Your guide to taxes on rental properties in Spain

Your guide to taxes on rental properties in Spain

Spain has traditionally been a country with a low percentage of tenants, but over the last few years, the number of people who prefer to rent rather than buy has risen considerably. This increase along with fiscal incentives for landlords makes buy-to-let an attractive option. If you’re considering letting your home, read this guide to taxes on rental properties in Spain.

In it, we look at how rental income is taxed, deductible expenses for both long and short-term rental properties and the deductions you can apply to the taxable amount.

To ensure you comply with all your tax obligations in Spain, use a professional to represent you. Find out more about tax representation.

What is rental income?

For tax purposes, the Spanish tax authorities consider any money you receive from letting a property as part of your taxable income. As a result, you must declare this income annually and are liable for tax on it.

However, you don’t pay tax on the full amount; first, you deduct eligible expenses and then, if applicable, apply further deductions.

Read a free guide to buying Spanish property

What happens if you live off rental income?

If your livelihood comes from rental income, it is considered property capital income and a different tax regime applies. Note that you must fulfil a series of conditions for this regime such as have a full-time employment contract for the management of the rental properties.

What about IVA?

There are no IVA (VAT) taxes on rental properties in Spain if the tenant uses them exclusively as a home. The same exemption applies to the furniture, fittings, garage and any annexes.

Note, however, that the moment the property has a mixed-use – for example, a home and lawyer’s office – IVA is applicable.

Read the Spanish tax authorities FAQs on rental properties in Spain.

What about IVA on holiday lets in Spain?  

If you have a holiday let in Spain, you are not generally liable for IVA unless you offer services and charge holidaymakers for them. Examples of these include cleaning and laundry. You must apply IVA to the commission charged by booking platforms, e.g. Airbnb, for letting your property.

What are deductible expenses?

You’ll be pleased to hear that the list of deductible expenses runs long, although there are certain exceptions (see the next question below). Expenses that you can deduct from your rental income include:

  • Mortgage interest on loans for the purchase or refurbishment of the property.
  • Costs associated with the purchase of the property, for example, transfer tax and legal fees.
  • Non-national taxes, e.g. local council rates (IBI).
  • Upkeep and repair costs.
  • Community fees.
  • Insurance policy payments.
  • Utility fees, i.e. gas, water and electricity costs if you pay them, not the tenant.
  • Marketing costs if you promote your property on letting platforms.

What can’t I include as an expense?

The Spanish tax authorities don’t allow you to include the costs associated with upgrades or improvements to a property. You also cannot claim for expenses involved in an extension, e.g. adding another room or a swimming pool.

What is the maximum amount I can claim as expenses?

The maximum deductible is no higher than your total income. So, if, for example, your rental income is €12,000 for the year, you cannot claim more than €12,000 in expenses.

However, if your expenses are higher, you may deduct the excess amount over the next four years providing that the amount does not exceed your total income.

What happens if I only let my property for part of the year?

If your property isn’t rented for the entire year, you apply the proportional amount to your expenses. For example, if you let it for six months, you divide your expenses by 50%.

Can anyone deduct expenses for rental properties in Spain?

The above deductions only apply if you’re a Spanish resident or EEA national. If you’re a non-EEA citizen, you cannot take advantage of any deductions and therefore pay tax on the full amount.

Are there any deductions for taxes on long-term rental properties in Spain?

Yes, there are generous incentives for this type of rental. If the tenant is living in your property as their permanent home, you may deduct 60% from your taxable amount (income minus deductible expenses). However, this deduction only applies to long-term rentals for properties used as homes, not holiday accommodation.

What are the tax rates on rental income in Spain?

Spain applies the same taxes to rental income as the regular income you earn from employment. The rates vary depending on your residence status, as follows:

Residents in Spain – tax rates range from 19% to 47%.

EEA non-residents in Spain – a flat rate of 19% is applied to your rental income.

Non-EEA non-residents in Spain – if you are not an EEA citizen, you’re liable for tax at a flat rate of 24% on your rental income.

How can I get more information?

As with all fiscal matters, taxes on rental properties in Spain are complicated. To save time and stress as well as avoid potential problems with the Spanish tax authorities, get professional help from the experts. Our team of tax advisors will be only too pleased to help – just get in touch for a free consultation.

Maria Luisa Castro

Director and Founder
María founded CostaLuz Lawyers in 2006 and is the Firm’s Director. María is registered Lawyer number 2745 of the Cadiz Bar Association and is licensed to practice in all areas of law throughout Spain. Working closely with her team, María has developed the firm into one of the most highly regarded and trusted Spanish Law Firms acting for English-speaking clients with legal problems in Spain. We’re here to help. Contact us today for a free, no-obligation, initial legal orientation.
 

10 thoughts on “Your guide to taxes on rental properties in Spain”

  1. I am a Canadian citizen and quite interested in purchasing property in benedorm for th purpose of renting out the property for income purposes. Probably air BandB or some other platform. I have a friend who has been doing this for a while and he has been living there for the past few months and has gained an EU passport. I do not wish to live there but merely visit for a month or two. Just wondering what the tax implications of ownership are for Spain and any other problems that may arise.

    1. Maria Luisa Castro

      Subject: Investment and Tax Implications for Property Purchase in Benidorm

      Dear Dereck,

      Thank you for expressing your interest in investing in properties in Benidorm for rental purposes. Your investment approach offers a unique opportunity, and I’d like to provide a comprehensive response to guide you effectively.

      Property Purchase and Rental Tax Implications:

      Purchase Taxes and Costs:

      Transfer Tax (ITP) is applied when purchasing a second-hand property, ranging from 8% to 10% based on the property’s value in the Valencian Community.

      Additional costs such as Stamp Duty, Notary, and Registry Fees may sum up to an extra 1% to 2% of the purchase price.
      Rental Income Tax: As a non-resident, income generated from rentals is subject to Spanish income tax. For non-EU/EEA citizens, the tax rate on gross rental income is currently 24%.

      Annual Property Taxes: The Local Property Tax (IBI) is a municipal tax based on the property’s cadastral value.

      Using Rental Platforms: If you’re considering platforms like Airbnb, it’s essential to be aware of local regulations.

      Property Management: With your primary residence being abroad, consider having a local property manager.

      Strategic Consideration for Multiple Properties:

      If you’re planning on acquiring multiple properties, establishing a Sociedad Limitada (SL) – a limited liability company in Spain – could offer strategic benefits:

      Tax Benefits: SLs are subject to corporate tax which can be lower than personal income tax rates. Operating expenses can be deducted from gross rental income. If the company has, at least, eight properties rented with rental contracts for periods longer than three years, this is met by asset-holding companies which can benefit from a deduction of up to 85% of the income obtained through rent. Additionally, in their case, they could deduct the Property Tax or community fees in their entirety. An individual wouldn’t have these benefits.

      Asset Protection: Operating under an SL can offer protection against liabilities related to the company’s operations.

      Management Benefits: Consolidating properties under an SL can simplify rental management and accounting.

      Succession Planning: An SL structure can ease property transfer and inheritance processes.

      While there are numerous advantages to setting up an SL, there are also ongoing administrative obligations to consider.

      Given the detailed nature of this venture, I’d recommend further discussion to align strategies with your specific investment objectives. Our team, specializing in real estate and tax laws, is here to provide in-depth guidance tailored to your needs.

      Please let me know if there are additional details or questions you’d like to discuss. We look forward to assisting you in your investment journey in Spain.

      Warm regards,

      Maria L. de Castro
      General Director
      CostaLuz Lawyers

  2. If you have multiple rental properties and are a non EU citizen, the rate is 24% of the gross rental. Can I deduct expenses? If I am married to a EU citizen, would this help in anyway?

    1. Maria Luisa Castro

      Dear Gordon:

      In answer to your questions:

      Non-EU/EEA Citizens: Non-resident landlords who are not citizens of the European Union, Iceland, or Norway must pay a flat 24% tax on the gross rental income. This means you cannot deduct any expenses related to the property (like maintenance, interest on mortgages, etc.).

      EU/EEA Citizens: Non-resident landlords who are citizens of the European Union, Iceland, or Norway get a more favorable tax treatment. They’re taxed at 19% on their net rental income, meaning they can deduct property-related expenses.

      Marriage to an EU Citizen: Being married to an EU citizen might not directly change your tax status. It is usually based on your personal citizenship and residency status, not that of your spouse. However, the way properties are owned (e.g., jointly owned, owned by the EU citizen spouse, etc.) might influence the taxation, so it’s essential to consider how properties are titled and seek advice tailored to your specific situation.

      Deductions: If you were an EU/EEA citizen, you would be able to deduct expenses like interest on your mortgage, local taxes, costs of repairs and maintenance, property management fees, utility bills (if paid by the landlord), and insurance. However, as mentioned above, non-EU/EEA citizens are typically not allowed these deductions.

      In Spain, there’s a special tax regime for entities that are primarily dedicated to renting out properties. Such entities can benefit from an 85% reduction in the Corporate Income Tax base if they meet specific requirements.

      To qualify for this regime, certain conditions must be met, some of which are:

      Corporate Purpose: The primary corporate purpose should be the rental of properties. The entity must have a minimum of 8 rented properties or a property with at least 8 units.

      Duration: The properties should be rented out for a minimum of 7 years, and the entity should maintain this structure and purpose for that period.

      Limit on other revenues: The entity’s income from other activities (other than renting) should not exceed 20% of its total revenues.

      Tenancy: A single person, whether physical or legal, shouldn’t occupy more than 50% of the total rented properties or units during more than half of the tax year.

      Financing limitations: There might be specific requirements regarding the entity’s debt and equity structure.

      Management: The entity may have a separate department or dedicated staff for property management, ensuring the properties are properly rented out and maintained.

      It’s essential to consult with a tax professional familiar with Spanish tax law to get detailed information tailored to your situation, ensure you meet all the requirements, and benefit from the tax reduction.

      This regime aims to promote housing rentals by providing tax incentives to dedicated rental companies, making it more attractive for entities to engage in property rental activities.

      In summary, while being married to an EU citizen might offer various benefits, it might not directly impact the taxation of rental income for non-EU citizens. However, how properties are owned and structured could potentially offer some advantages.

      Best regards

      Maria

  3. If I am a permanent resident in Spain and the only annual rental income I have is less than 22.000 euro, do I have to file this income tax? Thank you.

    1. Maria Luisa Castro

      Dear Mark:

      Thanks for your query on our blog. I am sending guidelines to you below:

      Personal Income Tax (IRPF): Spanish tax residents are liable to pay income tax on their worldwide income. If you are a tax resident in Spain and earn rental income, even if it’s from a property located outside Spain, you would generally be required to declare that income.

      Income Thresholds: The figure of €22,000 you mentioned is a general threshold related to earned income (like salaries) below which taxpayers might not need to file a return. But this threshold might not necessarily apply to rental income. In Spain, rental income has its own set of rules and deductions, and even small amounts of income may need to be declared.

      Tax Deductions: Spain does allow for certain costs to be deducted from rental income, such as interest on mortgages, local taxes, insurance, repairs, and depreciation. After considering these deductions, the net rental income could be lower, and there might be specific exemptions or reduced tax rates applicable.

      Non-residents: Even if you were not a tax resident, Spain taxes non-residents on income derived from Spanish property. The rules for non-residents are different than those for residents.

      In conclusion, while there are thresholds and allowances that might exempt some people from having to file a tax return, rental income often has its own specific set of rules. Therefore, if you have rental income as a resident of Spain, it’s a good idea to consult with a tax professional to determine your tax obligations. We have a tax advisor among members of our team: we will be very pleased to offer our services to you.

      Best wishes

      Maria

  4. Hi Maria,

    What is the tax for non-residents of EU but with Spanish citizenship? For example a Spanish citizen that emigrate to US and pays taxes in the US.

    1. Maria Luisa Castro

      Dear Carlos:

      As a Spanish citizen who is a non-resident in Spain and resides in a non-EU country like the United States, you are subject to the tax rules applicable to non-EU residents.

      Here are the key aspects to keep in mind:

      Taxation Based on Residency: Spanish tax obligations for rental income are determined based on your residency status, not your citizenship. Being a resident of a non-EU country, you are treated as a non-resident for tax purposes in Spain.
      Non-EU Resident Tax Rules: Non-residents from non-EU countries are typically subject to specific rules which differ from those applied to residents or EU/EEA residents. This includes a different tax rate on rental income and different rules regarding deductions and allowances.

      Higher Tax Rate and No Deductions: As a non-resident from a non-EU country, you might face a higher tax rate on your rental income from Spanish properties. As of the latest information available to me, this rate was around 24%. Additionally, you may not be entitled to certain deductions that are available to residents or EU/EEA non-residents.

      Best wishes,
      Maria

  5. Dear Maria, thanks for all your comments, they are very useful. I was trying to find any infortmation whether Switss tax resident with rental property in Alicante would still be falling under 24% tax rate on gross income or if Spain has any special agreement with Switzerland as many other countries do. Also what if the property jointly owned by Spanish resident and Swiss resident, how would tax on rental income be treated. Ever grateful for your answers. Best, Andrew

    1. Maria Luisa Castro

      Dear Andrew:

      For a Swiss tax resident with rental property in Alicante, the general tax rate is 24% on gross income according to Spanish regulations for non-residents. However, there’s a Double Taxation Agreement between Spain and Switzerland that also needs to be taken into the scene.

      In the case of joint ownership between a Spanish and a Swiss resident, the income is divided according to each owner’s share, with tax rates applied based on their residency status.

      Best wishes,

      Maria

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