NON-RESIDENT PROPERTY OWNERS. TAX AUTHORITY IS LOOKING FOR YOU !!!

The Spanish tax authorities are recently starting a campain to clamp down on those who have failed to pay Deem Income Tax – dubbed the ‘enjoyment’ tax – over the last four years. Letters are being sent to non-residents who have not paid the charge, along with fines for late payment.

In our experience, foreign owners of Spanish property fall into three categories:

•  those who know of their income tax obligations and pay them
•  those who know some kind of tax is payable but choose to ignore them
•  those who are living in blissful ignorance of important tax liabilities.

Non-resident taxes - recapitulating

A rather irritating quirk of Spanish tax law means that non-resident owners of property in Spain have to pay Spanish income tax even if they have no Spanish earnings such as rental income. 

Making it brief, we could summarize it :

• Anyone who spends less than half the year in Spain can generally consider themselves non-resident for Spanish tax purposes
• If they own assets in Spain (including property, shares, deposits of cash, bonds), any income arising from these is liable to tax.
• This income is reported annually on the Spanish tax form 210 and is due by the end of the year following the year when the income arose. 
• Anyone owning a property which is not rented out and does not produce an income is nevertheless deemed to have earned an "imputed income" from that property upon which tax is payable at 19% (EU owners) or 24% (non EU)

How much is the tax?

The tax is calculated as a percentage (19 or 24) of the “income” the Spanish authorities deem you could make renting out the property. This is calculated as 2% of the rateable value (reduced to 1,1% for areas re-rated after 1993). If you only owned the house for part of the year the tax is pro rated to the period of ownership. If there are multiple owners (e.g. husband and wife) they pay an equal share of the total tax but must each submit a return. The rateable value is the “valor catastral” found on the IBI (rates) bill you get every year.

When is it payable?

You must make your return for a given year by the end of the following year, so for the every tax year you are required to declare and pay before December, 31st.

Am I resident or non-resident?

A pretty easy question to answer for most of us: if you have a holiday home in Spain which you use periodically but actually live in your home country and pay taxes there then you are non-resident for this purpose. If you live in Spain and only occasionally return to your home country where you have cut most ties then you are more than likely tax resident in Spain and should register as such. Note that failing to register as tax resident does not stop you becoming liable for Spanish resident taxes!

Of course there many situations which are not so clearcut, e.g. during a transitional year when you are settling in Spain. The rule of thumb is that spending over half the year in one country makes you tax resident but there are a lot of subtleties and variations. Where your family or business is based can be a factor. 

Why do so many non-residents not know about this tax?

The problem with non-residents tax is that it is additional to rates and not directly equivalent to anything in the UK or other European countries.

In fact paying tax on "imputed income" from a holiday home which is not rented out seems downright unfair, which is perhaps why so many people avoid it even when they know about it.

What if I don't submit a form and pay the tax?

The government doesn't request payment of income tax and many non-resident owners don't know about it and therefore do not fulfil their obligation to declare and pay it. Initially there may appear to be no adverse consequences, but the tax office (the Agencia Tributaria) know the status of all properties from the IBI and other records and know whether they are owned and occupied. It is a simple task for them to identify which property owners are (a) non-resident and (b) not declaring their taxes. They have recently begun chasing non-payers with letters demanding that non-resident taxes (or resident taxes if applicable) are paid. Obviously, in all these cases, interests & fines will be charged by Spanish Tax men. (Hacienda). In general non-payers can expect to have to pay the tax they owe plus interest and a "sancion" which can add 50% to 150% to the bill.

What if I have to catch up on earlier years?

You can easily catch up on old years with unpaid taxes but there can be interest costs and penalties.  Before 2008 the tax was higher as well because Spain also had the "wealth tax". On the plus side, there is a statute of limitations that applies to unpaid Spanish tax which means that tax is not collectable after four years. 

What if I rent the house out?

Non-residents who rent out their property should declare the income by filing a Form 210 and paying tax (with some deductions for allowable expenses if they are EU residents) within a month of receiving each payment or when a payment falls due, whichever is earlier.In practice, most non-resident property owners take advantage of the quarterly reporting option.

In conclusion 

Do not forget to review your tax situation, and to ensure that your last 4 years are paid properly. 

You will be saving time, money and aggravation !.

Javier Herrera Llamas

New exemptions on taxes on Charter Yachts

On October 31th the modification of the Law 38/ 92, on Special Tax, allowing Spanish flagged and foreign charter yachts of any length in Spanish waters and ports without paying the Special Tax on Certain Means of Transport, known also as the registration or matriculation tax, came into force.

The matriculation tax, which is 12% of the yacht's value, applies to those yachts of more than 8 metres in length which are registered in Spain or yachts with a foreign flag performing charter or commercial activities in Spanish waters or ports. Until October 30th, the law allowed a tax exemption for charter yachts of less than 15 metres in length as long as the exemption was applied for from the Spanish Tax Agency before starting charter activities in Spain. With the reform of the Law, it is possible to apply and receive the exemption on yachts of any length which comply with other requirements established in the Law.

Clearly, this is good news for the yachting industry, particularly for commercial super yachts because now they can operate from Spanish ports or allow clients to board in Spain without the risk of having to pay the Matriculation Tax, provided that they have applied for and obtained prior exemption.

Requirements to qualify for the exemption

To qualify for the exemption the yacht must only be used for chartering (private use is forbidden) interpreted as the lease to a third party for payment. You are also prohibited from renting the yacht to the owner, or a person linked to the owner, or to the same person for a period longer than three months in a year.

The exemption must be requested by the person or company performing the yacht's activities in Spain, whether this is the owner or not, you are obliged to register in Spain as a charter entrepreneur.

It should be noted that Spanish Tax Inspections have been very diligent in checking that those yachts enjoying the exemption meet the requirements of the law.

Particularly, those being used exclusively to charter. A significant level of fraud was detected because many owners who had obtained the exemption, failed to charter the yacht.

Operation in Spain

Operating commercial yachts in Spain, whether using a Spanish port as base or not, as we have said, enables a Matriculation Tax exemption application to be submitted, however, in one form or another, this will have implications for other taxes, such as, VAT, Income Tax, Company Tax or Non Resident Tax. Also, in some Spanish regions it is necessary to receive administrative authorization before carrying out any activities.

The management of each case is different and we recommend seeking specific advice to ensure the best results to your case . 

Javier Herrera Llamas

Mortgage floor interest abolished?. Take a look at your interest...

Do you have a mortgage loan? Do you monitor when your interest rate is reset? You certainly should...
As you know, a mortgage loan is made up of capital and interest that is repaid to the bank in monthly installments. Depending on the type of loan you take out, the interest rate may vary, increasing or decreasing as the case may be but the “floor clause” determines a minimum interest rate that would apply throughout the life of the mortgage. 

The floor clause was introduced by banks to compensate any economic loss they may suffer because of variable interest rates and many applied a floor clause of about 3,55% (or higher) so when Euribor reached historical lows, many did not benefit from it because the floor rate determined in their contract was higher.

On the 9th of May, 2013, the Spanish Supreme Court issued its first ruling annulling mortgage floor clauses. To sum the ruling up, it declared floor clauses in numerous mortgages null (though not all), consideringthis clause was agreed with a lack of clarity and transparency (there was a lack of information, it was included along with a ceiling clause, or was buried in an overwhelming amount of data, etc.).

The Supreme Court has outlined the following causes of complaint by the consumer as valid:

1. A lack of information regarding the nature of the floor clause or it is presented in a way that makes it seem irrelevant so the applicant doesn’t fully comprehend the impact it will really have in the long run. 
2. The bank does not provide simulations to show or explain how the interest rate may affect them further down the line.
3. The bank does not provide clear and concise cost comparisons about other mortgage alternatives that do not involve the floor clause. 
4. The floor clause in the mortgage contract is lumped in with a lot of other information so its importance is not apparent and the client’s attention is not immediately drawn to it

This means that every individual case must be looked at carefully, in order to rule out those that are illegal because they don’t meet the criteria, and keep those that were or are contracted with the full knowledge of the consumer. Also, shall be of interest that your solicitor checks up if your bank is one of those who has been awarded sentences against on this matter, and what is their current attitude. 

What can you do if the floor clause appears in your mortgage loan? 

1. Approach the bank in question and ask to speak to the manager.
2. If this initial meeting is not successful, you can write a claim to the bank’s complaints investigator who must respond within 2 months in a legal manner that must outline a valid line of argument. It is usually advisable this claim is formalised under supervision after checking with your solicitor the main content of it.
3. If the response is negative still, you should lodge a Claim before the Banking Ombudsman of the Bank of Spain, charged with resolving this type of dispute. Their response must be issued within 4 months and the final report may be used in court if it determines the floor clause to be abusive.

Before you rush madly to your local branch screaming and shouting, an important point to remember here is that not all cases are classed as abusive, especially if the floor clause was disclosed beforehand and even if a judge rules the clause to be abusive, it does not necessarily mean that compensation will be granted for losses sustained when the official interest rate fell below the floor rate established in contract.

Can I obtain my money bank?

Our High Court stated clearly that this court order was non retroactive, and would not affect previous payments already made. Thus, the TS declared that Banks could not be forced to the return of the interest overpaid, understanding that a general declaration forcing all the banks to pay back interests already overcharged, could have meant a serious problem to the economy of the country as a whole.


But, non following this criteria, several new court orders from other courts have been published, such as from the Provincial Court of Cuenca, where the Castilla La Mancha Bank was forced to remove the mortgage floor rates from the agreement and return the interests overcharged. Similar rulings can be found in court orders in Málaga, Ourense, Alicante, etc. Most of these Court Orders understand that these individual returns claimed for, by themselves and one by one, do not imply by their amounts any risk for the national economy and the banks must pay back the overcharged interests.

So, before you rush madly to your local branch screaming and shouting, an important point to remember here is that not all cases are classed as abusive, especially if the floor clause was disclosed beforehand. Even if a judge rules the clause to be abusive, it does not necessarily mean that compensation will be granted for losses sustained when the official interest rate fell below the floor rate established in contract. 

Javier Herrera Llamas

New Law on investment Residence in Spain. Property = visa

On 28-09-2013 has been enacted the Investors’ Support and Internationalization Act which includes, among others measures, a Spanish residency programme that will allow investors to become permanent investors if they invest, at least, €500,000 in a property. The law intends cleary to facilitate non EU nationals traveling to, or residing in Spain, who intend to carry out a ‘relevant investment’.


Let´s see together the most important items of the new law:

What is a relevant investment?

According to the new Law, the following will suffice to attain residency in Spain:

• An investment of at least €2,000,000 in Spanish Government bonds.
• An investment of at least €1,000,000 in shares of Spanish companies.
• An investment of at least €1,000,000 with a Spanish-based bank or financial entity (basically, depositing that money in a savings or fixed deposit account).
• An investment of at least €500,000 in Spanish property (one or more), per applicant, provided the first €500,000 of the property value is unencumbered (mortgage free).
• A business investment that is to be carried out in Spain and is deemed of public interest for which purpose, at least one of the following conditions will be considered relevant: a) jobs it will create b) socioeconomic impact in the geographical area where the activity is to be carried out and c) relevant contribution to technological or scientific innovation.

Investment by foreign companies also qualify for residency provided it does not originate from an offshore tax haven, and that the investor owns, directly or indirectly, the majority of its voting rights and has also the right to designate or remove the majority of the members of the board of directors.

Investment Residency Visa and Investment Residency Permit

The Act has created 2 different types of documents to enter and reside in Spain, the Residency Visa and the Residency Permit. 

The Residency Visa is valid for up to 1 year, and the Residency Permit is valid for up to 2 years, which can be extended for a further 2 years. This would give a total of 5 years, 4 of which are deemed proper residency and the first one, just the right to stay and live (an important distinction because 5 years of continued residency entitles the beneficiary to reside permanently in Spain). In addition to meeting the conditions to qualify for the Investors’ Residency Visa, an applicant for an Investors’ Residency Permitwill have to comply with the following:

• Hold an Investors’ Residency Visa that is not overdue by more than 90 days over the expiration date.
• Have travelled to Spain at least once during the validity of the Visa.
• Prove that the investment that enabled the applicant to receive the Visa is still in place.

What other requirements have to be met?

The Act will also require that any applicant complies with the following (standard in the Non-Lucrative or Non-Working Residency Permit):

• Not be in Spain irregularly.
• Be over 18 years of age.
• Absence of a criminal record in the country of original residency.
• Have medical insurance.
• Have sufficient money or financial means to support the applicant (and family) during the period of stay in Spain: if we are guided by the prerequisites of the Non-Lucrative Residency Permit, the applicant will need to prove earning of at least €2,128/month, plus an additional €532/month per family member.

Application Process and Timescales

The Residency Visa will be applied for and granted by the Spanish Consulate of the demarcation of the applicant. The Residency Authorization will be applied for and granted by Directorate General of Migrations. An application for a Residency Visa will be resolved in a maximum period of 10 days, except where the application is subject to the EU visa Code. The Residency Authorization will be granted in a maximum period of 20 days from application after which period, if the Consulate has not responded, the application will be presumed granted.

How would it work, in practical terms?

An applicant that wishes to apply for a Residency Visa under the Act will first need to apply for an ordinary visa, with a view to travel to Spain and investigate investment options/opportunities, meet with lawyers, real estate agents, banks, etc. 

Once a decision is made and the investment carried out, the Residency Visa will have to be applied for at the Consulate. Obviously, it is possible that an investor decides to proceed with the investment operations remotely (for instance, purchasing a property via a lawyer, with a Power of Attorney) and, on conclusion of the property conveyance transaction, he applies for a Residency Visa with the required proof of his investment i.e. Property Title Deeds. The Act does stipulate that the investment needs to be maintained during the period of the validity of the Residency Visa or Residency Permit, and that routine checks may be carried out to verify if this is the case.

Do I have to be in Spain for more than 6 months during any year period?

Specifically, NO! The Act stipulates that Residency Visa or Residency Permit holders do not need to spend more than 6 months in Spain, with a view to renew the permit (which implies that, as stipulated in the law, provided they are in Spain at least once during the period of the Residency Visa, they are pretty much free to spend their time as they wish, in Spain or in any other country). This means a very significant change with the previous regulation.

Can I become a Permanent Resident in Spain or a Spanish Citizen through this method?

YES. In fact, the Act specifically states that the applicant’s absences will not prejudice the right to permanent residency (5 years onwards) and citizenship.

Can a person still apply for permanent residency without having to invest the sums in this law i.e. buying a property worth say €200,000, with a €180,000 mortgage?

The Act has not modified the other existing types of residency permit applications, which are:

• Non-Lucrative Residency Permit (Autorización de Residencia No-Lucrativa)
• Self-Employed Work and Residency Permit (Autorizacion de Residencia y Trabajo Por Cuenta Propia)

This means a person can still apply for residency in Spain via the regular -above- procedures.

Can I apply if I already have a (unencumbered) property in Spain worth €500,000?

The Act does not include investors who already had a property in Spain prior to its enactment although, nothing stops them from selling, buying again and then apply for the Investors Residency Visa and further, the Investors Residency Permit. People that comply with the other financial criteria (having cash deposits, shares etc.) can apply, so there is always other practical ways to obtain the same result.

We hope this brief resume of the Law helps you to understand the new regulation, and to set an investment strategy to obtain residency rights in Spain, if that is your goal.

Javier Herrera Llamas

Significant Changes on Yatch Registration Tax coming ahead

The Spanish Congress is in the process of making a significant change to the so called IEDMT (Registration Tax) making it possible to apply for tax exemption on superyacht charter in Spain.

A regular feature in this section is the Impuesto Especial sobre Determinados Medios de Transporte (IEDMT), known as the Impuesto de Matriculación, in other words registration tax. In effect a registration tax levied on any yacht over 8 metres in Spanish waters whether for the use of residents or commercial purposes when based in a Spanish port or marina.



The yachting sector has repeatedly denounced the negative effect of the registration tax as regards yacht sales, being12% of the value which, on top of the 20% VAT amounts to 33% tax on the purchase price. The so called Impuesto de Matriculación or Registration Tax exists solely in Spain, in other words, the purchase of a yacht is significantly more expensive in Spain than neighbouring countries. The tax applies equally to private yachts as those for commercial use, with the exception of yachts used exclusively for charter, up to 15 metres. The change to the regulation referred to in the heading of this article quite justly applies to the elimination of the 15 metre threshold which, as soon as the modification is passed, hopefully without delay, means the benefits of tax exemption will apply, regardless of size.


Perverse effects of the IEDMT

As we’ve already explained, the registration tax increases the purchase price of both private yachts and those purchased by companies for business use. To date, the benefit, by prior authorisation from the Tax Office, is restricted to yachts solely for the purpose of charter under 15 metres. We are given to understand the justification for this regulation, dating back to 1992, is based on the fact that any yacht above this size is considered to be a luxury and the benefit of any form of tax exemption is therefore unjustifiable. That is to say, any business wishing to purchase and charter a larger than average sized yacht or superyacht is duty bound to pay the IEDMT tax. As a consequence of all this coming across a yacht available for charter over 15 metres, on the Spanish market, is a difficult and complicated process. When the regulation was passed in 1992 yachts over 15 metres were relatively scarce but now, 20 years on, yachts of a much greater size are in abundance, whether for private or commercial use. It’s particularly relevant to draw attention to the significance of superyachts on a world wide scale, that is to say 24 metres or more. In other words, what was once a luxury for the favoured few is now more “affordable”.

Not only does the IEDMT discourage Spanish businesses from purchasing 15 metre yachts for the purpose of charter, a decidedly seasonal activity which requires a large investment, but, according to regulations, unless the tax is paid, also prohibits the charter of foreign yachts in Spain. As we’ve already pointed out, this tax is imposed regardless of passage when the yacht is chartered from a Spanish port or to a resident.

 That is to say, Spain has distanced itself from the superyacht charter circuit, established and motivated by countries such as France and Italy, now big business. Also irrational is the fact that a country associated with high class tourism should penalize the yachting market and any business by way of superyachts, especially since Spain has been developing its infrastructures along the entire coastline to welcome such yachts.


Purposes and consequences of the reform

The announced reform to Law 38/92, Special Tax, is intended to resolve a former petition made by charter companies and marinas to abolish the 15 metre threshold allowing charter yachts the benefit of tax exemption. Basically, once official, any yacht meeting the conditions established by the newly reformed law, in other words solely for charter, will be eligible for tax exemption. Of note, the law prohibits the use of exempt yachts for the purpose of business or activities not unlike charter, rental to persons associated with the owner, own use and contracts exceeding three months under the same charter. As regards the exemption, compliance with the above criteria applies rigorously.
Assuming the conditions have been met, its important to stress the exemption does is not automatically applied but requires an application to the Tax Office. In the case of yacht owners intending to register yachts in Spain, an application for exemption must be made prior to that of the registration on the Spanish Boat Registry.

In the case of foreign registered yachts operating in Spain and/or chartered to residents in Spain, even though the yacht remains under a foreign flag, an application for registration tax exemption must be made prior to commencing business in Spanish waters. If the yacht is chartered in Spain before an application for tax exemption has been made and awarded by the Tax Office, the tax will be payable on demand. Applying for the tax exemption means the owner will have to register with the Spanish Tax Office, which also applies to the VAT office, as according to new rules this tax must be declared and deposited in Spain when the yacht is operating in Spanish waters. In addition to applying for Registration Tax exemption, foreign yachts operating in Spain will, in some cases, subject to Spanish Tax Office regulations, be obliged to make a declaration to the Maritime Authority taking full responsibility for the activity, take out the corresponding insurance and meet the requirements of a safety equipment inspection.

Unresolved issues


On the one hand we must applaud the new legislation but we’re also well aware of the shortfalls since the tax still applies to commercial boats involved in any form of business activity, other than charter that is, since the exemption applies solely to yachts used exclusively for the purpose of charter. That is to say, any boat used for the purpose of business such as fishing trips, regattas, sailing schools or professional training courses, continue to be a victim of the registration tax.

Hopefully the Government will, before long, extend the exemption to include activities such as these. Special attention must be paid as regards yachts rented for periods of time since the exemption applies exclusively to charter, in other words, when the owner, upon receipt of payment, hands the yacht over to the paying customer, leaving the yacht at their disposal.

Javier Herrera Llamas

Plusvalia. Municipal Capital Gain Tax. What is it?

What is Plusvalia tax?

The plusvalía is a local (municipal) tax charged by the town hall on properties when they are sold. Commonly known as the “Plusvalia” which literally translates as "gain") on the growth in the value of urban land (excluding the buildings). It is calculated on the rateable value of property and the number of years that have passed since the property was last changed hands. The objective is to tax the increase in the value of the land on which the property stands, some of which is due to improvements to the area carried out by the local government and the community at large.

The base for this tax is the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) of the property. The amount due in tax will depend on how long the seller has owned the property: the longer the period, the higher the amount of tax. The tax rate varies depending upon the size of the local population and the length of ownership. For a town of more than 100,000 inhabitants the minimum tax rate is 20 per cent and the maximum 30 percent, with the town hall fixing a rate within this. 

Unfortunately, there is a not a provision in the Law to exempt sales when they are made at loss, so any sell will bring along a "Plusvalia" bill. 

Who pays the plusvalia tax in Spain? 
In theory the vendor, though both parties are free to negotiate who pays it. 

During the boom, when vendors had all the negotiating power, it was reasonably common for buyers to agree to pay it, especially in areas like Andalucia. After the boom turned to bust, any vendor lucky enough to find a buyer is going to have to pay the plusvalía. 

How do you pay the plusvalia tax in Spain?

You have 30 days from the date of sale to pay the plusvalia to the Town hall.

But the buyer will always be insisting on withholding funds to pay the plusvalía on your behalf, as the new owner would become liable for the plusvalía in the event of non-payment (i.e. if a non- resident does a runner without paying). Also, if the plusvalía tax does not get paid, the new owner will have problems to register his title deed. So, the old days´habit of leaving the plusvalía unpaid, have already vanished !


Not everything is lost, anyway. Any “Plusvalia” tax paid is allowed as a cost of disposal in calculating the mainstream capital gains tax when selling.



Javier Herrera Llamas

Policy for integration of immigrants in Spain. All in review...

Rajoy's government seeks to unify the criteria in Spain in relation to the integration of immigrants.
Currently the requirements for access to different services by non-EU foreigners vary considerable depending what administrations are you dealing with.

The government noted that the non-EU integration has been developed so far by the state, communities and local governments in the matter exerting competition  with lack of coordination in is Security, health, integration programs, etc.. and in many cases causing conflict of interest. This have caused a divergence of the conditions of access of non-EU citizens to the various services and also in the conditions which must allow for remain in the country.

The goal of the Government is to establish a common criteria for all public administrations setting a legal framework for the development of a national policy and thus framing criteria for a national integration policy.

Thus, the Council of Ministers has decided to reform the Inimigration act in order to define common criteria of integration of immigrants and to determine the scope of each of the public administrations.

The most important items that have been made public are the following:

1.- A single work permit.
2.- Complete definition of who will be granting the working permits and how they will be processed in a way that ensures that all administration take part in the process, but is still friendly with the applicant.


All this must be put in relation with the avowed purpose of facilitating investment in Spain for the acquisition of property or for business reasons and to provide a simple and effective way to acquire residence in these cases. What still remains to be determined in detail.

So we will still have to wait and see those principles converted into specific rules.

In the meantime, always we can follow the well stablished routes to acquire residence, that will remain in force until changes come in force.

Javier Herrera Llamas