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TAXATION IN SPAIN FOR NON-RESIDENT OWNERS OF REAL ESTATE

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[vc_row][vc_column][vc_column_text]If you are resident in Spain you will be subordinate to Spanish taxation on your worldwide income. In the other hand, if you are a non-resident, you will pay Spanish tax on Spanish income only, including potential income on Spanish property even if you don’t rent out your property. Other taxes include goods, and services (VAT) and investment interest.

What taxes am I liable to as a non-resident owner of Real Estate in Spain?

You will need to pay yearly:
– A local tax, known as IBI.
– Non-Resident Income Tax.
– Wealth Tax. Depending on the value of your Spanish assets, which had been abolished as from the tax year 2008, however, it has been reintroduced since 2011.

If I want to sell a Spanish property, will there be a tax to pay?

The answer is yes. On the basis, you make a gain from the difference between your original acquisition value and the sale price. The Spanish tax authorities will tax this capital gain by means of two taxes:
– Local Capital Gains Tax (which is levied by the Town Hall where the property is located and depends on local values).
– General Capital Gains Tax (the applicable rate is between 19% and 22% as a minimum base).

Spanish Non-Resident Tax

Non-Resident Property owners should submit Spanish Tax Form 210.

Spanish tax law requires that non-resident owners of property in Spain have to pay income tax even if they have no Spanish earnings such as rental income.

How much is the tax?

The tax is calculated as 24% of the “income” the Spanish authorities deem you could make renting out the property. This is calculated as 2% of the rateable value (reduced to 1,1% for areas re-rated after 1993). If you only owned the house for a short time, the tax is prorated to the period of ownership. If there are multiple owners (e.g. husband and wife), they each pay their share of the total tax but must each submit a return. The rateable value is the “valor catastral” found on the IBI (rates) bill you get every year.

When is it payable?

You must make your return for a given year by the end of the following year, so for the 2017 tax year, you are required to declare and pay by 31st December 2017.

What if I rent the house out?

Non-residents who rent out their property declare the income by submitting a Form 210 quarterly and also paying the 24.75% tax (24% in 2017) quarterly. Owners that are tax resident in another EU country can make some deductions for allowable expenses and the tax rate will be reduced to 20% in 2016 (and 19% in 2017). To take advantage of this, you must obtain a certificate of fiscal residence in your home country.

If you want to know about the prognosis for residential construction in Spain, click here.

STEPS FOR A COMPANY FORMATION

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The purpose of this article is to provide you with an introduction to what the undertaking of founding a company in Spain entails.

For a company or an individual to contemplate the enterprise of entering a (new) market, always supposes the necessity of taking into account a large variety of aspects, which can appear overwhelming. In case of the aim being the foundation of a company in Spain, there is no need to be fearful of a lengthy and complicated process, since the whole procedure is quite simple and the way to a working company is shorter than you would expect.

The first question to consider if you are interested in setting up a company in Spain is what legal entity the company should have. There are different possibilities to enter the Spanish business market. To set up a business in Spain, you can start as a new company, like an acquisition, as a joint venture, as a Spanish branch, as a representative office, or as a self-employed person.

In order to find the best way to either start a new company or expand the market of an existing project, it is necessary to consider the objectives one intends for the entity to achieve and what possible development might happen in the future.

This article´s main focus is on the foundation of a limited liability company, while the process explained hereinafter is mostly the same, should the aim be to found a public limited company.

STEPS FOR A COMPANY FORMATION

Limited companies in Spain

With regard to limited companies, there are several types, but the most common form is the sociedad Limitada or S.L. Hereinafter we will provide you with an overview of the steps to take in order to set up a limited liability company in Spain.

Before you can start the process of setting up a business in Spain, all resident and non-resident foreigners with financial affairs in Spain must have a foreigner’s tax identification number or NIE. The NIE is essential for any fiscal transactions in Spain.

The first step in setting up your SL is choosing a company name and will obtain a certificate (called a no-name coincidence certificate) from The Mercantile Registry to verify that the company name you want to use is not already taken, so you can choose it for your new company.

Next, you have to apply for a CIF or NIF (tax identification code) for the company.

Once you have obtained the tax identification code and the certificate of no-name, the next step is to open a bank account for the company.

Into the aforementioned bank account EUR 3,000, the minimum authorized share capital for a limited liability company, has to be deposited. Evidence of payment can be obtained in the form of a bank certificate. Said certificate will have to be provided for the act of incorporation of the company before the notary public.

The Notary


Now, with the three previous documents, you can visit a notary to apply to be appointed as the company founding director (administrator), as well as prepare the company constitution. You can arrange a local notary appointment to sign the deed of incorporation. You can find the nearest one in your area at www.notariado.org. This step lasts about one to three days depending on the notary.

You must supply the notary with original documents and photocopies of:

  • tax form 036,
  • your certificate from Registro Mercantil,
  • NIE, and
  • the evidence of payment in the bank.

AEAT / Generalitat

With the original deed of incorporation obtained from the notary, you should then go to the Local Government Tax Authority (or AEAT) to register the deed. This step was previously subject to a stamp duty of 1 percent of the initial share capital; however, currently this 1 percent has been removed although the formality must still be fulfilled. The deed will be stamped certifying this fact. This step should not take longer than two hours. Do not forget to take with you your original documentation and photocopy of the deed and your NIE.

RM – Registro Mercantil


The deed has to be taken to the Registro Mercantil where it will be registered in the Spanish Register of limited companies. It should take no less than 15 days until it is registered and original documents are returned. When you collect the original deed it will bear a certificate from the Mercantile Registry that the company is already registered.

AEAT – Agencia Estatal de la Administracion Tributaria

The next step to register your trading company involves another visit to the tax office. This time it is to obtain the permanent Corporate Tax Identification Number (CIF) at the Hacienda after the completion of the incorporation process.

Newly incorporated companies must use the 036 forms used to request a tax identification number, to describe their business activity and other circumstances of your business. Do not forget the original and photocopy of the deed and NIE.

TGSS – Tesoreria General de la Seguridad Social


The last step of the registration process as the company’s director is for social security and occupational accident insurance purposes.

You will have to comply with certain procedural formalities at the local office of the Ministry of Labour and Social Affairs (or TGSS).

Although there are different options, usually the director is the person registered as autonomo. The monthly payments for autonomos are about EUR 235. You will need to do this step using original and photocopy of a deed of incorporation, NIE, 036 forms and form TA 0521. You can obtain this last form at www.seg-social.es.

Obviously, there are many legal issues that we have not considered. But we suggest you contact a professional such an economist or lawyer to help you throughout the process to avoid mistakes. However, if you have a clear idea about how you want to work, you can set up your company by following the previous steps.

TYPES OF LABOUR CONTRACTS IN SPAIN

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[vc_row][vc_column][vc_column_text]The work contract shall be performed in any of the current official forms approved by the Ministry of Employment and Social Security of the Spanish government. The type of contract shall be based on the duration of the contract, with the possibility of being a fixed or an indefinite term contract.

I. FIXED-TERM CONTRACTS

The maximum duration shall be determined depending on the subject of the employment contract. The most common types of temporary contracts are as follows:

  • Temporary employment contract depending on production circumstances: When for circumstantial market requirements, accumulation of tasks or excess of orders is necessary to hire staff to satisfy the demand. The maximum duration allowed in this type of contracts is 12 months within the period of 18 months, and it can be made a one-time extension of the initial contract within this period.

At the end of the contract, the employee is entitled to receive financial compensation of an amount equivalent to the proportion of the amount that would be required to pay a day and a half’s salary for each month of service.

  • A contract for specified works: They are performed when needed staff for a project, a work or a specific campaign.

This type of contract has an implicit compensation payable to the worker to completion of 12 days of salary per year worked.

There are also other types of fixed-term contract to cover any lack or need to specify the company throughout its activity. The most common are the contracts for training and learning, internship contracts, interim contracts, etc. Temporary contracts are usually not subsided nor accompanied by any aid for the recruitment, because these contracts don’t generate stable employment.

II. INDEFINITE CONTRACTS

The indefinite contracts are the one that is agreed without establishing limits on its duration and remains effective over time until the company or the worker decide to end it.

This type of contract may be subsidized if the company meets certain requirements for hiring an unemployed person who fulfills certain characteristics (age, groups at risk of social exclusion, disabled, etc.).

In case of dismissal, the worker is entitled to higher compensation than in a temporary contract. This compensation will be based on the cause that motivates extinction, the number of days the employee had to provide services and the wage he had been receiving.

– Dismissal for objective reasons: the compensation is 20 days of salary per year worked, with a maximum of 12 months. It is understood that the employer´s decision to terminate the contract worker is justified by a number of objective reasons.

– Dismissal for disciplinary reasons: it is considered that the employer´s decision to terminate the contract is justified when the employee is the one who has breached its obligations, so there’s no compensation to pay.

In both types of dismissals, if the worker has filed a lawsuit (after his dismissal), it can be initiated legal proceedings in which the judge (or the company) recognizes the dismissal as unfair. In this case, the company shall be obliged to pay the worker a maximum compensation of 33 days salary per year worked with a maximum of 24 months.

In case it is the worker the one who decides to terminate the contract, it would be considered as a voluntary resignation, which means losing his right to a compensation and limitations to access the unemployment benefits.


PROPERTY PURCHASE PROCESS IN SPAIN

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I. PREVIOUS STEPS FOR PROPERTY PURCHASE

A.1.- OBTAINING THE SPANISH FOREIGNERS IDENTIFICATION NUMBER (NIE)

A.1.1.- Explanation

Foreigners who, for their economic, professional or social interests are related to Spain need to get the Spanish Identification number (NIE).

A.1.2.- Documentation required

– (i) A complete apostilled copy of the Passport (all of the pages) or (ii) if done at the Spanish Consulate, the complete copy of the passport (without been apostilled).

– Submitting FORM EX-15 before the Spanish government authorities and its subsequent collection on Client´s behalf.

A.1.3.- Timing

– Three (3) business days from the day the documentation is received.

A.2.- OPENING A BANK ACCOUNT

A.2.1.- Explanation

Once the NIE is obtained, we strongly suggest opening a Spanish Bank Account on your behalf, in order to pay all the fees and expenses that shall arise from the property, such as Community of Neighbours, Utilities (water, gas, electricity) etc.

A.2.2- Timing

– Between four (4) and six (6) business days.

A.3 .- POWER OF ATTORNEY

A.3.1.- Explanation

To carry out the aforementioned procedure, it is compulsory to get a Power of Attorney (PoA).

A.3.2.- Content

Drafting and preparation of a Power of Attorney empowering LEXIDYto execute the following authorities:

a) Application in obtaining the NIE (Número de Identidad de Extranjero).

b) Opening a bank account.

c) Purchase the property

This Power of Attorney can be time-limited, and the authorities can be narrowed at your convenience.

A.3.3.- Granting the PoA

As you probably won’t be traveling to Spain, this Power of Attorney shall be granted at the foreign country. It can either be done:

(i) At a foreign country based Notary of your convenience. Shall be signed by the Notary and Apostilled, or;

(ii) At the Spanish Consulate, no need of subsequent Apostille legalization.

II.- BUYING PROCESS

1.- RESERVATION DEPOSIT

Usually, before the signing of the Arras agreement and in order to present an offer, there is a deposit paid amounting around € 500 to € 1,000.

2.- ARRAS AGREEMENT (EARNEST MONEY PACT)

The Arras Agreement is where all the contract terms and conditions of the purchase are established, and part of the price that has been settled is paid. The amount to pay in the agreement can be negotiated with the seller. Normally, the custom in Spain is to pay 10% price.

The Arras Agreement consists of a penalty clause stating that:

(i) If the Seller doesn’t comply with the conditions settled in the Agreement, then he will be required to pay back the buyer the amount paid in advance doubled.

(ii) Otherwise, if the buyer if the one that is not fulfilling with the conditions established or retracts from the purchase, then the seller will keep for himself the amount paid, as a penalty for not buying the property.

LEXIDY’S duty would be to do the Due diligence with verification, analysis and posterior advice of all the eventual charges related to the property, this is:

I. – Urban Charges situation and Affections from the Town Hall:

Due diligence with verification, analysis, and posterior advice of all the documentation related to the property’s situation, this is the reports issued by the Planning office from the Town Hall.

II. – Simple Informative Note from the Land Registry.

III. – Confirmation of current payment of the following:

A. Payment of Land Tax (IBI) and previous tax obligations.

B. Owners Community neighborhood.

IV. – Certificate of habitability for the property is up to date, a study of tenancy, as well as taking care whenever there is a mortgage.

V. – Cadastral certification attesting the physical, legal and economic data of the property contained in the Cadastral Registry.

VI. – Certificate of the mortgage credit balance (if needed) for the issuance of a certificate of the status of the mortgage and the state of the deed of the mortgage redemption.

VII. – Study of tax reliefs on the purchase of the property, if applicable.

VIII. –Technical Building Inspection (if any) to check the state of the residential building in order to verify the duty of the owners to conserve and rehabilitate their properties.

3.- PURCHASE DEED (COMPLETION)

Here is when the transmission of the property takes place, and the client would become the registered owner. As aforementioned we could:

(i) Sign it on your behalf with the PoA provided.

The scheduled date of the deed usually takes place 1 to 3 months after the Arras agreement. It can be narrowed or broadened at your convenience.

4.- PROPERTY REGISTRY

Immediately after the signing before the Notary, the Purchase Deed shall be registered at the Property’s Registry Office.

It usually takes from 3 to 5 weeks to have the title deed registered.

5.- TAXES AND EXPENSES SUBJECT TO THE PURCHASE

5.1.- EXPENSES

a) Notary

Notary costs are those produced by the public deed of purchase.

These costs are established by law and the sum depends on the amount paid for the property but may be increased by other notarial operational aspects (i.e. the number of copies, the extension of writing etc).

The estimate is around 0,5% of the value paid in the purchase.

b) Property’s Registry Office

These are the expenses generated by registering the property in the Real Estate Registry. They are also set by legislation and the amount depends on the price of the property.

The estimate is around 0,5% of the value paid in the purchase.


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