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Management of wealth taxes from outside Spain

Management of wealth taxes from outside Spain

One of the keys to investing in Real Estate lies in the management of wealth taxes from outside of Spain. These can be differentiated into two groups. On the one hand, those that tax capital gains or losses. And, on the other hand, those that tax the ownership of goods and rights. 

Therefore, it is essential to know the taxes that must be paid when managing a sale or property portfolio. Not only its tax burden, essential for proper economic planning, but also the way to settle, declare and pay them.

To carry out their tax management from abroad, most investors hire a tax representative in the territory. In this way, they can leave the management of wealth taxes in their hands from outside Spain, without having to travel to meet their obligations with the Public Treasury.

What kinds of wealth taxes should I watch out for as an investor? 

Strictly, wealth taxes are those that are levied on the ownership of assets or rights. That is, those that apply to wealth. In the Real Estate sector, these taxes include the Wealth Tax and the Real Estate Tax. However, the truth is that there are other rates and taxes applicable to property owners in Spain.

On the one hand, there are those that affect the maintenance of the building. We are talking about municipal taxes, such as those that can be levied on public services (garbage, water ...) or works and reforms (Tax on Constructions, Installations and Works). 

On the other, attention should be drawn to taxes on income or capital gains. After all, most foreign investors want their housing stock to be productive. Either through the leasing of premises, floors, offices or industrial buildings, through reform and subsequent resale or any other mode of economic exploitation. Whenever the management of the real estate portfolio generates income, these must be declared and submitted to its tax regime.

Let's look at each of these cases in detail.

Management of wealth taxes from outside Spain

The main wealth tax in Spain is known as the Wealth Tax (IP). The IP must be paid by natural persons when:

1.- The tax quota exceeds the exempt minimum, which in general is 700,000 euros. Note that the Autonomous Communities have the power to alter this minimum for their residents.

2.- Either the value of the assets or rights of the taxpayer exceeds 2,000,000 euros.

The taxpayer's habitual residence is exempt from this tax with a maximum amount of 300,000 euros. It is a tax that is applied throughout the national territory, in two modalities:

1.- By personal obligation to natural persons with habitual residence in the territory.

2.- And by real obligation to natural persons who do not have habitual residence in Spain, but are owners of goods or rights here.

The other notable tax on wealth is the Real Estate Tax. The ownership of real estate is taxed, regardless of its nature, as well as surface rights, usufruct, property or administrative concessions. Its amount depends on the tax rate approved in each City Council and the property's cadastral value.

Note that the IBI is a municipal tax, which all City Councils in Spain are obliged to demand. They can also require, through tax ordinances:

1.- The Tax on the Increase in the Value of Urban Land (IIVTNU). It is accrued in the transmission of this type of land. Although it has recently been declared unconstitutional, it is expected that the legislator will reform it to reinstate it.

2.- The Tax on Constructions, Installations and Works (ICIO). It is accrued in case of reform, work or building.

3.- The public rates and prices that they deem appropriate. They usually accrue when the City Council provides public services.

How to manage these taxes from abroad?

In order to properly manage wealth taxes from outside Spain, it is advisable to designate a tax representative in the territory. We must bear in mind that not all Authorities will send their notifications abroad. In addition, in the event of not having a person in charge of the management, the investor must be aware of the declaration and self-assessment deadlines.

However, by appointing a representative, he or she may be responsible for compliance with tax obligations on behalf of the taxpayer. In addition, the Tax Agency will understand directly with him, sending him the appropriate notifications and communications.

Precisely for this reason, most foreign investors hire tax representatives, delegating their tax management to them to avoid having to be aware of local and national regulations. In fact, from Forcam Abogados we provide this service to investors from all over the world.

How to manage these taxes from abroad? 

In order to properly manage wealth taxes from outside Spain, it is advisable to designate a tax representative in the territory. We must bear in mind that not all Authorities will send their notifications abroad. In addition, in the event of not having a person in charge of the management, the investor must be aware of the declaration and self-assessment deadlines.

However, by appointing a representative, he or she may be responsible for compliance with tax obligations on behalf of the taxpayer. In addition, the Tax Agency will understand directly with him, sending him the appropriate notifications and communications.

Precisely for this reason, most foreign investors hire tax representatives, delegating their tax management to them to avoid having to be aware of local and national regulations. In fact, from Forcam Abogados we provide this service to investors from all over the world.

Management of income taxes and transfers from abroad

As a final note we want to emphasize that wealth taxes are not the only ones that are levied on foreign investors. For heritage in Spain to be productive it must be managed in some way. And each mode of exploitation will be subject to its own taxes.

Thus, the transfer of real estate is taxed by the Property Transfer Tax or, in the case of a new building, by the Value Added Tax. The aforementioned IIVTNU will also be applicable. And, if the property is reformed before selling it, the ICIO could be applicable.

In the case of obtaining income by individuals, we must pay the Personal Income Tax or the Non-Resident Tax. If the lease had a professional or business nature, it would also be necessary to register for the Tax on Economic Activities, although natural persons and entities and non-residents with permanent establishments with a turnover of less than 1,000,000 euros are exempt from paying it. euros.

Finally, in the case of setting up a company to manage the real estate portfolio, the taxes on the Income of Individuals or Non-Residents will not be applied. In this case, the Corporation Tax would be applied, which may be convenient when the turnover rises. 

In short, foreign investors can delegate the management of wealth taxes from outside Spain to a tax representative in the territory. This is highly recommended if we take into account the complexity of the tax structure applicable to your investment.

Contact us, and our lawyers specializing in Real Estate Law will study your specific case. We Have:

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