in which region of Spain your property is located you will have to comply with a set of rules. Non-compliance may attract humongous fines (in the six figures) making the property directly liable for it. So non-payment is not an option unless you are prepared to lose your property to legal action.

      As for further reading, you have several articles written by me on the subject covering different angles.

      As a physical person, on renting out you may opt for a series of lenient tax reliefs detailed in my blog post:
      Renting in Spain: Non-Resident Landlord’s Rental Reliefs
      http://www.en.larrainnesbittabogados.com/entrada.php?id=188

      Regarding regional holiday rental laws, you should read my article:
      Holiday Rental Laws in Spain – Explaining The Latest Changes
      http://www.en.larrainnesbittabogados.com/article.php?id=81

      I take the opportunity to offer you our holiday rental homes accounting legal service in Spain which is very competitively priced:
      http://www.en.larrainnesbittabogados.com/service.php?id=13

      Hope that helps.

      Regards

      1. Indigos

        I very much appreciate both the speed and the precision of your reply, Raymundo: it is evident you are an expert in this field.

        Having reviewed the suggested materials, it would appear that my particular venture would not fall under the ‘viviendas de uso turístico’ regulation, rather, ‘apartamentos turísticos’, as the lease would be for a managed complex of at least ten apartments.

        Are there a different set of tax reliefs available in this case as well as additional considerations that one would need to review?

        Your accounting / legal service offering does sound attractive: do your services also cover the above scenario?

        1. Raymundo Larraín Nesbitt

          You are welcome Indigos.

          Yes, the regulation of that type of property is much too complex to discuss here, sorry.

          Our accounting service does include this type of rental, yes.

          Regards

  6. Goran

    Thank you very much for your informative articles!
    Just one question: are the Landlord rental reliefs you describe in this article also applicable under the Andalucian Holiday rental law? Or do that law has its own rules regarding what costs are deductable from the rental income tax?

    Kind regards
    Goran

  7. greener

    Hello Raymundo,

    Great article! As a EU national with residence in the USA, I rent out a property in Spain and am stunned to find that I’m liable for 24% tax on the *gross* income. I have read through the US/Spain tax treaties and find no relief there.

    What boggles the mind is that the IRS let’s you take a tax credit for taxes paid to other jurisdictions (ie. Spain) but on “net income”. The IRS in fact let’s owners deduct many different types of operating costs related to rental property activity (but not taxes paid). This setup seems rather punishing.

    Using a simplified example of 10,000 EUR income with 8,000 EUR costs, I would have to:

    – pay Spain 2,400 EUR
    – pretend to the IRS that the tax liability was 480 EUR (10000-8000 * 0.24) on 2,000 EUR profits and take that as a credit

    All of which certainly is not a viable business proposition. Am I missing something or should I just give up?

    Greetings from the US,
    -Albert

    1. Raymundo Larraín Nesbitt Post Author

      Morning Albert,

      Thank you for your kind words.

      It is unfortunate, but you are correct. As I make clear in my above article, and in others, non-EU/EEA residents cannot benefit from lenient tax reliefs, both state and regional ones.

      I’m all up for fostering foreign investment in Spain, but these decisions sadly are often political.

      Best wishes
      Raymond

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