As in most countries, the taxation laws in Spain are somewhat complex and it is always a good idea to take specialist advice. There are, however, some straight-forward rules that may be applied if an individual meets certain criteria.

The first of these relates to residential status; if an individual spends more than 183 days each year in Spain (these do not necessarily have to occur consecutively), they are deemed to be a resident for tax purposes, irrespective of whether they hold a residence permit (residencia). This means that tax is due to the Spanish Tax Authority, the Agencia Tributaria, on world-wide assets, with a set-off allowed on tax paid to the UK authorities under the UK’s Double Tax Treaty with Spain. As always there are exceptions and one should confirm one’s tax status with an independent tax advisor.

The situation is less complicated for an individual spending less than 183 days a year in Spain and does not hold a residencia; they are considered non-residents for tax purposes, thus only paying tax to the Spanish authorities on their assets and income in Spain. A non-resident would be liable to UK tax on their world-wide assets and income, but would also be able to set off the taxes paid in Spain under the afore-mentioned Double Tax Treaty.

The following taxes have to be paid, irrespective of whether an individual is considered a resident for tax purposes or not.

Vehicle Road Tax
Road tax in Spain is paid to the local authority between March and May of each year, and is known as ‘impuesto municipal sobre vehiculos de tracción mecánica’. Rates are set by individual municipalities, and are based on a combination of the ‘fiscal horsepower’ of the vehicle and number of residents registered in the municipality: the larger the municipality, the higher the rate will be.

Municipal Property Tax
‘Impuesto sobre Bienes Inmuebles’ (IBI) is an annual property tax and is sometimes referred to as ‘contribuciones’. It is equivalent to local rates and is paid to the local authority for local council administration, education, sanitary services (including street and beach cleaning), social assistance, community infrastructure, sports and other amenities. Based on the ‘valor catastral’ of the property, rates vary from 0.4% to 1.1% depending upon the region.

Refuse Collection and Mains Drainage
An annual payment for refuse collection and local mains drainage (basura and alcantarillado) is also due, which can be combined with payment for water rates in areas that are not metered. For those areas that are on water meters, paying directly to the water supplier, payment for refuse collection is likely to be a stand-alone annual payment, again payable to the local authority.

Community Tax
‘Comunidad de Propietarios’ are fees charged by the elected organisation or committee responsible for the running of the urbanisation on which a property is situated; they are a legal requirement and failure to pay can result in a fine or, in extreme circumstances, even the forced sale of your property. Amounts vary depending on location; they are likely to be higher on a larger development where the Comunidad is responsible for more services, such as a communal swimming pool and leisure facilities. As a very rough guideline, these charges may range between around 0.5% and 1.5% of the value of your property.

Capital Gains Tax
Historically residents and non-residents were treated differently in respect of capital gains tax liability; however on January 1st 2007 the new Income Tax Act came into force. This was largely due to EU pressure after complaints from foreign taxpayers that they were being discriminated against under the previous system.

The Income Tax Act changed certain articles of the Non-Resident Income Tax Act, in particular the capital gains tax rate, which was reduced from 35% on net gain to 18%, in line with the rate of tax for residents.

Another significant amendment to the Act was the reduction in the amount of retention tax that a property purchaser must pay to the tax authorities on account of the potential capital gains tax liability of a non-resident seller. This has been reduced from the 5% of the declared purchase price to 3%.

To explain this further, when a non-resident sells their Spanish property the purchasers must pay 3% of the sales price directly to the Spanish tax authorities and will only pay to the seller 97% of the agreed price. This retention tax is effectively kept ‘on account’ by the Spanish tax authorities until the non-residents’ capital gains tax liability is calculated. Once the capital gain is determined, i.e. the profit less any inflationary considerations for the period that the property was owned, and the appropriate tax due is calculated, the Spanish tax authorities will deduct the retention tax from the capital gains tax due to be paid. If, the capital gains tax due on the sale of the Spanish property is more than the 3% retention tax the seller has to pay the difference. If, however the capital gains tax liable on the sale of the Spanish property is less than the 3% retention tax the difference will be refunded by the Spanish tax authorities.

Plusvalia
Plusvalia is a tax levied by the local Town Hall and is paid on the sale of a property or piece of land. It is based on a combination of the area where the property is located, the size of the plot, and on the ‘valor catastral’. It is, in essence, a tax on the increase in value of the land, which, by law the seller is obliged to pay; however it is common practice for the parties to negotiate and write into the sales contract who will pay the amount due.

Property Transfer Tax
For a residential property sold from a developer for the first time, transfer tax of 7% is due, and in the case of plots of land without existing built property, the figure is 16%. Both transfers are also subject to Stamp Duty of 1%.

On resale properties the transfer tax is set at either 6% or 7% depending on the region. The Province of Granada, in the region of Andalucía, is subject to 7% transfer tax.

Value Added Tax
The Spanish equivalent of VAT is I.V.A, and is charged at 16% on goods and services.