Legal definitions: Spanish Taxes

This property tax due annually in the autumn is based on the land registry value of the property. With uninhabited land, often no property tax is payable. The authorities, today, try to ensure that this value corresponds to at least 70% of the real value. Tax rates usually amount to between 0,2% and 0,4% of the land registry value, although municipalities have the right to vary this. In short: the more popular the municipality or the area, the higher the tax rate.

The ITP is the English equivalent of land purchase tax. This is payable when the purchase of a property does not require VAT. With property transactions between private individuals, usually only 6% or 7% tax is payable on the purchase price. This will be confirmed in the notarised contract. It is important to realise, however, that without the payment of this tax, no property entry in the property register will be possible. If there is a mortgage on the property, AJD tax is payable at 1% of the mortgaged value. The same applies with a new building, establishment of a company or any other notarised legal transaction of which is not subject to ITP.

This refers to the Spanish tax office. Large country estates, particularly in the south of Spain or in South America are also known as haciendas.

The Spanish value added tax amounts to 16% and is payable on normal goods and services. In addition, for example with the purchase of development land and business properties of a Limited Company (= sociedad limitada) or Public Company (= sociedad anónima) to a commercial buyer. When buying a new building, the builder applies a reduced VAT rate of 7% and also no ITP will be payable. With food and books this lower rate is also applied.

This is equivalent to capital gains tax. Here the increase in value between the last real estate transaction and the current real estate transaction is taxed, if the time interval between both transactions is less than twenty years. Depending upon the size of the property, this tax is between 16 and 30% of the increase in value. Also, this can vary from municipality to municipality. However, only the land value increase is taxable, independent of the value of the buildings. Don’t confuse this with the state tax on speculative gains, which is payable at 18%, since 1.1.2007,on the difference between the Escritura value at the time of purchase and that at the time of re-sale.

Spanish income tax is payable in principle only by individuals who are domiciled in Spain, and then only if certain minimum values are exceeded. If no domicile and/or no residence permit (= residencia) exists, then spending over 183 days in Spain the individual is considered to be resident for the purposes of tax law and has to pay tax in Spain on worldwide income! In addition, the non-resident owner of a holiday home in Spain is liable to pay tax on the legally estimated income from that property (IRNR).

With non- residents, tax is payable only on income generated in Spain. For Residents, however, worldwide income is taxable. It is particularly important to note that with property, the land register value is the basis for tax assessment. However, frequently neither income tax nor wealth tax are paid by English or Germans living in Spain, because they make no declaration. So far, the Spanish state has tolerated this situation, probably in order not to endanger the supply of foreign currencies from north and Central Europe. However, more recently, tax declarations are increasingly required.

A representative is an person authorized to receive the owner’s tax correspondence. Non-residents owning property in Spain, still need, at present, a tax representative, so that tax demands on the property can still be delivered. Often, this function is undertaken by a Gestoría (= management office for official purposes), tax advisor or a lawyer. The requirement of a tax representative I consider to be unlawful at European level, because they simply want to avoid postal deliveries abroad, so foreigners are unfairly disadvantaged.

Spanish Corporation tax on the activities of S.L. (sociedad limitada; in English Ltd. company) and for S.A. (sociedad anónima, or Plc) amounts to 35% on profits.

The general word for fees, contributions or services, differing from the word impuestos for taxes (e.g. garbage fees = tasas de basura).