The tax impact of this type of operation must be analyzed considering both direct and indirect taxation. Let's see:
Direct taxation: Non-Resident Income Tax.
All Double Taxation Agreements signed by Spain grant taxing power to the state where the properties are located. Consequently, all income derived from the lease of real estate in Spain is subject to Spanish legislation, particularly the Consolidated Text of the Non-Resident Income Tax Law ("IRNR").
When is the landlord obligated to declare IRNR?
When a non-resident taxpayer rents a property exclusively for housing, and the income is paid by non-business or non-professional individuals. This is the case because the payer, in these instances, doesn't engage in any economic activity and therefore, is not obligated to withhold.
This obligation doesn't apply to commercial leases since the tenants already applies witholding tax on the invoices. In these cases, rents will be subject to withholding, and for this reason, the landlord will not have an obligation to declare the income.
How are these incomes declared?
By means of the annual filing of Form 210. The filing of the form can be done telematically through the Internet, or on paper generated by printing the form previously filled out at the Tax Agency's Electronic Headquarters.
The deadline for filing and payment will be the first twenty calendar days of January, in relation to income obtained in the previous year.
Which is the taxable base?
The taxable base is the amount of the lease, with no deductions allowed except for residents of other European Union Member States or in a European Economic Area State with effective information exchange.
Which tax rate applies?
Generally, a tax rate of 24% applies. However, it reduces to 19% when the income is earned by those owners who are residents of the European Union, Iceland, Norway, or Liechtenstein.
What happens if the property is vacant part of the year and/or used as a second residence?
In this case, the non-resident taxpayer is also obliged to pay taxes based on the cadastral value proportionate to the days the property was vacant and/or used as a second residence.
These incomes are declared annually through the filing of Model 210, with the deadline on December 31 of the following year, for example, if someone owns a second residence in 2023, the income can be declared until December 31, 2024.
As a result, there could be a situation where both quarterly and annual tax obligations coexist if the property was not leased for 365 days a year.
Indirect taxation: Value Added Tax
This tax, regulated by Law 37/1992, distinguishes in the tax treatment of property leases based on their nature and purpose.
Leases for properties exclusively for housing are exempt from the tax. However, the operation becomes subject to the Value Added Tax when it comes to leasing commercial premises.
How are these incomes declared?
Non-resident landlords are obliged to charge the corresponding Spanish VAT and declare it to the Tax Agency through the quarterly filing of Model 303, which can only be done electronically.
The filing deadline and payment are due in the first twenty natural days of April, July, October, and January, in relation to the incomes earned in the previous quarter.
Which tax rate applies?
The tax rate is 21%.
We hope this guide with basic information on the taxation of leases of properties by non-residents has been useful. However, our team of experts will be happy to advise and address any additional questions.
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