Non-resident property owners who receive rental income from their Spanish property must declare it quarterly, regardless of the taxation applicable in their home country. In particular, the Spanish tax authorities require the submission of Form 210, the tax return for non-residents' income tax in Spain. The deadlines fall on 20 April, 20 July, 20 October and 20 January of the following year, each for the previous quarter.
Via Form 210 non-residents report their rental income received in Spain during the quarter, as well as any expenses or deductions incurred. In this regard, it is important to note that only tax residents in EU countries, Iceland, Norway, and Liechtenstein are allowed to offset expenses from rental income. However, tax residents in other countries must declare gross income and are not allowed to deduct expenses.
For those who are in the first group (tax residents in EU countries, Iceland, Norway, and Liechtenstein), here are eight deductible expenses that can be taken from rental income in Spain:
Property-related expenses: local property taxes (IBI or rubbish collection fee), community fees, or house insurance premiums.
Utility bills: Expenses related to water, gas, electricity, and other utilities can also be deducted from rental income if the property owner bears them.
Maintenance costs: Costs incurred to maintain the property, including repairs and cleaning, can also be deducted. In this regard, it has to be noted that the purchase of furniture can only be deducted via depreciation at the rate of 10% per annum (2.5% per quarter).
Mortgage interest: Non-residents who have a mortgage on the Spanish property are allowed to deduct the interest paid on their mortgage from their rental income.
Property management fees: If a non-resident hires a property management company to manage the property, the fees paid to the company can be deducted.
Advertising and marketing expenses: Costs incurred to advertise and market the property to potential tenants can also be deducted.
Legal and accounting fees: Fees paid to legal and accounting professionals to assist with the rental of the property can be deducted.
Depreciation: Non-residents are allowed to deduct the depreciation of the property over time. The depreciation cost for rental property is calculated as 3% of the greater of the purchase price or the cadastral value of the property. In both cases excluding the plot value.
Besides, when calculating the deductible expenses from rental income in Spain, it is important to note that certain expenses can only be deducted proportionally based on the number of rental days. For example, property-related expenses, such as property taxes and community fees, can be deducted proportionally based on the number of days the property was rented out during the quarter. Similarly, utility bills or depreciation costs can only be deducted proportionally based on the rental days.
Hence, it is important to keep detailed records of rental income and expenses, including the number of days the property was rented out, to accurately calculate the proportion of deductible expenses.
Finally, it is worth noting that most double tax treaties allow offsetting taxes paid in Spain against the income tax paid in the home country for the same rental income.
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