The determining factor regarding what kind of Income Tax a natural o legal person pays in Spain is residence. Residents pay regular Income Tax (IRPF) or Corporation Tax (IS), and non-residents, both natural and legal persons, must pay Non-resident Income Tax (IRNR).
Who is a resident?
The first question to answer is who is considered a resident for tax purposes. This consideration must not be confused with the legal status of resident, which I have explained in detail y my previous post “Living and working in Spain”.
Natural persons (private individuals) are considered resident in Spain for tax purposes if they remain in Spain for more than 183 days of the calendar year.
Anyone who does not find themselves in this situation will be considered a Non-Resident Income Tax payer insofar as they obtain income or own real-estate in Spanish territory.
Income to be declared on real-estate in Spain
According to Spanish law, non-resident natural persons who own urban real-estate assets in Spanish territory, for their own personal use, rather than for economic activity or which are vacant, are subject to Non-Resident Income Tax for the income obtained from these buildings. To clarify, although there is no actual income received in these cases, a “fictional” income is calculated based on the value of the said property. This is not to be confused with the local Property Tax (I.B.I.), the payment of which does not exempt you from Non-Resident Income Tax.
If you are renting out your property you will have to declare the income you obtain from said rental.
Will I be notified I have to pay?
The system for collecting taxes in Spain is different to that in many other countries. Under the Spanish system you will not necessarily be reminded that you owe tax, it is your responsibility to make sure you are up to date on your tax payments.
However, this does not mean you won’t be caught for not paying your Non-Resident Income Tax. The Spanish Tax Authority is increasingly cross-referencing information to identify where there are irregularities (including monitoring electricity consumption and Land Registry records, among other measures).
A letter may be sent to your Spanish address notifying you of your obligation to pay Non-Resident Income Tax, though this is not necessarily the case and not receiving such a letter does not exempt you from your tax obligation. Even in the event that this letter is sent out, if you are not there to receive it at the time it is issued, as many who are not residing permanently in Spain may not be, then the letter will be returned to the Spanish Tax Authority.
When do I have to pay?
The 31st December is the deadline every year, by which time non-residents must have filed their annual Non-Resident Income Tax return for the previous year (e.g. deadline for 2019 tax return is 31st December 2020).
Consequences of failing to pay
The main consequence of non-payment is that the debt with the Spanish Tax Authority will be held against your property and, as a result, will have to be settled before you are able to sell your property, or before your heirs are able to inherit it.
In addition, you may have to pay late payment interest, as well as the appropriate tax sanctions, the funds in your bank account could be seized, or you could become the subject of one of the Spanish Tax Authority’s anti-fraud campaigns.
It is for all of these reasons that it is essential that non-residents seek a professional and experienced fiscal representative who is in a position to make sure your taxes are paid on time, receive notifications on your behalf, represent you to the Spanish Tax Authority, inform you of changes to Spanish tax law and answer all your queries on the matter.
Gabriella Mary Trussler Rowland
4408 Ilustre Colegio de Abogados de Almería