Property Taxes in Spain

Useful information about property taxes in Spain for Golden Visa holders.

The Spanish Golden Visa program is one of the most popular among investors from Russia. It offers applicants several investment options, including personal business projects, capital investments, and financial assistance to Spanish businesses. However, statistics show that one option maintains an overwhelming advantage: obtaining a residence permit by purchasing real estate in Spain. More than 92% of all visa applicants choose this route.

From the very beginning, it should be emphasized that the amount and composition of your taxes will primarily depend on two crucial factors:

1. Whether you will be a tax resident of Spain or remain a non-resident.
2. How you utilize the purchased property: for personal use or rental purposes.

How do you determine if you are a tax resident or not?

To obtain tax residency, you must reside in Spain for more than 183 days a year or have economic interests in the country (conduct economic activities). However, since we're discussing investors who have obtained a "golden" residence permit by purchasing real estate, they are prohibited from conducting business in Spain.

Regarding the duration of stay, the Golden Visa does not require the investor to spend a significant amount of time in Spain each year. This requirement arises only over time if you intend to obtain permanent residence or citizenship of the Kingdom. Thus, the vast majority of Russian citizens who have issued the Spanish Golden Visa remain non-residents for the first five years.

What taxes are non-residents obliged to pay?

For this category of investors, there are three mandatory types of taxes:

1. Property Tax. Officially known as Impuesto sobre Bienes Inmuebles (IBI). Since this tax is municipal, its amount can vary significantly depending on the municipality where the property is located. The calculation takes into account the cadastral value of the property at the time of purchase and the annual inflation rate.
2. Additional Property Tax. This also varies in amount depending on the municipality. Essentially, it is a fee for the maintenance of the surrounding territory and can be considered, with some convention, as a "garbage collection tax."
3. Non-Resident Income Tax. If you earn income from renting out your property (which is a common case for Russians holding Golden Visas), you pay 24% of the income received.
4. Wealth Tax (IP).

Taxes for Residents

Foreign residents pay all the above-mentioned taxes except for the last one. In other words, if they use the purchased property, they do not need to pay income tax on it.

However, if rental income is involved, the resident pays capital gains tax on the income received, calculated on a progressive scale.

Important! It should be noted that residents pay income tax in Spain on all their income earned worldwide, while non-residents pay only on income they receive in Spain.

Undoubtedly, in addition to the main tax items, property owners in Spain make some other regular payments. Primarily, these are various utility charges. Most housing in Spain belongs to different homeowner associations, so each owner pays their share of the expenses for maintaining the complex. This includes, for example, staff salaries, contractor expenses, electricity, and water costs.

In the case of a private house, you will need to arrange insurance, and the payments for it will also be on the list of mandatory expenses.

Taxes when purchasing property in Spain

If you are our client and are applying for a Spanish Golden Visa, you are most likely using the purchase of real estate for this purpose. Approximately 94% of all investors do so. Perhaps you don't need such a visa and simply wish to purchase a house or apartment in Spain. In all these cases, it's useful to know:

What taxes do buyers of Spanish real estate pay at the time of the transaction?

According to Spanish laws, certain payments and taxes are made at the time of the transaction by both sellers and buyers. The buyer pays for notary services and registration fees.

• Notary fees depend on the transaction amount and increase with it, ranging from 0.03% to 0.45% of the property's value.
• Registration fee ranges from 0.5% to 2% of the total property price.

Taxes on the primary market

Taxes on the secondary market

Table 1/2. Taxes when purchasing property in Spain

Some details require a bit of clarification:

• Legal entities purchasing commercial real estate receive VAT back within one month.
• The amount of stamp duty depends on the property's price and the region where it is located. In Madrid, IAJD equals 1.5%.
• The property transfer tax rate depends on the region. Examples of regions with high rates: are Andalusia, Catalonia, and Valencia. Examples of regions with low rates are the Canary Islands, Biscay, and Madrid. There are regions (e.g., Aragon, Balearic Islands, Extremadura) where the rate is calculated on a progressive scale.

Taxes in Spain on maintenance, rental, and sale of property

For many Russians, Spain is a dream country associated with relaxation, wine, fiery music, and fun... Many would like to own property here, and our company GARANT.in provides this opportunity to many of its clients.

But now you've bought an apartment or a separate house in Spain and paid the taxes during the purchase. Do you need to pay taxes afterward? Which ones and in what amount? Let's discuss this!

Spain is one of the EU countries with low taxes

Of course, as the saying goes, you have to pay for all the good things, especially for the Spanish sea and sun. But the good news is that overall, the level of property taxes in Spain is lower than in most European Union countries. For example, the income tax for non-residents is 24%, while for their closest neighbors, the Portuguese, it's 28%, and for Germans, it can reach up to 50% in some cases!

In Spain, both residents and non-residents who own property and have a tax identification number (NIE) pay several different taxes. Let's focus on those that concern non-residents since most Russians who have obtained the Spanish Golden Visa remain in this status.

Taxes on property maintenance

The main one is called IBI (Impuesto sobre Bienes Inmuebles). It has a nationwide status, but its amount varies between 0.405% – 1.3% of the cadastral value, depending on the type of object and its location. Although the tax is annual, it is paid in installments quarterly.

For example, in 2020, the tax in Madrid was 0.6042%, in Barcelona 0.825%, and in Valencia 1.071%.

Another tax related to property maintenance is the Wealth Tax (IP - Impuesto extraordinario sobre el Patrimonio). It is calculated on a progressive scale: the more expensive the property, the higher the tax. The calculation is as follows:

• Minimum rate of 0.2% (if the property is worth less than €167,000);
• Maximum rate of 2.5% (if the property's price exceeds €10.7 million).

In addition to the above, there is also a municipal tax for communal services (garbage collection, utility maintenance, etc.). It is set by the local authorities and usually amounts to several hundred euros per year.

Tax on rental income

This is relevant for those who rent out their property. For non-residents, the rate is 24% of the gross income received from the rental. For residents, by the way, it's 3% less.

The tax must be paid quarterly. However, the tax base can be reduced by deducting depreciation (e.g., repairs). Usually, such a reduction amounts to 2-4%.

Important! Even if a non-resident does not rent out their property, they pay a tax equal to 24%, but not on the full value of the housing, only on 2% of it (or 1.1% if the cadastral value of the object changed after 1994, which is often the case, especially for separate houses and villas). This tax is sometimes called a "deemed rental income tax." It is paid at the end of December each year.

Taxes at the time of property sale

The main one is the capital gains tax. You need to pay it if you sell the property at a higher price than you bought it. The tax rate is 19% of the difference between the sale and purchase price.

Important! In situations where the property owner has carried out renovations, the expenses can be added to the initial price, thus reducing or even eliminating the difference. However, renovation costs must be confirmed by receipts and contracts with contractors!

If the property includes a land plot, when selling it, you also pay a tax on the increase in land value. The rate depends on several factors, mainly on the municipality and the duration of land ownership. The maximum possible tax amount is 30% of the increase in value.

All the above is summarized in the following table:

Table 1. Spanish taxes on property maintenance and sale

For more complete and accurate information about all the nuances of the fiscal policy of the Spanish authorities, you can consult with our company's advisors at GARANT.in.