Holiday rentals. What taxes do I have to pay?

When you acquire a property in Spain, it is always an option to consider to rent it while you are back at your country.

If you decide to do it, it is important to know the tax responsabilities that will derive from this, which are different from those of your own use.

I’m a non resident with a house in Spain, which I rent out on holiday rentals. What taxes do I have to pay?

The starting point to this question is the article 6 from the Double Taxation Conventions¹, undersigned by Spain with many other Countries, on which it does say:

Article 6 INCOME FROM REAL ESTATE

1. Income derived from a property (including income from agriculture or forestry) situated in a Contracting State may be taxed in that State.

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of real estate.  

This means a Non Resident in Spain may be taxed for the income derived from their Spanish properties.

In order to know what will be taxed in Spain, we find in the Non Resident Income Tax Law (LIRNR)², on it´s article 13 paragraph g) it does say:

g) Any income arising directly or indirectly, from real estate assets situated in Spain, or any rights related to them.

This means that taxes are not only related to the ownership of the building itself, it is necessary to understand that when a person holds the lifetime interest (“usufructo”) from a property will be the responsible for the payment of any taxes on that property.

On the article 24 paragraph 1 from this same law (LIRNR) we find that:

1. With general character, the taxable base corresponding to the income obtained without a permanent estalishment, will be the gross income.

But the law, makes a specific provision on the paragraph 6 from the same article 24:

6. When we talk about individuals which are resident in other European Union member State , it will be aplicable the following rules:

1ª For the calculation of the taxable base corresponding the income obtained wihtout a permanent estblishment, it will be deductable:

a) for individuals, the planned expenses as per Law 35/2006, for the Income Tax for the Individuals, always they can prove those are related with the income obtained in Spain and have an economic direct link with the activity in Spain

So, those individuals which belong to a EU Country will be able to offset any expenses as established in the Spanish Income Tax Law for individuals, so they make them exactly equal to any Spanish Citizen.

And which are those expenses which can be offset by an EU citizen? Those are established in the article 23 paragraph 1 from that Law 35/2006³

1 for the calculation of the net income, will be deducted from the gross income the following expeneses:

a) all those which are necesary for the obtention of the income. It will be considered necesary expenses the following:

1º The interest from lended capital invested into the adquisition or improvement from the property, or from any righ of use from which arise the income, as well as the expeneses for the maintenance and repair of the inmovable asset. The amount of the expenses will not have exceed the amoun of the income. Any excess on the income should be offset in the following 4 years.

In order to clarify which espenses can be considered as for manintenance and repair, we take in care what is said in the art 13 from the Law Reglament⁴

Those carried out regularly with the purpose of maintaining the normal use of the properties, such as painting, renovation or arrangements of facilities

The replacement of elements such as heating, elevator, security doors or others.

The amounts invested in the extensions or improvements will not be deductible for this concept.

b) The non-estate taxes and recharges, as well as any estate expenses and recharges, always those impact on computed incomes or over the assets or right which has produced those, and does not have sanctioning character.

c) The amounts accrued by third parties in direct or indeirect consideration or as consequence of personal services, such as administration, security services, or similar.

f) The amounts from insurance contract premiums, whether of civils liability, fire, theft, or other similar nature, on the perperties producing the returns

g)the amounts paid for the services or supplies.

And finally

The amounts destined to the amortization of the property and of the other goods assigned with it, provided that they respond to their effective depreciation, under the conditions determined by regulation. In the case of real estate, it is understood that depreciation meets the requirement of effectiveness if it does not exceed the result of applying 3 percent over the greater of the following values: the cost of acquisition satisfied or the cadastral value, not including the value of the land.

Very Important: All those expenses will be deductable proprtionally to the time the property is rented out

We know what imcome we need to declare and we know what expenses we can offset, now it is the time to know how much tax we will be paying, and for that purpose we need to go back to the ar 25 paragraph 1.a, on which we find

a) In general 24 per cent. However the tax rate will be of 19 pe cent in the case of taxpayers residing in  another Member State fror the EU or the European Economic Espace with an effective exchange of tax information

Resuming, the income from the holiday rentals has to be declared in Spain. You will have to include the gross income, and if you are a resident from a Member State from the EU, you will be able to offsset a certain amount of expenses.

The rate of tax to be paid of the result will be of 19 per cent for those who are citizens resident in one Member State from the EU and the EEE, or 24 per cent for the rest.

¹http://www.hacienda.gob.es/es-ES/Normativa%20y%20doctrina/Normativa/CDI/Paginas/CDI_Alfa.aspx

²https://www.boe.es/eli/es/rdlg/2004/03/05/5/con

³https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764

⁴https://www.boe.es/buscar/act.php?id=BOE-A-2007-6820

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