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Property Buyer’s Guide (7)

Notice: Rimontgó recommend specialist advice, not only in legal and juridical aspects, but also fiscal and other areas related to the real estate sector. To that effect, our clients may get in contact with us if they want to ask for our database of professionals who can offer them personal care.

Fiscal taxes on property used for rental

Taxation on property used for rental

If the lessor is a Spanish resident

1.1 Taxation on Personal Income Tax (IRPF)

1.2 Taxation on Value Added Tax.

If the owner of the state is a non-resident (either private individual or company) which operates without permanent establishment in Spain

1. TAXATION ON PROPERTY USED FOR RENTAL.

In the case you decide to rent your property, you will need to observe the following considerations:
1.1 If the lessor is a Spanish resident,

1.1.1 Taxation on Personal Income Tax (IRPF).

Returns on real state property.

This refers to any return obtained from the rental of rural and urban properties, and any in rem rights attached to the same.

Any income obtained by the taxpayer on a permanent basis or occasionally, allows the deduction of all qualifying expenditure. In principle, the IRPF Law allows the deduction of all expenses which are necessary to obtain such income, as well as of any amounts linked to the repayment of such state and of all assets assigned with such state, provided that they refer to the effective depreciation of the same. Likewise, there is a possible reduction of 50% of any return obtained from the rental of properties destined for living which is not applicable to the rental of commercial premises or other types of properties.

Such income is taxable as per the general percentages and progressive rates. The maximun tax rate is 48%.

Returns on Economic Activities (sale and rental of properties).

The purchase of properties will be considered as economic activity whenever there is an organization of production resources involved or human resources or both, aiming to promote the production or distribution of goods and services.

The rental of properties will be considered as economic activity whenever there is a commercial office exclusively involved in the management of such rental and at least one employee with a legal contract on a full time basis.

The principal difference between return on economic activities and return on real state property is that, in terms of deduction, the Law allows deduction for return on economic activities on the basis of promoting investment in companies as regulates the Law on Corporate Income Tax, with exemption to deduction due to reinvestment on extraordinary profits.

Such income is taxable as per the general percentages and progressive rates. The maximun tax rate is 43%.


1.1.2 Taxation on Value Added Tax.

In principle, the rental of properties destined for living and the rental of plots are exempt.

The current VAT rate, applied to all taxable transactions and transaction which are not exempt (rental of commercial premises) is the general rate, namely 21%.

1.2 If the owner of the state is a non-resident (either private individual or company) which operates without permanent establishment in Spain.

    • When the non-resident operates in Spain without permanent establishment, all income obtained in Spain will tax as per the Income Tax for Non-Residents (hereinafter IRNR) . The procedure is each operation taxes independently and the tax linked to every operation will be paid instantaneously and on the basis of the net income obtained by the non-resident, bearing in mind that any type of compensation of income is not allowed by the law.

The taxable income is calculated differently depending on the type of income obtained, by application of the law of Personal Income Tax. In general terms, in the case of returns, the taxable income is equal to the total income, which means that no expense is deductible.
The general tax rate is 24,75%.

Chapters:123456 – 7

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