Spanish Tax Form 210 - income taxes payable in Spain by non-residents
In our experience, foreign owners of Spanish property fall into three categories:
- those who know of their income tax obligations and pay them
- those who know some kind of taxÂ is payable but choose to ignore them
- those who are living in blissful ignorance of important tax liabilities
Non-resident taxes - a recap
There is a full guide to the non-resident tax obligations of foreign property owners elsewhere on the site (Spanish Tax Form 210 Guide) but in summary:
> anyone who spends less than half the year in Spain can generally consider themselves non-resident for Spanish tax purposes
> if they own assets in Spain (including property, shares, deposits of cash, bonds), any incomeÂ arising from these isÂ liable to tax
> this income is reported annually on the Spanish tax form 210 and is due by the end of the year following the year when the income arose
> anyone owning a property which is not rented out and does not produce an income is nevertheless deemed to have earned an "imputed income" from that property upon which tax is payable at 24.75% for 2014 (tax rates will be a little lower for 2015)
> Advoco provides an online service to take care of this obligation for an annual fee from â‚¬50
Why do so many non-residents not know about this tax?
I am an English chartered accountant with a fairly decent knowledge of tax matters but managed to own a property in Spain for several years without submitting a form 210 or paying any taxes or even having heard of the requirement. How can this fairly basic requirement be so widely ignored and misunderstood?Â Most people with Spanish holiday homes pay the local property taxes (IBI, SUMA) due on their properties. Perhaps the difference is that these taxes are collected by the local Town Hall who are not going to let non-payment go easily (although backlogs of years of unpaid IBI are not unknown). Also the property tax should come up as part of the property purchase process when the buyer's lawyer checks to see that they have been paid up to date by the seller.
But I think the main reason why local property taxes are more commonly understood and paid is that they are similar to British rates and thus expected.Â We would expect to pay local property taxes or rates if we bought a property practically anywhere in the world. That is how local amenities and services are mostly financed, so a rates bill is hardly unexpected or resented. The problem with non-residents tax is that it is additional to rates and not directly equivalent to anything in the UK.
In fact paying tax on "imputed income" from a holiday home which is not rented out seems downright unfair, which is perhaps why so many people avoid it even when they know about it.
Dodging Spanish non-resident income tax
Ignorance is no defence when it comes to unpaid taxes but a lot of the foreigners who don't pay the tax are not even ignorant. They know of it because neighbours pay it or they have read about it, but choose to ignore it. This could either be because they are making a calculated decision to avoid paying the tax because they think they can do so safely or possibly because they are put off by the thought of having to deal with a strange tax office and system, i.e. it is not the expense of paying the tax that they are avoiding just the hassle of having to sort it out. This is where Advoco can help, but even without assistance it is not such a tough obligation to get on top of, particularly after the first year of setting it up.
The big question is can Spanish tax dodgers expect to get away with it? I can't answer that with 100% certainty because in part it is the luck of the draw. There are many people who have lived or owned property in Spain for years without ever having paid tax and nothing has ever caught up with them. I myself managed to avoid non-residents tax (through ignorance) for about 5 years before I begun getting involved with Spanish tax and accountancy and learnt the truth.Â Periodically you do hear of tax drives against people who avoid their obligations and it is not as if it would be hard to find out all foreign property owners who haven't registered for tax or submitted a return. However I haven't heard of anyone caught out directly.
A bigger problem for avoiders could be when they come to sell the property they have avoided paying tax on. Non-resident taxpayers are hit with a charge equal to 3% of the sale price when they sell their property. This is meant to be an advanced payment against capital gains tax on the sale. If there is in fact no capital gain on the property then the 3% is recoverable but generally the tax authority (the Agencia Tributaria) will want to see Tax Forms 210 paid up to date.
Consequences if caught avoiding Spanish tax
There is a full explanation of Spanish tax fines and penalties here http://www.advoco.es/home/22-latest/45-spanish-tax-late-reporting-and-fines.html#L4
In general non-payers can expect to have to pay the tax they owe plus interest and a "sancion" which can add 50% to 150% to the bill.
Useful links -
Complete the Spanish Tax Form 210 online
Spanish Tax Forms / Modelos explained
Changes to Spanish tax form 210