Tax Considerations On Short-Term Leases

If you are an individual supplying short-term accommodation in Spain, you will be subject to pay Spanish taxes even if you have the condition of non-resident in Spain.

1. Spanish Personal Income Tax

If you are classed as official resident in Spain you will be subject to Spanish tax on your worldwide income, calculated on a progressive scale ranging from 19% to 45%, although tax deductions exist. Each region sets its own Spanish tax bands and rates of income tax, so how much income tax you pay depends on where you live.

Differences between short and long-term leases for residents in Spain is the 60% tax allowance applicable to the long-term profit. Short-term leases earnings are taxable at 100%.

The income to be declared is the whole amount received from the tenant deducting the expenses paid by the rental property owner related to the leasing but in proportion to the days in which the property has been rented out, including:

• Mortgage interests
• Depreciation
• House insurance
• Property taxes (IBI)
• Garbage taxes
• Agency costs
• Maintenance and repair costs

We would like to explain in deep the imputed income as it doesn’t have an equivalence in any other tax system. Basically, this tax is a legal fiction whereby it is surmised that you derive some form of financial benefit (income) from your properties. This should be paid even on the properties outside Spain. The tax is based in the cadastral value of the property (you can find it on the IBI receipt). As properties outside Spain don´t have cadastral value, the tax is calculated on the acquisition value.

If the house remains empty for all or part of the year as happens with the short-term leases, the imputed income applies to these periods.

As a tax resident in Spain, any income received from rental properties located abroad is also subject to Personal Income Tax in Spain. In this case, an allowance may be applicable to avoid double taxation. This amount of allowance is limited according to Spanish law and double taxation treaties.

2. Non Resident’s Tax

If you have the condition of non-resident in Spain and are the owner of a property located in this country, you will be subject to Non-Resident’s Income Tax.

The income to be declared is the whole amount received from the tenant deducting the expenses in the case you are resident in another European Union member state, Iceland or Norway and as long you provide a tax residency certificate.

For those taxpayers, any expenses paid by the rental property owner related to the leasing can be deducted but in proportion to the days in which the property has been rented out, including:

• Mortgage interests
• Depreciation
• House insurance
• Property taxes (IBI)
• Garbage taxes
• Agency costs
• Maintenance and repair costs

Once obtained the rental profit due to the above, the tax amount to pay is calculated on 24% or 19% for those taxpayers’ residents in another European Union country, Iceland or Norway.

Residents from outside the European Union who rented out a property in Spain cannot deduct any expense. They must pay taxes on the whole income and the tax rate is 24%. Since the UK has left the European Union, the British are considered residents from outside the European Union and cannot offset any expense.

Even though the general rule is that this tax is paid quarterly, it depends on the result of the tax amount to pay:

• With positive result: within the first 20 calendar days of the months of April, July, October and January in relation to the income received within the previous calendar quarter.
• With result nil: from 1 to 20 January of the year following the accrual year for the declared income

Spanish tax law requires that non-resident owners of properties in Spain have to pay taxes even for the period of time in which the property has not been rented out. Its calculation is based on the cadastral value (stated in the IBI receipt) and it is submitted a year in arrears so the deadline to submit it is the 31^st of December of the following year.

Of course, if you have rented out the property during any period in the year it will be taken into consideration to calculate this tax as it is paid only for the days in which the property has been at its owner’s disposal.

Contact Us

Get in touch with us if you would like further information about this article or any Legal, Accounting and Tax Advice.

Laura Miralles Server and Maria Diego Leyda
Impley – Legal, Accounting & Tax Advice
Telf.: +34 965 854 423
Email: info@impley.com
Web: https://www.impley.com

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