In this article, we will discuss the rental income tax in Spain. Among the taxes in Spain, rental income tax is a widespread Spanish income tax. Read this post for an overview about the types of rental income tax and the different rates.
What is the Rental Income Tax
You will have to deal with this tax when renting out your property. The tax can be divided into VAT tax and income tax. Depending on the situation, you will have to pay VAT tax or not. The income you create will be taxed similarly to other income taxes (such as personal income tax and corporate income tax).
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Do I need to pay VAT on rental income?
Whether you need to pay VAT tax or not depends on what type of property you are renting out, and to whom you are renting the property.
When don’t you need to pay VAT tax on your rental income?
When a renter will use your property exclusively for living, you don’t add VAT tax to your invoicing. For example, if you are renting out an apparent or house to be used as a residence for a family, the rental income is not VAT taxed. This applies to lettings with living spaces only, which include apartments, houses, rooms in shared flats or houses, and any separate living quarter.
When do you need to pay VAT tax on rental income?
When you are renting out to a business or self-employed person to execute their economic activity, you need to pay VAT tax and add VAT tax on your invoicing. For example, when you are letting to a bakery, a pub, a hair salon or a restaurant. The same applies to lettings with non-living spaces, such as retail space, business areas and any other premise accessible only from the street.
Next to this, when you are renting out a storage place, you will also have to pay VAT tax on the rental. For example, when you are renting out a parking space or stockroom.
Rental income tax for individuals
Rental income tax for tax residents and non-residents in Spain are different. The difference is in the tax rates, rental property tax deductions, and the frequency of declaring your rental. However, both residents and non-residents must make the tax declaration in Spain over all the income from rent.
Rental income tax in Spain for Non-Residents
Non-residents are subject to the flat non-resident Income Tax (IRNR, Impuesto Sobre la Renta de personas No Residentes), a flat tax rate of 19% if you reside in the EU or EAA countries. If you are not from the EU or EAA countries, the flat tax rate is 24%.
Rental income tax in Spain for Tax Residents
The tax for tax residents on rental income is called IRPF (Impuesto sobre la Renta de Personas Físicas). It is a tax levied on the income obtained during a year from natural persons residing in Spain, no matter if they are Spanish. It is also a progressive and direct tax.
The rental income tax for tax residents is on a progressive rate of 19% to 47%. When you generate more income, you will pay more tax. The property owner pays the rental income tax, not the renter. The rental income tax for tax residents is different than for non-residents.
Rental income tax for self-employed and companies
When you rent out business premises to a company or self-employed to carry out economic activities. You are obligated to pay VAT tax, and must register at the government as an Autonomo or company.
Rental income tax in Spain for self-employed
When you want to use a property management service, agent, lawyer or accountant for your property, it is wise to register as a self-employed (Autónomo) in Spain. Because when you are an Autónomo, your venture will pay the Autónomo tax, and being taxed as an Autónomo means you can deduct the VAT tax from renting your property.
Rental income tax in Spain for limited liability companies
When you plan a riskier venture or make more than 65.000 euro’s revenue from your Spanish properties, the Spanish limited company becomes attractive for its protective and cost benefits. For example, when people plan to build or make significant investments in Spain, they often form an SL company in Spain. Of course, with a Spanish limited liability company, you will be able to deduct the same property rental costs as an Autónomo.
Personal income tax tranches for tax residents in Spain
Below you can find the personal income rates for tax residents. You will be considered a tax resident when you reside longer than 185 days in Spain.
|Income Taxes Trenches 2021||Total|
|Up to 12.450 euros||19,0 %|
|From 12.450 euros to 20.200 euros||24,0 %|
|From 20.200 euros to 35.200 euros||30,0 %|
|From 35.200 euros to 60.000 euros||37,0 %|
|From 60.000 euros to 300.000 euros||45,0 %|
|From 300.000 euros and on||47,0 %|
Applying the marginal rate directly, a person who earned 65,000 euros would pay 45% of that income in taxes: 29,250 euros. Fortunately, the 2021 income tax table is progressive, and this is what you would pay:
- First IRPF tranche: A person pays 19% of 12,450 euros – 2,365.5 euros
- Second IRPF tranche: The person pays 24% of 7,750 euros (the difference between the first and second bracket) – 1,860 euros.
- Third IRPF tranche: The person pays 30% of 15,000 euros (the difference between the second and third tranche) – 4,500 euros.
- Fourth IRPF tranche: The person pays 37% of 24,800 euros (the difference between the third and fourth tranche) – 9,176 euros.
- Fifth IRPF tranche: The person pays 45% of 5,000 euros (the difference between the fourth and fifth tranche) – 2,250 euros.
- Sixth IRPF tranche: The person pays 47% of the difference between the fifth and sixth tranche, that is, the amount that exceeds those 300,000 euros (in this case, it would not apply).
Interestingly, the final percentage paid by personal income taxpayers is a division of two tax tranches. The first one is the state tax, which goes to the Government, and the second one is the autonomous tax, which the independent communities receive.
In addition, you must take other aspects such as the family situation into account, which includes: being married or single, having children under 25 years old, children under three years old, living with people over 65 years old, etc.
|Situations to consider||Number of descendants|
|0||1||2 or more|
|Single, widowed, divorced or legally separated taxpayer.||–||15.947 €||17.100 €|
|A taxpayer whose spouse does not obtain income exceeding 1,500 euros per year, excluding exemptions.||15.456 €||16.481 €||17.634 €|
|Other situations||14.000 €||14.516 €||15.093 €|
Deductibles from rental income tax
According to the Spanish tax authorities, EU members and EEA citizens can deduct the following expenses from their rental income tax. You can deduct costs from the rent because they are used for the rental property to create income.
- Administration and accounting costs: costs enquired to pay Spanish tax and properly follow Spanish tax laws.
- Notary and Lawyer costs: e.g. for formalizing rental contracts drafting contracts, or tenant eviction.
- Real estate agent fees or key holder fees
- Water, electricity, laundry, cleaning, and utility costs
- Security services: e.g. gated communities
- Mortgage interests and unpaid rents: Note that rental income is the amount of rent receivable (not received). You can deduct due rents until six months have passed from the first debt collection action or if the tenant is legally insolvent.
- Depreciation of the property at 3%: You can deduct the depreciation of 3% of buildings or the cadastral value. The cost of buildings is frequently unknown as the purchase deed does not usually separate the two. In this case, the building’s proportion is taken from the cadastral value. Failing this (e.g. non-Spanish property), the tax office will accept that buildings represent a reasonable proportion, perhaps 2/3rds of the total cost.
- Interest on loans taken out to finance acquisition, improvements, and property maintenance.
- Maintenance, repairs, and renewals: The property’s expansion or improvements are not deductible.
- Non-state taxes and surcharges related to the property: This category covers costs like IBI and charges for the trash, and it includes any fines.
- Insurance policies (e.g. for fire, civil liability, fire etc.)
- Primary maintenance and reparation costs
Like other Spanish tax deductions, you must justify all deductible costs with relevant documentary evidence. They are valid only if you have the invoice, and quotations are not valid documents. If you have an accountant in Spain, you can send them your invoices, and they will take care of the rest.
Double taxation agreements and rental income tax
The Double Taxation Agreement is an agreement that might have been signed by Spain and your country of residence (or state where you need to pay tax). The Spanish tax authorities make these double taxation agreements to check and regulate where residents and non-residents will have to pay tax.
According to what is established in the OECD Convention model, the gross income generated through Spanish property must be taxed in Spain, regardless of the taxpayer’s tax residence.
Personal Income Tax Categories
The income tax consists of different income taxes, and you will need to consider all incomes when making your personal tax declaration.
- Rental income tax: As the name already says, they are income obtained from tangible elements, such as leases of premises or subleases.
- Payroll taxes: The most important one for the majority of the inhabitants is the income from salaries. Despite its name, this part does not include all income from work but only those earned as an employee of a company, and it excludes self-earned income.
- Capital gains taxes: Income generated from selling a property is capital gains income. e.g. the income can be from selling a house, a plot of land, or commercial space.
- Dividend taxes: Dividends or profits from participating in a business.
- Business income tax. This last one comes from doing business on your account. Business activity, in turn, is defined as an activity that includes work and capital together and is aimed at making money.
For each part of the tax base, costs related to this activity can be deducted.
Examples of personal rental income tax calculations
Below you can find a few examples of rental income tax calculations.
Example 1: rental income tax rate in Spain for residents
In the following example, we consider the case of a resident in Spain with a taxable base net of 30,000 euros and no reductions that the regulations take into consideration as personal and family circumstances (a single). As we see in the table, the following types and sections would be applied:
- 19% to the first 12,450 euros
- For the next 7,750 euros (from 12,450 euros to 20,200 euros) we would apply a 24%
- And to the next 9,800 euros, until reaching 30,000 euros of the salary in the example, we would apply a 30%
In this case, the landlord with a gross of 30,000 euros per year would end up with a net of 24,393 euros per year, which divided by 12 payments gives an effective payroll, of 2,032 euros per month.
Example 2: rental income tax rate in Spain for non-EU/EEA residents
Using the same example as above, a person who has an annual rental income of 15,000 €, and expenses of 3,600 €, will pay the following tax on their rental income in Spain:
- Total rental income: 15,000 €
- Deductible expenses: 3,600 €
- Tax base: 11,400 €
- Tax rate: 24%
- Total due: 2,736 € (11,400 € * 0.24)
Example 3: rental income deductions
Assuming you have a rental property that generates an annual rental income of €15,000. If the community expenses are €2,000 per annum and repair and improvement costs amount to €1,600 per annum, the tax on your rental income in Spain will be calculated as:
- Total rental income: 15,000 €
- Deductible expenses: 3,600 €
- Tax base: 11,400 € (15,000 – 3,600)
- Tax rate: 19%
- Total due: 2,166 € (11,400 * 0.19)
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Frequently asked questions on Rental income tax in Spain
Below you can find the answers to some frequently asked questions about rental income tax in Spain.
Is the Personal Income Tax the same throughout the Spanish territory?
Partially, while the national Spanish tax office has put forward national income tax rates, there are still differences between the regions because they can set their tax rates. Next to the rental income tax rates, there are specific differences in terms of tax deductions. It is best to contact an accountant in Spain who knows the tax implications of the local property tax.
How to declare rental income?
The frequency of declaring your rental depends on your status as a Resident or Non-resident. For residents as we know, the Spanish tax on rental income declaration takes place on annual basis, nevertheless, for non-residents, the declaration has to be submitted every three months based on a set calendar, as follows:
- April 20th: Declaration for incomes obtained in January, February, and March.
- July 20th: Declaration for incomes obtained in April, May, and June.
- October 20th: Declaration for incomes obtained in July, August, and September.
- January 20th: Declaration for incomes obtained in October, November, and December.
What happens if I pay late?
The deadlines are very clear in the previous question. If you pay just one day late, the Tax Office will send you a penalty for:
- 5%: payment made within three months of the deadline
- 10%: if more than three months pass, but less than 6
- 15%: between 6 and 12 months
- 20%: plus interest if you pay more than one year late
So why does Spain have a rental tax?
The main purpose is to respond to the principle established by the Spanish Constitution that all Spanish Citizens must contribute to the support of public expenditures. On the other hand, it tries to favour those people who are in a more precarious situation. Thus, it aims to contribute to a more efficient economy by promoting or taxing certain activities.
How many income taxes are there?
In this article, we will focus on the rental income for individuals. However, there are two income taxes: the Personal Income Tax is levied on the income of individuals, while the Corporation Tax is levied on that of limited entities. In some exceptional cases, there are legal persons and other entities that do not pay Personal Income Tax or Corporation Tax, but it is the natural or legal persons involved in that entity who declare the income obtained based on their participation in that legal entity. There is also a tax on Tax on Economic Activities (IAE) in Spain, which is paid under certain circumstances.
Next to rental income tax, individuals that own property in Spain might have a tax liability in the form of wealth tax. Individuals that own more than 700.000 euros worth of assets in Spain, will have to pay this wealth tax.
A word from SpainDesk
In conclusion, Spanish rental income tax is one of the most common of Spanish property taxes. The Tax Office charges everyone who gets income in the Spanish territory regardless of whether they are a Spanish resident or not. Depending on how you are registered and the money you make you will either pay income tax, vat tax, tax on economic activities, wealth tax or taxes on your property. We strongly recommend hiring a tax advisor or accountant if you are planning to rent out your property. For a fixed fee, you can take care of all the government forms that are required in Spain. Contact us for a quote today.
Disclaimer: Information on this page may be incomplete or outdated. Under no circumstances should the information listed be considered professional legal advice. We highly recommend seeking guidance from a legal expert if you lack extensive knowledge or experience dealing with any of the procedures outlined in these articles.
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