The recent change in Spanish tax regulations for non-resident owners renting out properties in Spain significantly simplifies the process of declaring rental income. Before this reform, non-resident landlords were required to file quarterly rental income returns through Form 210, but now they only need to do so annually. This change, which applies retroactively from 1 January 2024, represents a considerable step forward in simplifying tax obligations for non-residents since rental income generated in 2024 will only be required to be declared between 1 and 20 January 2025.
In the event that a property that is subject to the VAT regime and those of a commercial nature is rented, it is necessary for the owner to make declarations of this tax on a quarterly basis. The law distinguishes between different types of rents in terms of indirect taxation. For example, rentals of land and dwellings that are used exclusively for residence are exempt from Value Added Tax (VAT). On the other hand, rentals of commercial premises or dwellings that are not exclusively intended for residential use are subject to VAT. This distinction is crucial for non-resident owners, as it affects both the tax burden and the reporting procedures.
As far as the applicable tax rates are concerned, the general regulations remain unchanged and a rate of 24% remains for rental income. However, there is one notable exception for taxpayers residing in the European Union, Iceland, Norway or Liechtenstein, where the tax rate is reduced to 19%. This differential in tax rates reflects an effort to harmonize fiscal policies within the European Economic Area.
In addition, non-EU resident landlords can deduct certain expenses related to earning rental income. These expenses include financing interest, repair and maintenance costs, non-state taxes and surcharges, as well as costs associated with personal services and the amortization of the property. The possibility of deducting these expenses can significantly influence the profitability of real estate investments in Spain. It is important to note that these deductions are subject to specific conditions and it is essential to know the details in order to apply them correctly. For example, expenses for repairs and maintenance have a specific limit, and in the case of improvements, different conditions apply.
Another important aspect is the taxation of the Non-Resident Income Tax (IRNR) in the case of urban properties that are not intended for rent or are not used for economic activities. The owners of these properties are subject to imputed income based on the cadastral value of the property. This aspect of tax legislation has a direct impact on the wealth management of non-residents who own property in Spain, but do not rent it out.
In conclusion, the new tax regime for non-resident owners in Spain represents a welcome and necessary change, which simplifies procedures and can reduce the tax burden for many foreign investors. This change also underlines the importance of having specialized tax advice, given that the correct application of these rules can have a considerable impact on tax obligations and the profitability of real estate investments in Spain.