WHAT ARE THE PROPERTY LETTING TAXES IN SPAIN FOR NON-RESIDENTS?

From January 2024, this year,  property lettings taxes for non-residents may be combined in a single annual return that must be filed between 1 and 20 January of the following year. This means that if you’re letting a property in Spain and you’re considered non-resident, from 2025 you’ll be able to combine all the rent received during the year, even if it’s from different tenants, into a single tax return.

N.B. From 2024 C&D Solicitors will also provide the service of the IRNR tax declaration for non-resident owners who rent out their Spanish property. Please send us an email now to info@cdsoliciotors.com if you like to be added to our mailing list and we´ll inform you about our fees plus all potential deductions to reduce your tax payment.

What is the current status of the rental property market in Spain?

Over the last few years, the purchase and sale of homes by foreigners with the intention of letting them out, especially for holiday lettings, has been key to the boom in the property market. In tourist areas such as the Costa del Sol, the Costa Tropical or Axarquía and cities such as Malaga, Marbella and Benalmádena, the volume of sales is very high.

The increase in rental prices in the Mediterranean coast of Andalusia, driven by the high demand for holiday lettings, has fuelled interest among non-resident buyers in the purchase of properties. Individuals, companies and investment funds have long had their sights set on different towns and coastal areas in Andalusia, with the goal of purchasing properties intended to be used as holiday lets.

Is it profitable to invest in a property to be let in Spain?

The answer is YES, the objective data proves it. However, it’s necessary to take into account two very important factors: the price to be paid for the property and the demand for lettings in the specific area. Many estate agents offer these data.

According to Idealista, in the first quarter of 2024, the weight of seasonal lettings as a whole in Spain reached 11% of the market. In Andalusia, seasonal lettings already represent 21% of the total number of flats let in Cadiz, 13% in Malaga, 9% in Granada and 7% in Seville.

Is it profitable to invest in a property to let in the Costa del Sol?

In the city of Malaga, over the last 4 years, rent prices have increased by almost 40% and, over the last 12 months, they’ve gone up by 14%. Currently, each ad for a long-term let published in Malaga attracts an average of 28 potential tenants. The report for the first quarter of this year 2024, published by property portal Fotocasa, shows that the average return on investment for homes in Andalusia has been 6.1%.

This report reveals a clear reduction in the profitability of the historic city centre in Malaga, which has gone from 4.3% to 1.6% in one year. This is due to the high price of housing in this area of Malaga, which increases the time required to obtain a return on your investment.

Different yields per district in Malaga

This report shows that other neighbourhoods in the city of Malaga, a bit father from the city centre, such as El Cónsul, Ciudad Universitaria, El Romeral, La Unión or Cruz de Humilladero, have provided returns in the last year ranging from 4% to 5%, as property prices in these areas are much lower. Many new build projects in the city of Malaga are being developed in these neighbourhoods.

According to this report by Fotocasa, in the western part of the Costa del Sol, the average return for homes in the last year sat at 4.5% in Marbella and, in Torremolinos, the average was 5.7%, in Benalmádena 5.1%, in Mijas 5.9%, in Fuengirola 4.7% and in Estepona 4.6%.

In the eastern part of the Costa del Sol/Axarquía, we can find Rincón de la Victoria with 4.9%, Vélez Málaga with 5.5% and Torrox with 5%. In Granada, on the Costa Tropical, we have Almuñécar with average returns of 4.6% and Motril with 5.7%.

Do non-residents have to pay property letting taxes in Spain?

The answer is YES. Every property located in Spain is subject to Non-Resident Income Tax (IRNR). If the property is let out, whether in a long-term tenancy, a short-term tenancy or as a holiday home, the owner or each of the owners will have to file Form 210. Likewise, if there are different cadastral references, a tax return must be filed for each cadastral reference.

When are non-residents exempt from declaring rental income?

For the first time, from January this year, the filing date for Form 210 is between 1 and 20 January of the following year. I.e., rent and income received from a home by a non-resident in 2024 will be declared between 1 and 20 January 2025.

Remember that it is now possible to file a single annual tax return for each owner, even if there are different tenants, as is the case for holiday lettings in Malaga.

What is the tax rate for rent received by non-residents in Spain?

The tax rate is 19% for residents in the European Union, Iceland, Norway and Liechtenstein. However, non-EU residents will be required to pay a tax rate of 24%.

Can I deduct expenses from the rent of a property if I’m non-resident?

Two scenarios must be considered: Non-residents living in the EU, Iceland, Norway and Liechtenstein can deduct expenses from the gross rental income.

However, non-residents living in other countries, i.e. outside the European Union, can´t deduct any expenses and will be liable to pay tax on the total gross income obtained from property rentals.

What tax is payable if the owner of a property is a non-resident commercial company?

In this case, the foreign company that owns the property will be required to file Form 210 annually, in the same way as a non-resident individual, as the foreign company will also be liable to pay IRNR. The tax rate will be the same as for an individual owner.

Can the Treasury interpret that I’m carrying out economic activities in Spain if I’m letting out a property?

A non-resident that owns several rental properties in Spain is not considered to operate through a permanent establishment in Spain or, in other words, is not considered to be engaging in business activities. According to Spanish tax regulations, the simple letting of several properties is not one of the cases included in the concept of a “permanent establishment”.

However, there is also the case of a non-resident letting out several properties in Spain and hiring, to manage these activities, at least one person in Spain with a full-time employment contract. In this case, the Treasury would interpret that the activities carried out are of a business nature, through a permanent establishment. This would entail liability for Company Tax and a requirement to file quarterly returns. The tax rate would be of 23%, due on the difference between income and expenditure for the permanent establishment.

What is the main thing to keep in mind if I buy a property in Spain as a rental investment?

Hire a lawyer specialising in property law to advise you during the purchase process. If you have legal questions or seek legal of fiscal certainty, a lawyer would be the right professional to ensure peace of mind. There may be limitations and restrictions to the letting of a property, in addition to other types of legal issues and your lawyer will review all this in a due diligence and inform you before you sign the private purchase contract.

C&D Solicitors, specialist lawyers in property law in Andalusia

At C&D Solicitors, we specialise in providing property advice to foreign clients, whether individuals seeking to buy a second home or an investment property in Spain, as well as investment companies or investment funds seeking to grow their asset portfolio and take advantage of the capital gains they can obtain in the property market and in property operation.

We offer “full service” advice throughout the process in your native language: English, Dutch, Swedish, French and German. You can call us at +0034 952 532 582, send us a WhatsApp message at +34 639 54 16 02 or write to us at info@cdsolicitors.com. We’ll look into your case, we’ll send you information about the process and a cost estimate for this, with no commitment whatsoever.

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