QUESTION
I would be grateful to receive your comments on the following questions:
How is it determined whether or not a person from overseas is considered to be resident in Spain?
What are the tax implications of being resident or not?
Would I be liable to pay tax if I were not resident in Spain but owned a holiday home here?
ANSWER
An individual is deemed to be resident in Spain providing that at least one of the following conditions apply: firstly, if he or she spends more than 183 days per annum in Spanish territory and secondly, if the main centre of his or her business or economic interest or activities whether direct or indirect is located here. It is also important to examine the provisions of any existing double tax treaty signed between Spain and your country of origin as this document may specify other grounds for residency.
The tax repercussions of being considered resident are essentially that a person is subject to taxation in Spain in respect of their entire worldwide income regardless of where that income is obtained and the nationality of the person receiving it. In accordance with Spanish Personal Income Tax regulations, income accruing during 2003 should be declared in the relevant return during the period from 3 May through to 1 July 2004.
Non-residents are only liable to declare and pay tax in Spain on income obtained here, as stipulated in the Spanish Non-Residents’ Personal Income Tax law, unless there is an existing double tax treaty between Spain and your country in which case this instrument would prevail and you would be taxed according to the provisions of such a treaty.
In relation to your third question, it is very common for overseas individuals to own holiday homes on the Costa del Sol which they use periodically. The mere ownership of a property does not presuppose residency, although even if it is only used for private use and enjoyment the tax authorities consider that the property generates an income equivalent to 2% of its rateable value (1.1% if the rateable value has been revised) and this is taxable under Non-Residents’ Personal Income Tax at the general rate of 25%.
You are also subject to Wealth Tax, which is calculated by applying the higher of the following values which may be assigned to the property: rateable value, value verified by the authorities for the purposes of levying other taxes or the acquisition value. If you only own one property here in Spain you could declare both of the abovementioned taxes using a single tax return (“official form 214”) and the period allowed for submitting this return is any time between 1 January and 31 December.
