Rental tax in Spain

Rental Tax in Spain

Have you heard that taxes on rent in Spain are high? Compared with what country? It depends on many factors, especially your tax residence, this has a significant impact. But, let’s check for ourselves, the percentage of taxes that are applied, and we will compare it with the countries of our environment. Have in mind that this comparation is only for renting non comercial properties, with commercial properties, another set of rules apply.

Residents

For Spanish residents, the costs involved on the management of the property are deductible (including the mortgage payments). The tax rate will be variable (depending on your income) applicable after the costs are deducted. Also, for spanish residents there is a discount of 60% of the tax appliable to the taxable net income.

Example. If a resident from Barcelona has a property that generates 1000 euros on monthly rent and earns the average salary:

Gross yearly rent: 12.000 euros

Yearly costs (property tax+maintenance costs+asset depreciation): 7.900 euros

Taxable net income: 12.000-7.900 = 4.100 euros

  • 60% discount on the taxable net income: 4100 euros – 60% (2460 euros) = 1640 euros

Yearly taxes to be paid (14,5%): 1.640 * 14,5% = 237,8 euros

Non residents (EU residents)

For EU residents, the costs involved on the management of the property are deductible (including the mortgage payments). The tax rate will be 19% applicable after the costs are deducted. The 60% discount just applies for spanish residents.

Example. If a German resident has a property in Spain that generates 1000 euros on monthly rent:

Gross yearly rent: 12.000 euros

Yearly costs (property tax+maintenance costs+asset depreciation): 7.900 euros

Taxable net income: 12.000-7.900 = 4.100 euros

Yearly taxes to be paid (19%): 4.100 * 19% = 779 euros

Non EU residents

For non-EU residents, the costs involved on the management of the property are NOT deductible. The tax rate will be 24% applicable to the gross income.

Example. If a Chinese resident has a property in Spain that generates 1000 euros on monthly rent:

Gross yearly rent: 12.000 euros

Taxable income: 12.000 euros

Yearly taxes to be paid (24%): 12.000 * 24% = 2880 euros

Comparison (EU residents, except non EU countries)

Switzerland
48.56%
Portugal
26.44%
Austria
24.92%
Malta
23.33%
Finland
22.5%
Turkey
21.94%
Norway
20.8%
Russia
20%
Estonia
20%
Spain
19%
Italy
17.25%
Hungary
13.5%
Poland
13.5%
Netherlands
13.4%
Ireland
10%
France
10%
Belgium
8%
Germany
2.71%
UK
0%

Conclusion

From the data of this analysis, we see that Spain applies a fairly favorable tax for the Spanish residents, but above all it penalizes the non EU investor. Is it still worth investing in properties to rent in Spain? Especially when there are destinations where taxes are not such a big burden?

We believe that yes, with nuances.

If we get our Yield to be bigger and more stable than in other countries, it may be worth paying extra taxes.

In order to reach our desired profitability, we should do the following:

  • You should never buy premium (if your intention it’s just to invest): Target medium-low class properties.
  • Prices still low in comparation of other countries of the EU. Focus on second tier cities or cities within the metropolitan area of the bigger cities.
  • Buy small! Or just split a big apartment into small studios. We did it before!
  • Buy distressed properties. Point at properties from the 70’s and 80’s, they’re in good structural condition. 
  • Become a tough negotiator. Don’t fall in love with the first property, visit many properties and offer big discounts (by big, we mean 30-50%).

We know that this rules sound quite reasonable for a local, but, how a foreign investor could get enough knowledge of the market in order  to accomplish it? In other articles, we will analyse the Spanish market and try to help you to find the best investing spots.

(aUTHOR)

I'm the operations coordinator of Bluebricks. I'm the guy managing all the operations related to Real Estate. Check my Linkedin profile here: https://www.linkedin.com/in/adriacre/

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