Income tax for non residents

TAX CONSEQUENCES OF BREXIT FOR BRITISH PROPERTY OWNERS IN SPAIN

Written by Gustavo Calero Monereo on 11 December, 2020. Posted in andalusia, Brexit, Capital Gains, conveyancing, costa del sol, ducth speaking solicitor, Income tax for non residents, lawyer, legal advice, property law, swedish speaking solicitor.

TAX CONSEQUENCES OF BREXIT FOR BRITISH PEOPLE IN SPAIN — Due to the Brexit there are many tax consequences for British citizens in Spain

We are near the end of the transition period established within the BREXIT for British citizens resident in Spain, which ends on 31 December 2020. There are many tax consequences for British citizens in Spain but for now we are only going to focus on British citizens with assets in Spain. For example pensioners or owners of a second home. From the perspective of trade or the movement of British citizens in Spain for work reasons, the tax and bureaucratic consequences of Brexit are higher, even though we will not cover that in this article. However, we will also briefly address the process to obtain Spanish residency. This because during the past few months we have witnessed many police stations becoming overwhelmed and unable to meet the many requests for appointments for British citizens and their family members to obtain a residence permit in Spain. This procedure was approved as part of the transition period set to end on the 31st of December 2020.

Over the last few weeks of 2020, it has been impossible for many British citizens to make an appointment at the police station in the province where they live and this also applies to the province of Malaga in Andalusia. This has led many British citizens resident in Spain or about to move to Spain starting 2021 without a residence permit.

What will be the situation of British citizens resident in Spain after BREXIT?

Well, these British citizens will have to apply for a residence permit after the final Brexit on the 1st of January 2021, just like any other citizen from a third country outside the European Union. We recommend that first of all these citizens register with their city hall as soon as possible and also request a S1 form from the United Kingdom to prove that their healthcare costs in Spain will be covered by the United Kingdom. After this, the easiest thing to do is to contact a law firm or administration company that can advise you and help you with the process, as it will be complicated to do it on your own. It is very important not to delay and do this as soon as possible, even though it is true that there is currently a lot of uncertainty about the procedure in question, as the negotiations with the European Union remain open.

How will the status of British citizens change after 1 January?

British citizens will be able to travel to Spain and stay for up to 90 days within a 6-month period, consecutive or not, without having to obtain a visa. They could even be required to prove their financial capacity to cover their stay in Spain, as is the case with travellers from countries outside the European Union. If they wish to stay longer, it is very likely that they will have to apply for a visa or work permit, even though this has not been defined yet since the negotiations remain open.

What will happen with the British driving licence?

From 1 January 2021, the general regulations will apply and British driving licence will be valid to drive in Spain for six months counted from the owner’s entry in Spain or from the date that legal residence is obtained. They will need to exchange their British driving licence for a Spanish one to continue driving in Spain after those six months.

How will Inheritance Tax change after Brexit on the 1st of January 2021?

As we explained in detail in an earlier article about inheritance tax, fortunately, from 1 January 2019, citizens not resident in the European Union are able to obtain the same tax benefits and bonuses for Inheritance Tax as European citizens. Therefore, the application of Inheritance Tax and its consequences would not change for British citizens.

Potential future Inheritance Tax when buying a home in Spain

When considering the purchase of a home in Spain, as the regulations applicable to this tax depend on the autonomous community where the property is located, a very important matter is to consider which autonomous communities have a higher and a lower inheritance tax, before making such investment(s). For instance, British nationals are the main buyers of homes in Spain. Alicante (Valencian Community) and Malaga (Andalusia) are the two main locations for foreigners to buy a home in Spain but. However, when it comes to Inheritance Tax, there are big differences between one community and the other. The Valencian Community has the third highest Inheritance Tax in Spain, while Andalusia has the third lowest, according to the General Economists Council of Spain, in their taxation study for 2020. This means that, when thinking about that tax, Malaga has a much cheaper rate of Inheritance Tax than Alicante.

What happens to taxes on profits obtained from renting out my home in Spain?

If you bought a home in Malaga as an investment, for instance, and you use it for holiday rentals as a citizen of the European Union, the profit obtained from such rental would be taxed at 19% through their IRNR income tax for non-fiscal residents with a house in Spain. Many expenses can be deducted: mortgage interest, repair and maintenance costs for the property, electricity, insurance, etc. However, once you are considered a citizen not resident in the European Union, it will be taxed at 24% and no deduction for property expenses may be applied.

Estate Tax or Wealth Tax on my properties located in Spain

Estate Tax or Wealth tax also apply to assets and rights that non-residents have in Spain. As this tax has a minimum personal exemption threshold of 700,000 euros over the minimal fiscal value, all non-residents -in the EU or outside it- with assets of a lower value would pay nothing. The main difference in terms of EU and non-EU citizens lies in the fact that EU citizens can apply the regulations of the autonomous community where most of their assets are located. However, non-EU citizens would have to follow national regulations instead of those of the autonomous community where the assets are located. If we compare the tax rates in Andalusia to the national ones in terms of estate tax, the national rate of estate tax is somewhat lower. Therefore, applying national regulations does not always entail a greater tax liability.

The actual impact of that tax is non-existent for most non-residents due to the minimum fiscal value of 700,000 euros applied per person. This is why it is recommended that, if you are thinking about luxurious purchasing a property in for example Marbella on the Costa del Sol, it might be interesting to put the property in more than one name to profit from this exemption. Still, estate tax could have a high impact for those with high-value assets in Spain or considering the purchase of luxury properties.

How will Brexit affect the sale of my home in Spain?

The tax rate on capital gains obtained from selling the property stays at from 19%. The withholding (down payment) of the Capital Gain Tax that a buyer must apply to a non-resident seller to pay the amount at the Tax Agency in Spain will continue to be 3% of the purchase price. This percentage is the same for EU citizens and non-EU citizens.

Will Brexit affect the ITP transfer tax on the purchase of a home in Spain?

No, it will not. The property ITP transfer tax paid in Spain for the purchase of second-hand homes do not vary for EU citizens and non-EU citizens, for which reason, from 1 January 2021, it would not lead to greater expenses for British people. The same counts for the 21% VAT tax and documented legal acts (AJD tax) paid for new off-plan properties. The ITP tax depends on the autonomic region. For instance, in Andalucia a house buyer pays 8% ITP transfer tax over the purchase price up to € 400.000, until € 700.000 it´s 9% and after this the ITP will be 10%. To calculate the ITP tax on more expensive houses for a married couple it´s important to take into account if the couple is married in community or separation of goods.

Is the double-taxation agreement in force between Spain and the United Kingdom important?

Yes it is. The main purpose of this double-taxation agreement is for a British national living in Spain or a Spanish national living in the United Kingdom to be able to work and invest in those countries without having to pay twice for the same thing. This agreement will remain in force and is unaffected by the United Kingdom leaving the European Union. This agreement, which came into force on 12 June 2014, contains special clauses that exempt certain public pensions paid by the British government from taxation in Spain, as they can only be taxed in the United Kingdom. Likewise, this agreement protects residents national of either country from being taxed twice on income from capital gains and dividends. Income tax for non-residents, company tax, personal income tax and estate tax are covered by this agreement, for which reason these aspects should not be taxed twice in both countries.

Potential changes in the future for British house owners

Over the next few weeks, there will surely be changes affecting British nationals as it is very likely for the negotiations to change certain important aspects. However, on the date this article is posted (22 December 2020), little is known. We advise that, if you have any doubts, you contact and obtain legal or tax advice from a lawyer or company specialising in non-resident house owners.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Málaga

TAX DEADLINES WITHIN THE STATE OF ALARM IN SPAIN

Written by Gustavo Calero Monereo on 7 April, 2020. Posted in Andalusian, annual tax, conveyancing, coronavirus, costa del sol, COVID-19, english speaking solicitor, Income tax for non residents, lawyer, legal advice, nerja, solicitors Nerja, Spain, taxes for non residents Spain.

Due to the actual crisis that has been declared in the whole world by the World Health Organization because of the Coronavirus (also known as Covid-19), almost every country has put into force different measures.

*This document has been written according to the law and Decrees in force until 4th April 2020.

In Spain, the 14^th March 2020, the government declared the “state of alarm” (regulated in Art. 116.1 of the Spanish constitution and the organic law 4/1981), for 15 days, (until the 29^th March), through the Real Decree 463/2020, closing museums, monuments, restaurants and almost every business open to the public. Nevertheless, concerning the increase of the infections, the state of alarm has been extended for another 15 days until the 12^th April 2020, after the approval of the Parliament ( Congreso de los Diputados, Decree 11/2020), and pending for another extension until the 26^th April.

The main goal of these decrees is to prohibit free movement of people in order to prevent further increase of infection among the Spanish population. Nevertheless, all these measures have economical, fiscal and, of course, social consequences.

Extension of the payment dates for self-employed and small entrepreneurs (PYME) (Deferral and split payments).

Self-employed and small entrepreneurs with a turnover of less than € 6.010.121,04, are allowed to defer payment of the tax debt (less than 30,000 euros) without the need to provide a guarantee for a 6-month term. The first three of these months will not accrue default interest, with the consequent. Said deferral only refers to settlements or self-assessments that had to be presented or entered from March 13th to May 20th of 2020 (article 14 Decree 7/2020).
A postponement of tax debts that previously could not be postponed is now allowed (article 65 LGT):

Those that the person is required to make payments on account for (art. 65.2 b), such as the quarterly model 111 or the 3% model Modell 211.
Those derived from taxes that must be passed on by law having been collected (art. 65.2 f), such as model 303 of VAT
Fractional payments of Corporation Tax. (art. 65.2 g), such as IS model 202

Suspension of legal terms not concluded before March 14 (Decree 8/2020 and 11/2020)

Article 33 of Royal Decree-Law 8/2020 and its clarification with Decree 11/2020 applies to all taxpayers, extending the deadlines not concluded before March 14, 2020, until April 30 2020 for:

The payments of tax debt for liquidations in the voluntary period and those that, in the executive period, have been notified of the enforcement order. For example: if you have been notified of a settlement for the payment of a tax debt on March 12 you would have to pay it no later than April 20 (according to the General Tax Law in its article 65.2), however, with this decree the payment can be postponed until April 30.
Deadlines and fractions of deferrals already granted (prior to March 14, 2020 without prejudice to the deadlines reflected in art. 14 of the previous Decree 7/2020), as well as the deadlines on auctions and adjudication of goods made by the Treasury state.
Deadline to meet the state agency requirements, embargo proceedings, requests for information or to make allegations in tax procedures (regarding nullity, rectification of errors, requesting returns).
If there was doubt as to whether or not these tax procedures initiated by the corresponding autonomous and local Administration, the new Decree 11/2020, in its article 53, establishes that the suspension of the aforementioned period also applies to local and autonomous administration (in the art.33 of decree 8/2020).
Deadlines to meet requirements and requests of the cadastre.
No proceedings to execute the guarantees already seized which fall on real estate in the administrative procedures of constraint

What happens with the procedures communicated as of March 14?

For all the aforementioned procedures communicated as of that date, they are extended until May 20 of 2020 (unless the one granted by another tax rule is higher).

For example: if a settlement for the payment of a tax debt was notified on March 19, in normal cases you would have to pay it no later than May 5, however, with this decree, payment can be deferred until May 20.

However, in any of the above assumptions, if the taxpayer complied with the requirement, paid the tax debt or presented allegations despite the deferment granted, they will be understood to have been carried out for all purposes, procedure completed.

What happens with self-assessments such as the payment of Property Transfer Tax in the sale of a home?

When a person buys a home in Andalusia, they have 30 days to pay the Property Transfer Tax, which is currently 8% of the purchase price. The payment of the same is done through a self-assessment. In other words, the buyer or his/her representative prepares this tax model and presents it voluntarily for payment within that period.

The decree regarding the state of Alarm does not include self-assessments as deferrable, according to Royal Decree 465/2020, of 17 March, amending Royal Decree 463/2020 of 14 March, declaring a state of alarm, so for example, neither the quarterly settlements of VAT nor personal income tax (models 130 and 303) are postponed and maintains their deadline for April 20 for the third quarter.

What happens during the state of alarm with the legal term of actions that tax authorities can exercise against someone and the deadlines for filing appeals?

Royal Decree 11/2020 establishes that the period from March 14 to April 30, will not count for the purposes of prescription in the actions that the tax administration may exercise against the administered.

Let’s take an example, if the administration had a maximum period until March 19 to demand payment of a tax, and it has not been demanded by March 13 the administration automatically has until April 30 to request payment.

There would neither be a deadline for the expiration of the procedures initiated by the administration.

On the other hand, the deadlines for the filing of administrative economic appeals against tax acts or in the economic-administrative procedures not notified before March 14, 2020, do not start until after April 30, 2020.

What happens with the income declaration from rentals or the annual IRNR declaration for non-residents?

These deadlines do not vary, meaning that all non-residents in Spain receiving an income from rentals of a property here in Spain must declare said profit quarterly within the corresponding period.

Author: Guillermo Arenere Ruiz, lawyer at C&D Solicitors, Torrox (Málaga, Andalusia)

TAX PAYMENT FOR RENTING OUT YOUR SPANISH HOME

Written by Gustavo Calero Monereo on 10 October, 2019. Posted in Andalusian, annual tax, Capital Gains, conveyancing, costa del sol, form 210, Income tax for non residents, lawyer, RTA, tax resident.

Information on tax payment for renting out when you investi in a property in Spain: The number of foreigners interested in buying a property in Spain as an investment or just to be able to enjoy their holiday periods is constantly increasing. Over the last few years, the rental market, in particular tourist rentals, has grown enormously in Andalusia, especially cities on the Costa del Sol and the Costa Tropical, such as Málaga, Nerja, Almuñécar, Marbella, Benalmádena, etc.

More than a few home buyers in Spain are attracted by investment prospects through the earnings obtained by renting out their property. As expected, earnings obtained from renting such properties -either through a permanent contract or through holiday rentals- must be declared in Spain by both fiscal residents (yearly IRPF tax) and non-fiscal residents (quarterly IRNR tax).

What taxes are currently paid by non-Spanish residents?

Since 2016 citizens resident in the European Union, Iceland or Norway have to pay 19% of the profit obtained from rentals. Non-EU citizens must pay 24% of the earnings obtained from renting out their properties. This difference in taxation has resulted in a complaint to the European Commission for discrimination of non-EU citizens, which is pending resolution on the date of publication of this article. This of course is an important matter for British home owners after the Brexit, because when Great Britain leaves the EU under the current ruling they would be considered Non-EU citizens and would therefor pay more taxes.

Can non-residents deduct expenses?

Citizens non-resident in Spain but resident in any country of the European Union, Iceland or Norway can deduct the same expenses as citizens resident in Spain for short-term rentals. The only exception would be for properties rented as permanent homes of the renter as residents in Spain can deduct 60% of what is paid by the tenant while non-residents cannot apply this deduction. Official costs can only be deducted proportionally depending of the total amount of days that the property was rented out. For example, if you rent out 90 days a year, you can only deduct 25% of the yearly costs. Citizens not resident in the European Union, Iceland or Norway cannot apply any type of tax deduction, for which reason they would pay IRNR-taxes on the gross profit received from renting the property.

Tax payment for renting out

What expenses can be deducted?

Citizens resident in the European Union, Iceland or Norway can such as property taxes, waste removal or fees for the homeowners’ association. They can also deduct other expenses, provided that they can show that they are financially linked to the rental activity, such as interest on loans, repair and maintenance expenses, electricity, insurances, water or gas expenses, etc.

When do you have to declare this IRNR with tax payment for renting out?

Payment for income obtained by citizens non-resident in Spain from the rental of their homes takes place quarterly through submitting form 210. If you own more than one property, one form must be submitted for each. This form must be submitted within the first 20 days of April, July, October and January, i.e. it is necessary to submit four forms per year, declaring the rental income for the 12 months of the year. Homeowners who rent out their properties as holiday rentals can submit, in the same form 210, all income received from rent for the three months declared, even if it comes from different tenants.

What can happen if I fail to declare rental income?

If the Spanish treasury detects you are renting your home without declaring anything, it will initiate proceedings to send you a settlement proposal, which will entail late interest due to declaring your income after the due date. Likewise, the treasury is sure to initiate a penalty procedure where you could end up paying a fine of 50% to 100% of what you failed to declare. Currently, thanks to the internet and digital home rental platforms, such as Airbnb, HomeAway, SpainHoliday and Tripadvisor, the Treasury has carried out several inspection campaigns over the last few years, requiring thousands of homeowners to regularise their rental situation.

What about the RTA rental license and the Guardia Civil?

To be able to publish your property on online rental platforms you need to have a RTA rental license of the Registro de Turismo de Andalucia, both for urban and rustic properties. If you don´t have this license yet, we could apply for it on your behalf and inform you about all official requirements that secure a safe and qualitative home to the renter for which you could get an inspection. Urban properties also need their Firsts Occupation License and if you don´t have this yet, we recommend that you contract an architect to apply for it at your Town Hall. Standard licenses for rustic properties (“alojamiento turistico”) have a limit of 90 days a year and you can´t offer extra services like breakfast.

The last thing that you need to know if you rent out your property to tourists, is that you are obliged to report all arrival within 24 hours to the Guardia Civil (Police) through their online platform.

What do I need to arrange?

Well, even if you don’t like paying taxes, just as most of us don’t, we advise that, if you are renting your home in Spain, you regularise the situation and submit form 210 so you can pay the treasury for the profit obtained from renting the home.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

SPANISH INCOME TAX RETURN FOR NON TAX RESIDENTS (IRNR)

Written by Gustavo Calero Monereo on 17 November, 2016. Posted in annual tax, costa del sol, form 210, Income tax for non residents, IRNR 2016, NON RESIDENT, Non residents income tax, non tax resident, taxes for non residents Spain.

Time for payment your income tax for non residents in Spain (IRNR)

If you are a non-resident in Spain and own a property there, you are liable to Spanish Income Tax for Non-Residents payment (Spanish IRNR). This issue was already considered in former article on our website.

You would have to pay this year the IRNR income tax for non-residents of 2015. This means if you owned, bought, sold or inherited a Spanish property in 2015 and you are NOT a fiscal resident in Spain, then you are obliged to pay your yearly IRNR income tax for non-residents this year (Impuestos sobre la Renta de No Residentes). As a service to our customers C&D offers to take care of this tax application and its payment through direct debit before the end of this year.

When a property is owned by a married couple or several persons, each of them becomes an independent taxpayer, so that they should file tax returns separately according to the ownership interest they have on this property.

This tax duty needs to be done before the 31^st of December 2016. If you want to pay through direct debit, though, it needs to be submitted before the 22^nd of December 2016. The tax liability will be calculated with the tax information of your property following the cadastre registry, usually the tax payment it isn’t going to be so much. If you miss this obligation you could be fined by the Tax Authorities.

Tax form 210 is used to pay this tax and it can be downloaded from the official web of the Spanish Tax Authority (A.E.A.T.). It is worthy mentioning that it is not easy to understand them.

Our office is currently dealing with the IRNR season 2015. The deadline to file this tax return expires on the 31st of December of this year. Although if you want to place the payment as a direct debit in your bank account the form must be filled before the 22nd of December.

If you want to hire our services for this tax duty, we will be pleased to help you.

Author: Francisco Delgado Montilla, lawyer at C&D Solicitors Torrox (Malaga / Andalucia)