Sunday, 26 June 2011

Non-resident taxes in Spain - so you think you're under the radar?

SPAIN Sometimes known as the mystery tax, the Impuesto de la Renta de No Residentes (IRNR) is an income tax for those non-residents who own property. Its aim is to have property owners who live in Spain less than 183 days a year pay 'income' tax on their property. Why? Because too many such people let their holiday homes out and do not declare the income from it, although that is not the tax man's stated objective. In his eyes you still derive a benefit from owning a property in Spain and therefore have to pay an imputed income tax. There are other taxes to be paid, of course, and we list them below.>>>
Non-residents must pay two types of tax each year:
  1. Local Taxes (Council Tax, IBI) These taxes are paid directly to your Town Hall or its tax office (Recaudación).
  2. Government Taxes (IRPF, or Income Tax, and IRNR, or Non-Resident Income Tax) These taxes are paid to the Agencia Tributaria (Tax Authority).
These two are unrelated to each other. Local taxes (IBI -Impuesto de Bienes Inmuebles) are not about income but about bricks and mortar, whereas Government taxes are exclusively related to income.

It's simple, if you own a property in Spain but do not live here, you pay for income on your holiday home, even if you do not derive an income from it. The tax applies to non-resident people as well as companies, offshore or in any country other than Spain. If your property is owned by a company registered in Spain, oither laws and procedures apply, and you should ask your tax advisor.

In Spain, if you have a property it is automatically considered as a type of income and all owners named on the Title Deed should present an annual declaration for each property owned. Most owners are still unaware of this. It is important to understand that this is an Income Tax on your property and is separate from, and in addition to, the Local Tax/IBI (which is an annual payment on the actual bricks and mortar). It does not relate to income in terms of your wages or your pensions, but only to property ownership.

If you do rent your property, however, you still have to pay tax on the income. An Income tax declaration should be presented to the Tax Office for any rental income received.

But if you live in Spain for more than 183 days in one calendar year you become legally liable to be charged Spanish Income Tax (IRPF) as a Resident. The 183 days do not have to be consecutive.

Here are four good reasons why you should not ignore the Non-Resident Tax:
  1. The Spanish Government needs to claw in more income via taxes.
  2. They are closing in on the many non-resident property owners who are not presenting the mandatory annual tax return and the residents who should pay tax in Spain on their worldwide income and do not.
  3. The Tax Authority has linked up with the Land Registry system and now knows who owns every property.
  4. Electric companies are now obliged to supply data to help identify which homes are continuously occupied by residents or tenants.

And three good reasons to pay up:
  1. Late declaration and payment will incur a fine. Deadline is June 30 each year, so you have from January 1 to June 30 to declare the previous year's tax.
  2. Ignorance of the law or the system is not accepted as a reason for late or non-payment.
  3. Property and bank accounts can now be embargoed until back taxes and fines are settled in full.
Only if you do nothing and mistakenly believe the myth that you are still somehow “below the radar” or that all your tax affairs are “taken care of in my country”.

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