EARNINGS FROM REAL ESTATES AND BUSINESS ACTIVITIES – SPANISH TAX REFORM  2015

Spanish tax advisers in Marbella have the pleasure to set out below an introduction to the Spanish tax system concerning the Income you may generate out of properties located in Spain

Description of Inland Revenue In Spain: Earnings deriving from the lease, or the creation of rights or powers of use or enjoyment, of rustic and urban Spanish property, or of rights “in rem” over these properties, which are owned by the taxpayer and are not used for economic activities by the taxpayer, shall be considered earnings from real estate.

 Income derived from the lease of real property is considered earnings from real estate, except if the two following circumstances occur simultaneously: 

1. That at least one business premises is used when conducting the activity and that this use is exclusively for the management of the rented buildings.
2. That at least one person is employed under a full time job contract for the purpose of carrying out this management.

Spanish Tax Reform 2015 Since the approval of the Tax Reform 2015 in order for a property leasing to be considered an economical income against earnings from Real Estate, must have at least one person with a full time labour contract for the purpose of carrying out the management of the activity.  The other requirement which was that in the development of the activity there must have at least one premises dedicated exclusively to the management of the activity, has been removed.  Taxes to be applied to the property leasing Invoices 

• When the property is intended as the primary residency of the tenant, the rent must not include any tax – VAT or withholding Tax.
• When the use of the property is not going to be a residency and its final use is going to be in the nature of business premises or office, in order words, have a commercial use then the owner has the obligation to issue an invoice to the tenant including the tax – VAT or withholding Tax.

 Tax Rates in Spain (general rule) 

• VAT (IVA) –  The VAT Tax Rate 2015 in force in Spain for property rental is 21% .
• Withholding Tax – During 2015 the rate to be applied is 20%.  This rate should be reduced to 19% on 2016