Holding spanish real estate

DIRECT HOLDING OF REAL ESTATE

This section discusses the most important tax implications of the direct holding of real estate and the impacts for resident individuals and non-resident individuals. resident companies and non-resident companies.

Resident individuals
Personal income tax
Income derived from real estate, such as rental income, is subject to individual income tax at a rate of 19-48%. There is a 60% tax reduction available where the property is rented out as a dwelling.

Renting real estate would be taxed as an economic activity (19-48%) for personal income tax purposes, if a full-time employee is hired (sales are taxed as capital gains).

Real estate tax

Real estate tax is levied on an annual basis and the tax rates may range from 0.4%-1.10% on the cadastral value of urban properties, and 0.3%-0.9% on the cadastral value of non-urban properties.

Spanish wealth tax

Spanish wealth tax is payable by both resident and non-resident individuals (who hold assets in Spain). If total wealth exceeds 700.000€ (500.000€ in some regions), the taxpayer will be liable to a Spanish Wealth Tax of 0.2-3.75% of net asset value, with variations existing between regions. As well as a 700,000€ tax-free allowance, homeowners are allowed a further 300.000€ allowance against the value of their main residence.

Deductibility of costs, interest and depreciation

The necessary costs for obtaining income, for example interest, are deductible from rental income.

Losses – carry back/forward

If the costs are higher than the rental income, losses may be deducted in the following four years.

Non-resident individuals

The same rules apply for non-resident individuals, except no expenses are deductible. The current Spanish rental income tax rate for non-residents is 24% of gross income with no deductions or reductions allowed for expenses.

However, EU and EEA residents do have a reduced income tax rate of 19% with the possibility to deduct expenses, if they are directly related to the income obtained from real estate in Spain.

Resident companies

Corporate income tax

Business income, such as rental income and capital gains, are subject to corporate income tax at a flat rate of 25%. All income gains and expenses of companies are accounted for on an accrual’s basis.

Deductibility of costs, interest and depreciation

The necessary costs for obtaining income, for example interest, are deductible from rental income. Land cannot be depreciated.

Real estate tax

Real estate tax is levied on an annual basis and the tax rates may range from 0.4%-1.10% of the cadastral value of urban properties and 0.3%-0.9% of the cadastral value of non-urban properties.

Losses – carry back/forward

The unused losses of a Spanish real estate company can be carried forward and applied against its future income. However, the carry forward of losses may be denied or restricted in certain circumstances.

Non-resident companies

The current Spanish rental income tax rate for non-resident companies is 24% of gross income, with no deductions or reductions permitted for expenses.

However, EU and EEA resident companies have a reduced income tax rate of 19% with the possibility of deducting expenses, if these are directly related to the income obtained in Spain.

INDIRECT HOLDING OF REAL ESTATE

This section discusses the most important tax implications of the indirect (shares) holding of real estate and the impacts for resident individuals and non-resident individuals. resident companies and non-resident companies.

Resident individuals

Personal income tax

Income tax at a rate of 19-23% is levied on individuals for their worldwide income from shares (i.e. dividend income).

Deductibility of costs, interest payments and depreciation

For the calculation of the net return, the expenses incurred through the administration and deposit of these shares may be deducted.

Losses

Losses are offset against other capital gains. If there are still losses, then these can be offset against the positive balance between capital gains and capital losses up to a maximum of 20 percent. If there are still losses, the taxpayer has the following four years to offset them.

Non-resident individuals

Non-resident individuals are subject to income tax for non-residents at a flat rate of 19%. The taxation in Spain may be limited if a double taxation treaty signed by Spain and the state of residence of the individual exists.

Resident companies

Corporate income tax

Dividends received by a resident company are subject to corporate income tax at a general rate of 25%, although some exemptions may apply.

Exemptions

Generally, dividends received from companies in which at least a 5% interest has been held for more than a year (or with an acquisition value of over EUR 20 million) are exempt from corporate income tax.

Anti-tax avoidance directive (ATAD)

The ATAD is a directive published by the OECD that will be implemented by European countries. The ATAD contains certain interest restrictions that may affect real estate investors. On 19 October 2018, the Spanish Council of Ministers approved an anti-tax evasion Bill proposal which included the implementation of the ATAD. This Bill must still follow the corresponding parliamentary process.

Non-resident companies

Non-resident companies are subject to income tax for non-residents at a flat rate of 19%. Taxation in Spain may be limited if a double taxation treaty between Spain and the state of residence of the individual is in force. Moreover, if dividends received from EU and EEA companies in which at least a 5% interest has been held for more than a year (or have an acquisition value of over EUR 20 million) could exempt non-residents from income tax, if the company is covered by the parent-subsidiary Directive.