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 articles on our website in November 2010 and October 2013:
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.
Depending on the property final use, the income subject to tax payment may be distinguished between:
1.- INCOME FROM LEASED PROPERTY: when the property is leased, the income to be declared will be the whole amount received, excluding Spanish VAT.
2.- TAXABLE INCOME OF URBAN REAL PROPERTY FOR PERSONAL USE: asthis is the most common case, it will be deeply analyzed below:
The income to be declared is the amount resulting from the application of the following percentages to the property cadastral value:
Generally, 2 per 100.
In the event of property with a revised or modified cadastral value, 1.1 per 100 from the 1st of January 1994.
Once these percentages are applied, the final payable amount should be calculated for each of the owners pursuant to how long they have been owners of the property during the year.
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.), including the steps in English to fill it in. It is worthy mentioning that it is not easy to understand them.
Our office is currently dealing with the IRNR season 2012. 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. Thus, if you have owned a property in 2012, you should contact your tax advisor to fulfill this tax liability as soon as possible.
If you need our advice, we will be pleased to help you.
Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)
In the last few years, property market prices have dropped in Spain and the cases in which the National or Regional Tax Administration has reviewed declared values for property transfers have increased, whether for conveyance, inheritance or gifts; that is, you may sell your property for a certain and determined price, but the Regional or National Tax Administration may review that value after the sale and for tax purposes; then, it may consider that the real value of this sold property is higher than the one declared on the deed of sale, and therefore, the buyer shall pay the Transfer tax (ITP) on property transfer on the basisof the new value, which has been reviewed by the Regional Tax Administration, although the buyer had bought it for a lower price. In addition, the seller may have to declare capital gains higher than those actually obtained as a result of the review carried out by the National Tax Administration.
The abovementioned situation is legal and possible pursuant to Article 57 of Spanish general taxation law, in which it is provided that the Public Administration may check the property values by using different means.
Regarding urban properties, the Regional Tax Administraions and the Andalusian Regional Government are often supported on the grounds of an Order that is yearly approved to calculate the taxable minimum value of urban properties in this regard. As a result of this, it is possible to calculate this taxable minimum value from applying a rate provided by this Order to the details contained in the real estate tax IBI receipt (council tax). Then, you can know in advance whether the Tax Administration may claim more taxes or not when transferring your property.
Regarding rural real estate or properties with special characteristics, the matter becomes increasingly complicated, since Public Administrations may not always proceed by applying the aforementioned values and sometimes they are supported on the grounds of an expert report drawn up by technical personnel of the Tax Administration, which justifies the proven value of this rural or special property; for example, currently it is very common that the reviewed value for this type of properties is determined according to the estimated average values of construction, which are yearly publish by the Professional Association of Architects of Malaga. These values are indexed in a table containing the construction value per built square metre pursuant to the construction type and its features.
In the last year, as a result of this significant increase of value reviews by the Andalusian Tax Administration and, to a lesser degree, the National Government, our law firm always carries out an estimation of the taxable minimum value for tax purposes when advising our clients about property conveyance issues. Thus, they are warned of the possibility that their property value may be reviewed and the possible extra cost which may arise from this review. This is aimed at preparing our clients for this unpleasant surprise.
In general terms, the Andalusian Regional Tax Administration currently collects every single Euro from value reviews of property conveyances, so that if the taxable minimum value is higher than the conveyance actual value, it is quite normal that the Regional Government notifies you after a few months claiming the payment of the ITP tax on property transfer, stamp duty tax or gift and inheritance tax for the excess value reviewed.
The National Tax Administration, which is the competent body for capital gains collection of property sales, is not as determined as the Regional Tax Administration is when reviewing values. However, in those cases that the seller is not a tax resident and no capital gains has been obtained for the sale, when the 3 % withheld by the buyer is requested to be returned, the National Tax Administration does not hesitate to review the taxable minimum value of that property, so that the 3 % withheld is not returned in full to the seller. Furthermore, as a result of the reviewed taxable value, the seller may also have to pay the Tax Administration for capital gains, although no real gains had been obtained from the sale.
Obviously, there are grounds to challenge the property revaluations before the Public Tax Administration; however, in order to know if it is worthy to challenge it, it is important to examine and analyze each particular case in detail and determine if the reviewed value is properly justified before going ahead with the recourse.
Finally, it is also worth mentioning the possibility to file with the Tax Administration, prior to the property transfer, a binding report to obtain from the Tax Office the taxable value of this property. In some cases, it may be advisable to request this report, which commits the Tax Administration to respect it, although the value on this report will also oblige us for tax purposes.
Recently, some of our clients have received notifications at our law firm from the Spanish Tax Office demanding the submission of a copy of their Spanish Income Tax return for fiscal Residents or their Income Tax Return for Non Residents with properties in Spain, which are compulsory to be filed in these cases and considering that Spanish Tax Authorities know they own or have owned a property in Spain. Warning that failure to do it will be fined or will give them a penalty. This issue was formerly considered in a previous article published on our website.
These notifications are referred further back in time, that is, Tax Authorities request the submission of the aforementioned returns, whether they are fiscal residents or non-residents in Spain, for these years in which they have been owners of these properties. For example, we are recently dealing with a case in September in which Spanish Tax Authorities are demanding the last and enforceable Income Tax returns for Non Residents—Spanish IRNR— for the years ending 2008, 2009, 2010 and 2011.
By means of these notifications, a tax management procedure is initiated aimed at controlling the submission of tax returns, self-assessments and data communications which are compulsory by law. By means of this procedure, Tax Authorities try to carry out the regularisation steps corresponding to these cases where taxpayers have failed to meet their tax liabilities, because they have not submitted their Income Tax returns for fiscal Residents (Spanish IRPF) or Income Tax returns for Non fiscal Residents (Spanish IRNR). You can get access to further information in English from Tax Authorities about these and others tax obligations for non residents at the Agencia Tributaria website.
It is also worth mentioning that the reception of these notifications, when they are duly served, suspends the limitation period in which Tax Authorities are entitled to recover what is claimed and for the periods referred in the notifications. In addition, they also suspends the limitation period to impose tax penalties resulting from the regularisation procedures applied to cases which are not subject to law. The aforementioned notification and subsequent settlement are accompanied by a tax penalty.
On a recent visit to the tax office in Velez-Malaga, the official in charge of these matters confirmed us that it has been sent more than a thousand of such requirements during this month and last August, only for some locations in the region of the Axarquia.
Against this background, if you find yourself in this situation—you are a Non Resident in Spain owning a property in Spain, whether you have received this type of notification from the Spanish Tax Authorities or not, you may receive it in the near future. Thus, C&D Solicitors recommend you to normalise your situation as soon as possible by submitting every Income Tax returns for Non Residents for the last 4 years in which you have owned a property in Spain. This may prevent you at lease from paying the financial penalty which accompanies the aforementioned notifications.
Author: Francisco Delgado Montilla, C&D Solicitors (lawyers) Torrox-Costa (Malaga/Costa del Sol/Andalucia)
This liability only affects resident taxpayers; non-residents are not liable for submitting this tax return.
Any account in financial institutions and any kind of real property or real property rights of ownership shall be declared, as well as any securities, interests, insurances and incomes, which are deposited, managed or obtained abroad.
Taxpayers shall inform about these assets and rights which they own abroad as at 31st of December 2012.
This tax return shall include any kind of assets and rights provided that the individual value for each of them exceeds EUR 50,000. This includes the following:
- All accounts in financial institutions—account balances as at 31st of December and average balances for the last quarter.
- Real property, indicating the purchase date and acquisition value.
- Real property rights of ownership, indicating the opening or cancellation date.
- Securities, interests, insurances and incomes which are deposited, managed or obtained abroad as at 31st of December of each year.
The submission of this informative tax return in successive years is only compulsory when the established limit have increased more than EUR 20,000.
The requirements of this tax liability shall be met between the 1st of January and the 31st of March in the following year to which this information refers.
This tax liability refers to both individual residents and bodies corporate which are liable for corporate tax in Spain. Tax form 720 shall be electronically submitted to fulfill the requirements of this tax return.
The recent approval of this tax liability to inform about assets located abroad represents a new control method for liable taxpayers in order to uncover informal economy, tax evasion and money laundering.
Fines are significant and they do not refer to the legal o illegal way of obtaining those assets, but to the fact that they are declared or not. The failure to submit the informative tax return will be considered a very serious infringement and the corresponding sanctions will be applied. This implies the payment of a EUR 5,000 set fine for each point of information which is not declared and the minimum fine amounts to EUR 10,000. The fine for individual taxpayers amounts to EUR 100 for each point of information and the minimum fine amounts to EUR 1,500, where the informative tax return had been submitted after the deadline without previous notification from the Spanish Tax Authority.
It is worth stressing the heavy fines, including for declaration of imprecise information. The above mentioned Royal Decree does not allow misunderstandings. A single mistake may result in a heavy fine. The declaration of incomplete or imprecise information entails the same sanctions. The fact that these assets are correctly declared in the country of origin will never be considered a ground for excluding the liability to pay the fine.
It is also determined that the tax liability to inform shall not be time-barred in respect to the date of origin of the assets and the application of this rule.
If this is your case, please do not wait any longer and prepare all the necessary information for submission to the Spanish Tax Authority in the following days. If you have any doubt or enquiry regarding this issue, please do not hesitate to contact us.
Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)
C&D SOLICITORS S.L.P. Calle La Noria, oo Edif. Recreo II, 1-15 29793 Torróx-Costa (Málaga), Spain (Entrance at backside of building)