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Friday, 24 December 2010 00:00

Property expenses for non-residents

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Beginning this year, Spanish Tax Authorities allowed residents from other European Union countries who have a property that they rent out in Spain, to deduct all expenses incurred by renting real estate properties. In order to do that, the taxpayers must prove that these expenses are directly related to revenues obtained in Spain and come from the rented property.

In order to calculate net revenue, the following expenses should be deducted:

1. Interests from amounts invested in the acquisition or improvement of assets. This means that, in case the property has a mortgage, interests paid to the Bank can be deducted, but not the amount paid as and for amortization of the loan (capital)
2. Expenses from reparation and maintenance of the property. This refers to those expenses incurred in the maintenance of the property, such as painting, cleaning, etc.... If the expenses are higher than the income, such expenses will also be deductible up to an amount equal to the obtained income, but any additional amount should be deducted during the following four years.
3. Rates (IBI = local property tax, trash expenses, etc...)
4. Amounts paid for personal services. Laundry and cleaning services, fees paid to travel agencies because of their involvement, etc…
5. Amortization of the property. An amount equal to 3% of the value of the property (the assessed value or the value declared in the deed, whichever is the highest). It is important to know that, in order to determine the percentage of deductible expenses, it is necessary to consult, in the IBI tax receipt, the proportion between the deductible value (3%) and the value of the land, which can never be deducted as an expense.

SUMMARY: For the first time the Spanish Tax Authorities allow non residents to deduct expenses incurred from renting their properties.
This is a great achievement and is fair, as non residents were being discriminated against compared to residents, who were entitled to deduct all the expenses associated with renting their properties.
Therefore, in order to pay less while still abiding by the law and avoiding problems with the Tax Authorities, it is advisable that

1. The expenses should be those required to rent the property (and no other kind of expenses)
2. A correct invoice should exist. It is important to remember this as the inspectors will reject any invoice that doesn't show the information related to the issuing person or company (name of company or person, NIF (identification tax number) and identity information of the non resident owner (name and surname, NIF (Foreign identity card), exact address, etc…)
3. Proportionality. Expenses will only be deducted in proportion to the time the property is rented; for example, if a property is rented only 3 months in a year, the total expenditure for that year, for community purposes, will not be totally deductible, but only the proportion of 3 months during which the property was rented.
4. File the tax return every three months, for the income and expenditure of the previous quarter. The submission period will be for 20 days following each quarter and in the months of April, July, October and January, regarding the previous quarter.

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