Legislation introduced in 1991 (effective 1st January 1992) reinforced the requirement for non-residents having an economic interest in Spain to appoint a Fiscal Representative, resident in Spain, to assist in the administration of the non-resident’s tax affairs in Spain. Failure to comply with the legislation for any reason whatsoever would lead to fines, or even an embargo on the assets belonging either to an individual or legal entity.
An individual is considered to be non-resident if he does not remain on Spanish territory for more than 183 days in the calendar year and if the principal centre or base of his economic interests lies outside Spain.
The purpose of the appointment of the Fiscal Representative is to aid the Spanish Tax Authority in the collection of taxes from non-residents. It is important to note that failure to appoint a Fiscal Representative could leave the non-resident liable to a fine of between Pt 25,000 and Pt 2,000,000.
SPANISH TAX AGENCY WILL CHECK RENTALS
As part of a stepped-up crackdown on tax evaders, the Spanish Tax Agency has announced that it will check up on undeclared rentals. Any income arising in Spain is subject to Spanish tax. This includes income from letting property you own. A non-resident is subject to tax of 25 per cent on this income, to be declared on Form 210. Spaniards pay as part of their regular income tax declaration. Let’s face it: many owners, both Spanish and foreign, let their property and say nothing about it to the tax man. So far, most of these tax evaders have got away with it, but non-declaration has just become a riskier option.
CAPITAL GAINS TAX FOR NON-RESIDENTS IS 35 PER CENT
Thousands of foreign investors or simply holiday home owners in Spain have sold their sunshine property for high profits in today’s real estate boom. These profits are subject to Spanish capital gains tax, a fact not often mentioned by estate agents. The non-resident faces a nasty bite of 35 per cent. To make sure that the tax is paid, Spanish law requires that five per cent of the total purchase price is paid directly to the tax agency when the seller is a non-resident. This means that only 95 per cent of the price is paid to the seller’s account. The other five per cent goes directly to the tax man as a deposit against the capital gains tax liability. If the tax turns out to be less than this deposit, the balance can be reclaimed.
Spain operates a system of self assessment for the collection of taxes. The representative is required to acquire the forms, complete them, and pay the taxes due, all within a required period of time. Any Tax Return sent to Hacienda (the Spanish Tax Authority), without the Fiscal Representative’s signature will obviously alert Hacienda to the fact that no Fiscal Representative has been appointed.
The requirement that a Fiscal Representative be appointed was relaxed at the end of 1993 in cases where the only asset in Spain is a dwelling. However, despite this, failure to use a Fiscal Representative can have several consequences:
(i) All communications from the tax office will be sent to your Spanish address and any delay in receiving that correspondence could have adverse effects.
(ii) Spanish tax forms are complicated and there may be an additional language problem if you are not fluent in the Spanish language.
(iii) Legislation and practice in Spain changes frequently and failure to file returns correctly could incur fines and embargoes.
The taxes payable are not new but a considerable number of non-residents have in the past not paid these taxes, largely due to ignorance of the taxes and the difficulty of obtaining information in Spain. Briefly, the taxes payable annually to Hacienda in relation to property are as follows:
Wealth Tax (Impuestos Patrimoniales)
This is calculated on the value of the property, which in turn is held to be the greater value of the “Valor Catastral”, the acquisition price or the value decided previously by Hacienda for other taxes, such as property transfer tax, together with any other assets owned, such as bank accounts, etc.
Income Tax (Impuestos sobre Renta)
In theory a non-resident with a property in Spain in his or her own name has always been obliged to declare 2% of the Valor Catastral as notional income. However, very few have done so and Hacienda have themselves only recently paid attention to the matter. However, the situation has now changed - Article 16 specifically states that personal use of a property will be treated as income notionally receivable on 31st December in each year.
APPOINTMENT OF A REPRESENTATIVE
For the individual owner, appointment of a Fiscal Representative is relatively straightforward, requiring the completion of a written Authority nominating the Fiscal Representative and payment of the required fee.
However, should the Fiscal Representative need to appeal against the level of any taxes assessed, then a Power of Attorney will be required, the cost of which will be at the client's expense.
For the corporate owner, more documentation will be required, namely a Power of Attorney and an official translation of the Memorandum and Articles of Association.
The cost for providing the service appears to vary widely but we have negotiated a competitive price through our Agents in Spain. The fees are shown below. Please note that as these may be subject to change you should contact us for an up-to-date figure.
NON-TRADING PRIVATE INDIVIDUALS, (normal costs approximate)
- To apply for and obtain a fiscal number (N.I.E. No.), where required, £50 per person. If you have not yet acquired a fiscal number, please note that acquisition of a fiscal number is mandatory.
- To appoint the Fiscal Representative including registration with Hacienda - £50 per person
- To act as Fiscal Representative including preparation and completion of Income and Wealth Tax Returns - £100 plus £25 per return.
The fee for preparation and completion of Tax Returns depends upon the work and time involved and the figure given is based upon a non-trading private individual owning one residential property.
It is open to you to complete the Tax Return personally and the Fiscal Representative will, within the fees at 3 above, ensure that it is filed correctly with the Tax Authorities.
- Where a local Tax Office requires a formal Power of Attorney in favour of the Fiscal Representative, this will need to be provided by you at your own expense.
NON-TRADING PROPERTY HOLDING COMPANY, (normal costs approximate)
- To apply for and obtain a fiscal number, where required, £125. Provision of a Power of Attorney and official translation of the Memorandum and Articles of Association will be at the expense of the company.
- To appoint the Fiscal Representative including registration with Hacienda - £150.
Provision of a Power of Attorney and official translation of the Memorandum and Articles of Association will be at the expense of the company (unless provided under item 1 above)
- Preparation and completion of Income Tax and Wealth Tax returns - £175 approximately.
The fee for preparation and completion of Tax returns depends upon the work and time involved and the estimate given is based upon a non-trading private company owning one residential property.
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