Spanish Tax Reform – Rental Income from Real Estate in Spain

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This issue we offer an introduction to the Spanish tax system concerning the income you could generate out of properties located in Spain. Description of “inland revenue” in Spain: earnings deriving from the lease, or the creation of rights or powers of use or enjoyment, of rustic and urban Spanish property, or of rights “in rem” over these properties, which are owned, and not used for economic activities, by the taxpayer, shall be considered earnings from real estate.

 

Income derived from the lease of real property is considered earnings from real estate, except if the two following circumstances occur simultaneously:

  • That at least one business premises is used when conducting the activity and that this use is exclusively for the management of the rented buildings.
  • That at least one person is employed under a full-time job contract for the purpose of carrying out this management. Since approval of the 2015 tax reform, in order for a property leasing to be considered an economical income against earnings from real estate, at least one person mist have a full-time labour contract for the purpose of carrying out the management of the activity. The other requirement, which was that in the development of the activity there must be at least one premises dedicated exclusively to the management of the activity, has been removed.

 

Taxes to be applied to the property leasing invoices:

  • When the property is intended as the primary residency of the tenant, the rent must not include any tax – VAT/IVA or withholding tax.
  • When the use of the property is not going to be a residency and its final use is going to be in the nature of business premises or office – in order words, have a commercial use – then the owner has the obligation to issue an invoice to the tenant including the tax (VAT/IVA or withholding).

 

Tax rates in Spain (general rule):

  • The VAT/IVA tax rate in force in Spain in 2015 for property rental is 21 per cent.
  • During 2015 the withholding tax rate to be applied is 20 per cent. This rate should be reduced to 19 per cent in 2016.

 

Arcos & Lamers Asociados Avda. Ricardo Soriano, Marbella Tel. (+34) 952 775 010 / www.arcos-lamersasociados.com

 

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