You are usually subject to tax on income from renting out the property. However, exact taxes and tax rates may vary from country to country. In general, the tax base for rental income is the amount of income from which certain costs and tax benefits can be deducted.
If the owner is an individual, the income from the rental is subject to "IRPF" (Personal Income Tax), and if the property is rented as a business, the taxes must be paid according to corporate tax. Below is a detailed look at each version:
1. NATURAL PERSON
As a natural person, you can buy real estate in your own name and rent it out. This rental activity is subject to personal income tax, even in the case of "resident" or "non-resident" status.
1.1 INCOME TAX FOR NON-RESIDENTS - IRNR
If you are a non-resident in Spain (staying in Spain for less than 183 days during the calendar year) and you own real estate here, you are taxed according to Spanish income tax for non-residents (IRNR).
The IRNR is a direct tax on income earned in Spain by individuals and organizations not resident in Spain.
Non-residents living in an EU member state who rent out their property in Spain pay income tax of 19% on the net return (not the gross rent).
These investors can deduct property-related costs proportionally based on the rental duration. Some deductible costs include:
- Notary fees
- IBI (property tax)
- Garbage collection fee
- Depreciation of the property
- Repair and maintenance costs
- Common costs
- Interest on loans for acquisition or development of real estate
- Legal costs
1.2 INCOME TAX FOR RESIDENTS - IRPF
If you are a resident in Spain (staying in the country for more than 183 days during the calendar year), you are subject to personal income tax (IRPF).
IRPF is a direct personal income tax based on your total income, including salary, pensions, and rental income. Taxable income is the difference between earned income and deductible expenses under Spanish law.
If you are a Spanish resident property owner, you must declare your rental income in your annual IRPF income tax return. EU citizens are entitled to the same tax rates and benefits as Spanish citizens.
IRPF is progressive, with tax bands based on income. In 2019, the Spanish state set the following tax bands:
| 0-12,450€ | 19% |
| 12,450€ – 20,200€ | 24% |
| 20,200€ – 35,200€ | 30% |
| 35,200€ – 60,000€ | 37% |
| 60,000€ and above | 45% |
This tax rate is lower than the Spanish corporate tax (25%), but the possibilities for tax deductions are also limited.
2. LEGAL ENTITY
Income from renting property located in Spain is subject to tax in Spain, based on double taxation agreements between Spain and most European countries.
If the owner is a business, rental income is subject to "Impuesto sobre Sociedades" (IS, Corporate Tax). The standard IS tax rate is 25%, but this may vary depending on various factors. The tax base is the gross rental income, from which authorized costs and tax benefits can be deducted.
2.1 AS A BRANCH OF A DOMESTIC BUSINESS
If you want to run a rental business in Spain, you can register your company there. If you already have a company in your country, you can buy through that company, provided it is authorized to carry out rental activities. The company's founding document must be translated, and a tax number obtained from the Spanish tax authorities.
2.2 AS A SPANISH LEGAL ENTITY (SL OR SA)
If you wish to carry out a permanent business activity in Spain, you can establish an independent company in Spain, either as a SL (Limited Company) or SA (Sociedad Anónima). These are independent businesses and not branches or subsidiaries of your company.
This business activity and its income and expenses are subject to Spanish corporate tax at a rate of 25%. Although the tax is higher than income tax, you can benefit from a broader range of tax deductions for losses and expenses from the activity.
