There are some benefits to having a residence permit while owning a property and living in Spain. Being a resident can be particularly useful in avoiding some of the taxes that non-residents must pay.
For EU citizens a Spanish residence permit is called a tarjeta de residencia and we recommend that you apply for your residencia using a gestor (an agent who's role is to provide an interface between members of the public and the authorities). A tarjeta de residencia cannot be denied to an EU citizen and generally takes one year from the date of application.
Income Tax Liability
As a non resident tourist you will become liable for Spanish tax if you stay in Spain for more than 183 days per calendar year. The fiscal year in Spain runs concurrent with the calendar year. The 183 days are computed as a total, so it does not matter if your total stay has been made up of several smaller periods. This is spelled out both in the Spanish fiscal laws, as well as in the Tax Treaties signed between Spain and a number of other countries including Britain.
If the administration's suspicion is aroused, or if someone denounces you (reports you to the local authorities) for any reason, the burden of proof rests with you.
Income tax in Spain
As a resident you must pay income tax on your worldwide income. If you choose to become a resident it is important that you notify the tax office in your home country to ensure you avoid double taxation, which is where you pay income tax in your home country and in Spain. Tax matters are generally very complex so before applying for your residencia we recommend that you take the time to speak to an accountant to ensure you receive the correct advice that suits your particular case.
The benefits of having Residencia
- Capital gains tax on the profit made from selling a property is currently charged at a rate of 15% for residents and 35% for non-residents. In January 2007 this should change with the introduction of new legislation so that non-residents and residents will pay the same tax of 18%. Capital gains can be offset on your principal residence. When selling your principal residence in Spain, you can reclaim or rollover the capital gains tax by purchasing a new principal residence within a certain time period. This opportunity is not open to non-residents.
- When a non-resident sells a property in Spain, the buyer's lawyer will retain 5% of the declared sales price as a guarantee for the pending capital gains tax liability (read article: The Spanish System of Capital Gains Tax). As a resident vendor you will not have this deduction.
- As a resident you do not pay income tax on the notional letting value tax or the 'Impuesto Sobre la Renta' on your principal residence. Tax on renting your property is paid as part of your annual income tax return. If you are a non-resident, you are liable for an income tax rate of 25% for all the income you make on the property. Residents can take advantage of new 50% reduction of this figure. Furthermore, as a resident, if you declare your rental, you can put down the maintenance expenses of your property as a business expense and deduct this from your tax bill. Maintenance charges include costs such as the mortgage.
- As a resident you will receive a tax break 150,000€ on your Spanish property when making your Impuesto Sobre el Patrimonio or wealth tax declaration. If you jointly own the property with your spouse the tax break is doubled meaning that the first 300,000€ of your estate is not liable for tax. Non-residents receive no tax break.
- Residents in Spain can have a tax break up to the first 3,300€ earned. People over the age of 65 receive a tax break on the first 3,900€ earned (for further information read article: The Benefits of Becoming a Resident in Spain).
- Being a Spanish resident provides certain tax breaks that will be very important for immediate family during the succession of your estate in Spain. Immediate family members could save large sums of money by receiving up to 95% reduction in the taxable amount.
- The vote (based on the Maastricht Agreements for Union citizens and on bilateral agreements for Norwegians) in Spanish municipalities and/or European elections, is reserved for persons who have their main residence in Spain, and who are registered on the padron (electoral roll) in their municipality (council). Non-residents have no voting rights.
For many people, regardless of their nationality, the advantages of becoming a resident, seen from the tax point of view, outnumber any disadvantages. But always consult your financial adviser and or Spanish accountant to get a clearer picture of the full benefits.
Read our article on registering to receive healthcare in Spain.