When buying in Spain as a non resident for investment, based on regular rental incomes there are a number of considerations you should make.
What is the current legislation surrounding renting out property in Spain
Firstly in most areas of Spain and due to be put into legislation in all areas of Spain during the next 12 months it is a requirement that all property which is to be rented out for tourist lets must meet certain health and safety requirements and come in line with legislation which already covers licensed Hotels, Hostels and Bed and breakfast businesses.
The new laws which have been in place in the Canaries for a couple of years and being written into law currently in Andalucía which covers the well known tourist resorts within the Costa Del Sol will have an impact on those people who have generated incomes from rental properties previously; and for new buyers.
What are the requirements
All property being offered for rent to holiday makers or short term lets must register with the local autonomo authority and obtain the relevant licence.
The requirements may differ from region to region as to what specifications the property must meet.
For an individual property or one that has self contained pools and gardens the relevant requirements for a tourist let can be put in place. This may include things like a cover for the pool and other safety measures; which will have a cost if you do not buy something where these are in place; but will be possible to implement. The problem of meeting the tourist let legislation occurs when you buy a property in a complex or urbanization where the communal areas do not meet the specifications and other owners do not wish to put in place the requirements for allowing the regulations to be met.
What are the implications of letting a property that does not meet the legislation
Fines for not having the relevant license to allow a tourist let are substantial and it is rumored the authorities and the tax offices may scour websites like trip adviser and owners direct to find properties being rented out and check them against the register. Whether this is just scaremongering it is difficult to assess but it is likely regular checks of some sort will be undertaken to ensure Tourist lets meet the new standards.
In the past many owners of property in Spain who were not fiscally resident in Spain did not declare the income made from the letting of the property. Whilst the new rules are for reasons relating to health safety and for ensuring private individuals, who rent property for tourist lets, have the same obligations as other providers, the ability for non residents to earn an income without paying Spanish income tax on the rent received will diminish, and the chances of it being detected will increase.
What taxes should I be paying if I generate an income from my Spanish property
Tax payable on rent where a property is owned by the individual directly is 24.75% of the income minus the relevant portion of IBI ( rates) any community charges and Basura ( rubbish).
Other costs including any interest payments on a mortgage can only be offset if the property is bought in the name of a company and the rental income is treated as a business income. In this instance all running costs can be offset against profit. The net profit is then liable for corporation tax based on the level of net profit generated and on a sliding scale. Any personal monies taken as dividends will attract personal tax.
Take advice from a Lawyer before buying
Advice from a Spanish Lawyer should be taking when purchasing to ensure that the activity you intend to undertake with the property; if the property is not just to be a holiday home; is understood and the best possible structure for ownership is put in place to meet your needs. It is also important to ensure your Lawyer in Spain understand your intentions so they can advise you of all the obligations you will need to meet and the relevant costs are known to you.