Spain has a robust framework for taxing nonresident foreigners, primarily due to its attractive property market and vibrant real estate sector. The vibrant tourism industry and the desire for vacation homes make Spain a sought-after location for property investment. This results in substantial tax revenue from both property transactions and ongoing property ownership.
Many expats find Spain to be an attractive place for investment and living owing to its favorable climate, rich culture, and booming real estate market, with residency options making buying a property an appealing option. Nonresidents need to understand the particular tax regulations, including property tax and any possible exemptions, that apply to them, as well as the benefits and obligations these entail. Spain has specific tax treaties in place with several countries to mitigate double taxation and provide greater clarity and protection for investors.
Nonresident foreigners are liable to tax on their Spanish-sourced income. Nonresident couples may file their income tax returns jointly or separately. For married couples married under the community property regime, their incomes, capital gains, and related deductions are divided equally between them, whether they file jointly or separately. For married couples married under the separate property regime, their incomes, capital gains, and related deductions are attributed exclusively to each individual earning the income.
Income Tax (IRPF)
Income is categorized into the following basic categories:
Employment income
Income from movable capital
Income from immovable capital
Business income
Capital gains
Imputed income (such as income from residences, other than the taxpayer´s primary residence)Income earned by nonresidents is generally taxed at a flat rate of 24%; however, the rate is 19% for all EU and EEA residents if there is an effective exchange of tax information.
Rental Income Tax
Income from properties is categorized as investment income in Spanish tax laws. Nonresident foreigners (EU/EEA) buying a property and earning rental income are taxed at a 19% flat rate on the gross income for 2022 and 2023, withheld by the tenant. Income-generating expenses are deductible if you are an EU/EEA resident.
Excelling in governance, Spain ensures that property transactions are meticulously regulated. The effective administration and enforcement of tax policies ensure that both residents and nonresidents comply with the financial obligations. This also prevents tax evasion and maintains the integrity of the tax system.
Imputed Income Tax
Nonresident foreigners have to pay a 2% tax levied on the cadastral value of any unrented Spanish urban property. If a new property value was set after January 1, 1994, the applicable imputed income tax rate is 1.1%.
Local Income Tax/Income Tax Surcharge
In addition, nonresidents must pay an annual registration fee to the Chamber of Commerce, Industry, and Navigation. The surcharge is levied at progressive rates from 0.75% (for income up to €60,101.21) to 0.01% (for income over €24,040,484.18). The surcharge is deductible for income tax purposes.
For transactions involving VAT-exempt properties, buyers may be liable for the Property Transfer Tax (PTT), which ranges from 6% to 10%, depending on the region. This tax is paid by the buyer and is separate from other costs such as Notary Fees or Agent Fees. Nonresidents must account for this in their financial planning to ensure compliance with Spanish tax laws.
Corporate Tax
Income and capital gains earned by companies are taxed at a flat rate of 25%. Income-generating expenses are deductible when calculating taxable income. Rental income received by corporations is considered business income and is subject to the corporate tax rate of 25%.
Capital Gains Tax
Capital Gains Tax (Impuesto de Plusvalia)
Nonresidents selling their Spanish property have to pay capital gains tax. The capital gain or loss on property sale is computed as the transfer price less acquisition cost (acquisition price and related expenses) and less appropriate minimum depreciation. The acquisition cost is indexed by applying a coefficient published annually by the Budgetary Laws, based on the year of acquisition.
Capital gains derived by nonresidents are taxed at a flat rate of 19%.
For properties acquired before December 31, 1994, but later than December 31, 1986, inflation relief is given. The gain is then reduced by 11.1% for each year or part of a year the property was owned before December 31, 1994.
Three percent (3%) of the capital gains must be withheld and paid by the buyer to the Spanish tax authorities. However, the buyer of Spanish property from nonresidents need not withhold 3% of the capital gains if the nonresidents have owned the property before December 31, 1996, without improving it for more than 10 years (as indicated in the notarized deed of sale), or the property was contributed to the capital of a Spanish company.
Urban Land Appreciation Tax (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana, IIVTU)
Nonresidents have to pay this tax on the increase in the value of urban land when they sell it. The taxable base is the cadastral value of the land at the date of disposal multiplied by a certain percentage, calculated as the number of years the land was held (maximum of 20 years) multiplied by a coefficient from 3 to 3.7. The rate is set by each municipality and may be up to 30%. If they instead decide to give it as a gift or inheritance, their beneficiary has to pay this tax.
Property Buying Costs and Taxes in Spain
Transaction Costs
Description | Cost Range | Who Pays |
Property Transfer Tax | 6.00% - 10.00% | Buyer |
Agent Fee Buyer | 3.00% - 6.00% | Buyer |
Agent Fee Seller | 3.00% - 6.00% | Seller |
Legal Fees | 1.00% - 2.00% | Buyer |
Notary Fees | 1.00% - 2.50% | Buyer |
Roundtrip Cost | 14.00% - 26.50% |
|
Property Tax (Owning) | 0.5% - 4.8% |
|
Tax | 26% |
|
Rental Income Tax | 19% |
|
Source: Global Property Guide, PWC, Deloitte |
Property Holding Tax
Net Wealth Tax (Impuesto sobre el Patrimonio, IP)
In all autonomous regions except Guipuzcoa, which is a province of the Basque Country, the net wealth tax has been abolished as of January 1, 2008. Technically, the tax law has not been abolished, but there is a 100% tax allowance, and taxpayers are not required to file tax returns on net wealth.
From 2015 to 2016, the net wealth tax has been reactivated. Resident individuals are subject to net wealth tax, which is levied on their worldwide assets. The net wealth tax rates range from 0.20% to 3.50%. In Andalucia, the net wealth tax rates range from 0.24% to 3.03%.
Net Wealth Tax Rates 2023
Tax Base, € | Tax Rate |
Up to €167,129 | 0.20% |
€167,129 - €334,253 | 0.30% |
€334,253 - €668,500 | 0.50% |
€668,500 - €1,336,999 | 0.90% |
€1,336,999 - €2,673,999 | 1.30% |
€2,673,999 - €5,347,998 | 1.70% |
€5,347,998 - €10,695,996 | 2.10% |
Over €10,695,996 | 3.50% |
Source: Global Property Guide |
The taxable base is net wealth, calculated as all Spanish assets less all documented liabilities (excluding exempt assets). The liabilities are valued according to their normal value on December 31 and are deductible only if they are adequately substantiated.
The property is valued at whichever is highest among:
The cadastral value
The value determined by the tax administration for other taxes
The actual acquisition price
Unlike resident Spanish property owners, nonresidents’ combined amount of IRPF (income tax) and IP (wealth tax) due may exceed 60% (i.e., it has no limit). The net wealth tax is not a deductible expense for income tax purposes, although it can be considered a documented liability.
Real Estate Tax (Impuesto sobre Bienes Inmuebles, IBI)
The taxable base is the cadastral value, which is adjusted every eight years concerning the property’s market value, impacting property tax calculations. The tax rates may be increased by the municipal authorities but are generally 0.4% for urban properties and 0.3% for rural properties. Property owners are generally liable for this tax, but it may be charged to the tenant if so agreed in the contract, which is commonly done. Real estate taxes are deductible for income tax purposes.
Special Tax on Real Estate
Generally, a 3% tax is levied annually on the cadastral value of real estate owned by nonresidents.
In summary, engaging in property transactions or ownership within Spain comes with specific tax obligations. Hence, understanding Spain's comprehensive tax regime is crucial for nonresidents looking to invest in the country’s lucrative real estate market. Proper financial planning and compliance with Spanish tax laws ensure a smooth investment process.
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