09 Jan How Real Estate is taxed in Spain when you are a non-resident

Spain has traditionally been an especially attractive destination for the acquisition of real estate by non-resident individuals. Beyond the climate, cultural richness and other elements usually grouped under the idea of “touristic appeal”, there are also objective economic reasons that have consolidated Spain as a priority jurisdiction for foreign property investment.

However, owning property located in Spain, even when the owner is not tax resident in the country, is not exempt from tax obligations. At Navarro Llima Abogados, as specialists in Spanish Tax Law, we briefly outline below the main tax implications applicable to foreign individuals acquiring real estate in Spain.

1. Taxes at the time of purchasing real estate in Spain

The first aspect to analyse is the taxation applicable at the moment of executing the purchase transaction. The applicable taxes will depend on whether the property qualifies as new build or as second (or subsequent) transfer:

1. New build properties

In this case, the acquisition is subject to Value Added Tax (VAT), at the general rate of 10% on the purchase price, as well as the Stamp Duty (Actos Jurídicos Documentados – AJD), whose rate varies depending on the Autonomous Community where the property is located.

By way of example:

• In the Autonomous Community of Madrid, the general AJD rate is 0.75%.
• In Catalonia, the general AJD rate is 1.5%.

2. Seconf or subsequent transfers

For the acquisition of used or previously transferred properties, VAT does not apply. Instead, the transaction is subject to Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas – ITP), the rate of which also depends on the relevant Autonomous Community.

Following the previous examples:

• In Madrid, the general ITP rate is 6%, although reduced or increased rates may apply in specific scenarios.
• In Catalonia, ITP is progressive, starting at 10%, with certain exceptions where reduced or increased rates apply.

Additionally, taxes are not the only costs associated with the acquisition. The purchase must be formalised in a Public Deed before a Notary, incurring notarial fees. After completion, the acquisition deed (and mortgage deed, if applicable) must be filed with the Land Registry, generating the corresponding Land Registrar fees.

2. Income derived from owning property in Spain

Once the property has been acquired, non-resident owners must comply with ongoing tax obligations. Firstly, the property becomes subject to Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes – IRNR), whose treatment varies depending on the use of the property:

1. Property used by the owner

Where the property is for the personal use of the owner and remains unoccupied during periods in which the owner is not in Spain, Spanish tax rules deem the existence of an imputed rental income.

In such cases, non-resident individuals are taxed on an annual imputed income equal to 1.1% or 2% of the cadastral value of the property, depending on whether such cadastral value has been recently reassessed.

Example: A property valued at €200,000 generates an annual imputed income of €2,200, taxed under IRNR at 19% for residents of EU Member States, Iceland, Norway and Liechtenstein, and 24% for all other taxpayers.

2. Property leased to tenants

Where the property is rented out, lease income is generated during the periods in which the property is let.

In this scenario, the non-resident taxpayer must pay tax on the gross rental income received from the tenant for the periods during which the property is rented. During periods with no rental income, the imputed income described in the previous subsection applies.

As a general rule, the taxable base corresponds to the full gross income received. However, residents of EU/EEA countries with information-exchange agreements may deduct certain expenses.

Example: A property generating €1,700 per month in rental income results in €20,400 in annual income, taxed at 19% or 24% (as above), payable quarterly or annually (January).

3. Disposal of the proerty: capital gains

Finally, should the non-resident owner decide to sell the property, a capital gain or loss will arise, consisting of the difference between the sale price and the acquisition value.

The taxable base is generally determined by calculating such difference, and the acquisition value may be increased by the cost of qualifying improvements and investments made in the property, as provided under the applicable tax legislation.

3. Other Taxes and costs.

In addition to income derived from ownership or transfer, the non-resident owner must also bear certain municipal taxes and fees, such as:

• Property Tax (Impuesto sobre Bienes Inmuebles – IBI): the amount and tax rate depend on the municipality.

Municipal fees: determined by each local authority, including charges relating to water supply or waste collection, among others.

As shown, acquiring real estate in Spain—albeit a significant opportunity—may entail a substantial tax burden which, if not managed correctly, can result in penalties, surcharges, or avoidable tax contingencies.

At Navarro Llima Abogados, we operate a dedicated Real Estate platform through which we advise clients before, during and after the acquisition process, ensuring proper legal and tax planning of the investment.

Further information is available at our platform realestatespainlawyer.com, or you may contact info@navarrollimaabogados.com should you require assistance.