[AFinos]

I am a non-resident that own an apartment in Madrid that is rented out. I have been reading conflicting statements with regards to the tax liability (on the rental income) and would appreciate if someone who knows could set it straight.
Question: are we as non-residents allowed to deduct costs pertaining to the apartment, such as maintenance etc (is interest on mortgage deductible)? On this web-site it states that indeed we are allowed to deduct, I have however been told by Spanish accountants that as a non-resident we are not allowed to do so but to pay a flat 24% tax on the rental income regardless of what expenses you might have occurred. I look forward to an answer. Many thanks.

[Arthur Stuttard]

Your accountants are wrong! As a result of my complaint to Brussels, non resident landlords can make the same deductions as residents. See the AEAT site and the notes on the taxation of non-residents.

[Mark Stücklin]

I asked Raymundo Larrain, a Spanish lawyer and regular contributor, about this, and he sent me the following answer:

Short answer is yes.

Long winded reply follows.

Up until recently, non-residents could not deduct expenses from letting their own properties.

This has now changed with a nuance. Non-residents in Spain, but resident in a member state of the UE, have the same entitlements as residents to offset expenses and costs.

In English, from a document from the Spanish Tax Office official website as revised on the 27th January 2014 (scroll down to page 15):

“TAXATION

The income obtained from sources other than a permanent establishment must be declared separately for each partial or total accrual of income subject to tax.

Generally, the taxable base is the whole amount, i.e. without deduction for any expenses.

Nevertheless, when taxpayers are resident in another European Union member state, the expenses described in the Law on Personal Income Tax (IRPF) can be deducted when calculating the taxable base, provided that proof is provided 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 must accompany the tax return”.

In Spanish, from the IRNR (Non-Residents Income Tax Law) art 26.1

“6. Cuando se trate de contribuyentes residentes en otro Estado miembro de la Unión Europea, se aplicarán las siguientes reglas especiales:

1.ª Para la determinación de base imponible correspondiente a los rendimientos que obtengan sin mediación de establecimiento permanente, se podrán deducir:

a) En caso de personas físicas, los gastos previstos en la Ley 35/2006, de 28 de noviembre, del Impuesto sobre la Renta de las Personas Físicas y de modificación parcial de las leyes de los Impuestos sobre Sociedades, sobre la Renta de no Residentes y sobre el Patrimonio, siempre que el contribuyente acredite que están relacionados directamente con los rendimientos obtenidos en España y que tienen un vínculo económico directo e indisociable con la actividad realizada en España.

The IRNR (Non-Residents Income Tax Law) makes a renvoi to the IRPF (Income Tax for Residents). Concretely in article 23 of law 35/2006 you have the full list of available deductions to which must be added those set out by the Autonomous region where the property is located (Madrid, in this query).

Another important matter which the OP does not mention, but I think is worth noting, is that he seems to be renting out a private dwelling to tourists in Madrid. In other words, a touristic rental.

I had already written an admonitory article in July 2013 on how it had become apparent that certain powerful lobbies in Spain had pushed for new legislation to restrict or curb private individuals from making a supplementary income on touristic rentals. This was deemed by them as ‘unfair competition’.

At the time few autonomous regions had passed such legislation. In Andalusia we are still waiting for one. Madrid however diligently passed its own legislation in 2014 which came into force on the 1st of August 2014 with a transitional period of one year to register touristic rentals as from the date this legislation came into force (that is until the 1st of August 2015). I am referring to Decree 79/2014 of 10th of July.

The property the OP describes in his post would seem to fall under the definition given by art 2.2 of said decree and which is developed in detail in articles 17 et seq.

Any property found out to be non-compliant may result in the sanctions set out in article 21.

So basically what was given by one hand is taken away with the other.
The OP would do well to take legal advice on whether his property is included in said regional law and if he is indeed liable to face fines of up to several thousand pounds if caught letting privately without being duly licenced for touristic rentals in the autonomous community of Madrid.

The OP can find an insightful article from Journalist Kevin Brass on the matter of encroaching on private tourist lettings from the 8th October 2014: Opinion: Attacks on Short-Term Rentals Are All Hype.

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