Taxes in Spain

Written by Per Svensson

A foreigner buying a property or intending to become resident in Spain should inform himself on the taxes. There are taxes on the purchase, yearly taxes on properties, income taxes, wealth taxes, vehicle taxes, as well as taxes on selling and inheriting. We shall just briefly mention the taxes you may have to pay, as a property owner or resident.

At the end of 2006 Spain got a new tax reform. In article at the end of this Information, we describe which effects the reform will have for the foreign property owners.

The purchasing tax

If you buy a dwelling from a promoter, you pay IVA (VAT).
If you buy a property from a private person, you pay ITP (Impuesto de Transmisiónes Patrimoniales - transfer tax on private assets).
The IVA is 7% for buying a dwelling, but can be 16% on buying a plot, a garage or a swimming pool, separate from the purchase of the dwelling.
The ITP is 6 or 7%.

The tax is always calculated on the value declared in the public title deed (escritura publica). In addition to the tax, you must also pay notary fees and registration costs (around 2%). Normally, it is the buyer both paying the tax and costs.

The building tax

You may have to pay the municipal tax on construction, if you build a house, or make improvements or extensions to it, or even work done in the garden.

This tax is basically 2% on the real costs of the work, but increases in municipalities with a greater number of inhabitants.

Moreover, you have to pay IVA (VAT) on the construction, but only the reduced type of 7% if it is for constructing or reforming your dwelling, the same for building garages and/or swimming pools, if they are built at the same time as the dwelling.

The tax called “plus valia”

This is a municipal tax on the increase in the value of residential land (not on the building), from one 'escritura' (title deed) to the next. The basis for the calculation of the tax is the fiscal value (valor catastral) of the land at the time of the transfer. A set of percentages are applied on this value for the number of years that have passed since the previous transfer, up to 20 years, in relation to the number of inhabitants of the municipality.

This is a tax to be paid by the vendor, but it can be agreed between vendor and buyer, that the buyer pay. One can find what the tax will be by going to the town hall with the 'escritura'. They can calculate the figure in a few minutes.

Local property tax



IBI (Impuesto de Bienes Inmuebles) is the name of the local property tax. It is based on the "valor catastral" (fiscal value), determined by the "catastro" (cadaster office in the provincial capitals). The valor catastral is revised every 10 years, and adjusted every year in relation to inflation. With the strong increase in property prices over the last years, the fiscal values have started to rise strongly, as have the tax.

This yearly tax is 0,4% on residential property (fincas urbanas) and 0,3% on agricultural properties (fincas rusticas). However, municipalities may increase this percentage in accordance with the number of inhabitants and the services given.

Often the IBI (and sometimes other local taxes or charges) are being collected by provincial tax collection agencies. For instance, in the province of Alicante, the agency SUMA collects most of the local taxes for most of the municipalities.

It is recommendable to have a standing order for the IBI payment with your Spanish bank. Special forms for doing so can be found in the banks, as well as in the town hall or tax collection office.

(See special information on IBI)

Car taxes

If you bring your car registered on normal plates in one of the countries belonging to the European Union or the European Economical Space to Spain, and register it on Spanish registration plates, there are no customs to pay and also no IVA, only the special registration (see Short-Information on Cars). If you import your car registered outside the European custom area, you must also pay customs and IVA on the present value of the car.

When you have a car registered on Spanish licence plates, you must pay local vehicle tax, based on the volume of the motor. For a private car, the basic tax ranges from 13 Euro per year up to 90 Euro, increased by certain percentages in municipalities with a greater number of inhabitants.

This tax is also a local one and the bill will be presented at a certain time of year by the municipality or the tax collecting agency. Again, it pays to instruct your bank to pay it, and inform the tax authorities.

Business tax

If you go into business in Spain there is a local tax called IAE (Impuesto de Actividades Economicas), in addition to charges and special rules for IVA (VAT) and Income Tax. We shall not deal with the situation of businesses in this Short-Information. The Government has decided to abolish this tax for a great number of small businesses.



The income tax (Renta)


Any foreigner resident in Spain must make an Income Tax return for personal obligations and on his world wide income. If you reside more than 6 months per year in Spain, you are considered a tax resident even if you have not taken a residence permit. However, certain types of income (like public pensions for complete and permanent invalidity) are exempt from Income Tax in Spain, and there are tax agreements between a number of countries and Spain, defining in which country to pay which taxes.

The tax rates at present (fiscal year 2005) goes from 15 to 45%. Income under 7.813 Euro is exempt and under certain conditions, if you have an income of less than 21.000 Euro, you are also exempt from paying income taxes.

A non-resident property owner must pay income tax on the letting value of his dwelling, even if he does not rent it out. The letting value is calculated as 2% of the fiscal value (valor catastral), and a non-resident pays 25% tax on this every year.You will not yet get a bill for the income taxes in Spain, but must present the declaration yourself, or use a tax representative. For the non-resident, tax representative is obligatory, if he does not accept to have communications directed to his property in Spain.

The period for presenting the declaration for the preceding tax year (same as calendar year) is May-June each year for fiscal residents, and during the year for non-residents.

The wealth tax (Patrimonio)

The "patrimonio" is a tax on your assets (mainly property, bank account, car, bonds, stocks and shares). The fiscal residents pay wealth taxes on their world wide assets, but are exempt from including their dwelling in the tax form, if it has a value of less than 150.000 Euro. The non-residents pay wealth taxes only on assets in Spain.

The rates are 0,20% for assets up to approximately 167.129 Euro, increasing with higher values.

The return for the wealth tax is done together with the one for the income tax.

The dreaded Capital gains tax

is in reality part of your income tax. It refers to increases in value of your assets. For property it is calculated as the difference between the value declared in your purchasing escritura and the value to be declared in the sales escritura with certain reductions for cost of registration and sales commission.

Moreover, the capital gains are reduced in accordance with the number of years you have had the property in an escritura. This is the rule for properties bought before the end of 1996. For the years from new legislation in 1996, an inflation correction figure on the investment must be used. There are no capital gains tax on properties registered on an unchanged title deed from before the end of 1986.

A resident selling his main residency to buy another home, can write off the costs of the purchase of the new home from the capital gains in accordance with a special calculation. Never make the title deed to the new home before you have made the title deed for the sale of the previous one!

Non-resident vendors must permit that the buyer makes a retention of 5% in the registered sales price, and pay this to the tax authorities as a guarantee for tax payments. A retention need not be made if the vendor has bought the property in an "escritura" previous to 31 December 1986.

A resident need not make a retention and includes the capital gains (or losses) in his income tax return.

For more details, we refer to the detailed information on Capital Gains.

And more taxes

You are of course paying IVA (VAT) on almost all goods and services in Spain. The IVA is 16%, but has a reduced rate of 7% and even 4% on some items.

If you have bought a property in an old and maybe illegal urbanisation, the town hall may impose "contribuciones especiales" (special contributions) to upgrade the infrastructure in the area and make the urbanisation legal. Of the real costs of the works, at least 10% must be paid by the municipality, the rest by present owners, if the original promoter has disappeared.

When someone holding assets in Spain dies, his heirs must pay Inheritance Taxes. There are certain deductions for inheritance between close family. The situation is different for persons from various countries, but as a general rule it pays to make a will in Spain. For more details study the Short-Information on Inheritance.

At least seven of the regions (Madrid, La Rioja, Valencia, Murcia, the Balearic islands, the Canary islands, Castilla – Leon and Aragon) have introduced reductions in the tax base for inheritances between close relatives (inheritance classes I and II) that goes from 95 to 99%. Other regions (Castilla – La Mancha, Asturias, Galicia and Cantabria) has limited the reductions to heirs of less than 21 years (inheritance class I), or to a certain maximum amount. Andalucia has an exemption on the inheritance of a permanent dwelling of 99,99%, and a reduction of up to 125.000 Euro for inheritance in class I and II (close relations).

I. A flood of new tax laws

During 2006 we were inundated with a flood of laws concerning taxes. On 29th of November the national government introduced

Law 35/2006 Income taxes for individual persons and part modification of the Laws on company taxes, Income taxes for non-residents and Wealth tax.

On 30th of November came Law 36/2006 Measures to prevent tax frauds.

And on 29th of December was published Law 42/2006 with the State Budget for 2007.

All together hundreds of pages in the Boletin Oficial de Estado (BOE), with hundreds of articles and paragraphs. Still, this is not all, since part of the taxes (and legislation on this part) has been transferred to the autonomous regions, that love to legislate. Moreover, we still have to take into account the rules of applications of some of the laws, that are normally being elaborated by the administration, after the politicians adopt the laws. Sometimes the rules of application considerably changes the law.

We have decided to present the most important parts of the laws, concerning the foreign property owners and the European citizens in Spain, at this moment, but warning everyone that new twists and additions may still come.

II. Income Taxes for Residents

First of all, we are talking about the taxes for fiscal year 2007, to be applied on the income tax return to be presented in May/June 2008. The return to be presented this year is for fiscal year 2006, taxed in accordance with the previous tax law.

The scales for the income tax rates are reduced to

24% for income up to 17.360 Euro

28% for income up to 32.350 Euro

37% for income up to 52.360 Euro

43% for income above 52.360 Euro.

On income from labour (including old age pensons) there are allowances of 4.000 Euro for income up to 9.000. For income between 9.000 and 13.000 the reduction is 4.000 Euro minus the result of multiplying by 0.35 the difference between the gross labour income and 9.000. Incomes of more than 13.000 Euro has a reduction of 2.600 Euro.

The deductions on purchase, repair and financing of a permanent dwelling have been cut. Instead, there has been an increase in the deductions for persons with handicaps, and persons attending to those who have such handicaps. Income from long term letting out of a dwelling can have a reduction of 50% on the tax return, and even 100% if the dwelling is let out, under certain conditions, to young people between 18 and 35 years.

The so called “minimo personal” that can be deducted from gross

income, has been raised to 5.050 Euro, increasing by 900 Euro for each year the taxpayer is above 65. Over 75 years, the yearly increase is 1.100.

Since the income tax declaration for residents is not due before May month, we still have ample time to give you further information.

III. Capital Gains Taxes

First: Residents who sell their permanent dwelling to buy another dwelling, at a similar or higher price in the escritura, are exempt from Capital Gains Taxes, as previously (article 38 in Law 35/2006). A permanent dwelling is one where one has lived for at least 3 years (Article 68, 1, 3, in same law).

Secondly: Residents of more than 65 years who sell their permanent dwelling are balso exempt from the Capital Gains Taxes, as previous (article 33,4,b in same law).

Thirdly: There is no Capital Gains Tax when a property has been transferred as an inheritance and subjected to Inheritance Tax. (Article 6,4 of same law). Seriously dependent persons are in the same situation.

Fourthly: There is also no Capital Gain on a transfer following a dissolution of a marriage (Article 33,2),even if one is not permitted to update values in such a dissolution.

As previously, the Capital Gains in the sale of a property is basically the difference between the value of purchase and sale, where the value of acquirement is what is given in the purchasing escritura, plus the purchasing costs and eventually investments and improvements made (we presume that they have to be documented in an “escritura de obra nueva”, as previously). The sales value is the price mentioned in the new escritura, minus the sales costs.

The real value

Law 35 stresses that it is the “real value” that must be applied in a sales escritura (articles 35, 36 and 37). We must read this taking into account article 6 of the law against fiscal fraud, where the following requirements for getting a title deed accepted by the notary and registered by the property registrar are added:

- The notary is being made responsible that the title deed corresponds with the information and documents legally required, and can be reprimanded by his professional association if not doing so and even taken to court if it is done by intention.

- Especially important is certification as to the origin of the money paid in a

Purchase of a property. The authorities will make sure that no black

money is hidden in property.

- Not only the escritura, but all supporting documents must be sent the

Fiscal authorities.

- If one has more than 50% of the shares in a company owning a property, and this is only activity of the company, a sale of the shares will be taxed as the sale of a property (article 8).

One must be prepared to declare the real sales price in an escritura.

The reductions

The reductions for the time you have been the owner of the property, are dealt with in a great number of articles, with variations for the different time periods (as in previous legislation for this tax), with one model for sales done up to the end of 2006, and another for the sales in the future.

What seems to be clear in this jungle of legislation, is that properties owned from before 1996, has a reduction of 11,11% per year, minus the two first (as previous), and that an inflation corrector is used for the money invested.

The table of the inflation corrector is the following:

Year of investment Inflation corrector

1994 or before 1,2162

1995 1,2849

1996 1,2410

1997 1,2162

1998 1,1926

1999 1,1712

2000 1,1486

2001 1,1261

2002 1,1040

2003 1,0824

2004 1,0612

2005 1,0404

2006 1,0200

2007 1,0000

But the law texts are so complicated that the “Agencia Tributaria” (the tax collection agency of the Ministry of Finance) has not yet (this is written on the 24th of January) dared to give an explanation on their own web page! We shall wait foe further details until we have an authorized text from the Ministry itself, and then pass it on to our members.

The taxes

Since any capital gains attributed to fiscal residents will be part of their annual income tax, the tax rates to be applied are the ones given in the beginning of this article (II. Income Tax for Residents) , but with a maximum of 20% on capital gains up to now, reduced to 18% for gains accumulated from now on.

For the non-residents, the situation becomes different:

- The previous tax rate of 35% (considered illegal by the European Commission), will be lowered to 18% on capital gains produced by the sale of private owned properties and the general income tax rates is 24%.

- Also important is that the tax retention on capital gains has been lowered from 5 to 3%, meaning that when a non-resident owner sells his property, only 3% of the declared price will be withheld as a guarantee for the payment of the taxes.

Due to the great complexities of the new law, and the rules of application not yet being available, we shall in coming Weekly Reports and Citizens Reports have to return to the new taxes, giving more detals and explanations.

We have also written to the regional tourist regions, asking for any changes they have made in the reductions on the inheritance taxes. No answers have been forthcoming yet, but we shall persist, and publish them as they come in.


Last Updated ( Wednesday, 27 February 2008 )