Differences in tax obligations between these three different types of “ownership”: the non-resident private individual in Spain, the non-resident company in Spain and the Spanish company whose partner is a non-resident.
The purpose of this article is to briefly analyse the differences in tax obligations between these three different types of “ownership”: the non-resident private individual in Spain, the non-resident company in Spain and the Spanish company whose partner is a non-resident. Also, we will look at the taxes due on the sale of property in relation to capital gains tax.
1. Tax for non-resident private individual owning property in Spain.
1.1. Income Tax (IRNR – Impuesto sobre la Renta de No Residentes).
The property is assigned an income which is valued at 2% of the cadastral value of the property (1.1% if the value has been fixed in the last ten tax periods). Before the tax reform 2015 the 1.1% value was applied to cadastral value reviewed after 1994.
The tax rate aplied is 24% to be caluclated on the 2% (or 1.1%) on the cadastral value of the property. The tax reform has introduced a changed regarding the tax rate. In this sense, if the owner is resident in another country of the European Union or in another country of the European Economic Area with and effective change of information between the two countries, the rate is reduced from 24% to 19%. Temporarily throughout 2015 the rate will be 20%.
1.2. Wealth Tax.
This tax is temporary and is due on the 31st December of each tax year. The tax must be declared before the 30th June of the following year. It is expected that 2015 will be the last year of its application but it may be extended.
The tax base is the net value of the property. Once the base rate is calculated an exemption of 700.000€ is applied. After this the base is proportional and scaled with a minimum of 0.2% to a maximum 2,5%.
Also and resulting from the tax reform, non resident taxpayers that reside in a member state of the European Union or European Economic Space will be able to apply norms of the Authonomus Community where the largest value of their wealth lies and on which they must pay tax in Spain.
1.3. Elimination of Double Imposition.
It may happens that the non resident private individual has to pay the said taxes in Spain and, according his national law has to pay the same or similar taxes in his country because he owns the property in Spain. That is, there is a double imposition. In this cases, we have to look at the Double Imposition Treaties.
2. Purchase of Property by a non resident company in Spain.
Companies are not affected by presumed income to which private individuals are liable.
Wealth Tax is not applied to companies either. Notwithstanding, the Wealth Tax Law establishes that a return for Wealth Tax is to be filed when assets and any other rights owned are located, may be exercised or completed on Spanish territory, understanding that this may be the case for the share capital of a non resident company that only owns a property in Spain.
3. Property owned by Spanish company with a non-resident partner. Taxation on Spanish companies.
3.1. Company Tax.
A Spanish company owning property for the use of partners or directors must estimate a value for such use. Even if the property is not rented out, the tax authority presumes an income for this purpose for the partners or directors that use it.
As a result of the tax reform, the general tax rate has been reduced from 30% to 25% (exceptionally 28% during 2015). The base rate will be approximately the net profit for the year. That is, the net amount after deducting all tax deductible costs from the company income.
3.2. Wealth Tax.
If the Spanish company partner is a private individual, he has to declare Wealth Tax in Spain for the value of the shares the individual holds in the Spanish company.
4. Tax for non-resident private individual and for non-resident company when transmitting or selling the property.
In the event of sale of the property, tax rate for capital gains on income tax is 19% on the capital gain ( 20% for 2015). The capital gain will be calculated by the difference between purchase value (price + costs related to the purchase) and transfer value (price – costs related to the sale). The tax reform 2015 has eliminated the corrective coefficient that was applicable to the purchase value and has also limited the values for reduction.
5. Company Tax and Non-Resident Income Tax for sale of property.
Upon the sale of the property and holding the Spanish company a benefit the following taxation takes place:
– The Spanish company will pay 25% Company Tax (28% for 2015).
– Additional taxation will be levied on the non-resident partner if there is a share dividend on the benefit obtained. If certain requirements are met, these benefits may be exempt.