Main Changes in the Income Tax for Non-Residents (Chapter two of the Law 26/2014 & changes in Royal Decree 9/2015 of 10th of July). Which we will shorten below per the initials in Spanish IRNR (Impuesto sobre la Renta de No Residentes).

We have summarized the changes that we consider more interesting for our non-resident clients. Some of the changes are also for residents, but they are repeated in this section because they are relevant for the non-residents.

Changes for better:

1.- Reduction in the rates of tax for non-residents. This will reduce the amounts to be paid from 2015 for those who rent a property out, but also for those who keep the property for themselves. In this last case, remember that the IRNR for the year 2015 will be paid by the end of 2016, consequently, what you will pay in 2015 for IRNR will be for the year 2014 and it will not be reduced yet.

These are the rates of tax for non-residents without a business in Spain (without a permanent establishment):

Rates of tax for non-residents/year20142015From 12.07.152016
For residents of the EU24.75%20%19.5%19%
Non-residents in the EU24.75%24%24%24%
Capital gains tax for all21%20%19.5%19%

Renting a property out is never considered as a permanent establishment, but only when the non resident has an economic activity (business or profession) in Spain with a fixed settlement.

2.-  If a resident of Spain sells a property where he has been living over 3 years, and moves outside Spain, where he will spend most of that year, he would be considered as a non resident of Spain in the year when selling the property. Residents have always had the possibility of being exempt of capital gains tax when they sell their home if they reinvest in another home (to live in it for over 3 years), within two years, and only partially when the whole amount from the sale is not reinvested. From 1.01.2015, if somebody who has been living in Spain sells his home (where he has lived over 3 years), say in February, and move to another country of the E.U. immediately and buys a home to live, reinvesting all he obtains from the sale, there will be no capital gains to pay, neither, despite the fact that he would be a non-resident for that year. When the reinvestment is only partial, the exemption will be also partial, only for the percentage reinvested. Saying this, it can be very interesting to remain as a resident when selling your home for the year of the sale (renting another property, for example), if you are over 65 years of age, as the capital gains is then exempt of tax, but only for residents, without needing any reinvestment.

3.- Non residents of Spain, who live in the E.U., who have worked in Spain, will have the option to pay the Income Tax as residents in Spain in certain circumstances, if this is most beneficial for the non-residents (using the personal allowances). This can be of interest to low income earners who work in Spain for less than 6 months of the year, not abandoning their residency in their country of origin, when their income in this last country was almost inexistent.

4.- The rate of tax of “Permanent Establishments” of non-residents is reduced from 30% in 2014 to the applicable rate of tax for Spanish Companies (which will be of a maximum of 28% in 2015 and 25% in 2014).

Changes for worse:

1.- The actualization coefficient on the price of purchase of properties – used to reduce the impact of inflation when selling a property- disappears, which will increase the tax on the capital gains in many cases.

2.- The other coefficient (known in Spanish as “coeficiente de abatimiento”) applicable to reduce the income tax to pay for properties bought prior to 31.12.1994, is now limited to a total and unique accumulated figure of 400.000 euros per tax payer, having to pay more when a property bought prior to the referred date is sold for more than 400.000 euros, or when the total sale value of several properties bought prior to that date exceeds the 400.000 euros.

Neutral changes:

1.- For the first time the IRNR distinguishes between individuals and companies, although it does not affect much in the practice.

2.- Those non-residents who do not have a tax representative in Spain and pay their own taxes will have the option to ask the Spanish Tax Office to send them a draft of their IRNR to be paid. This is not the case of our clients, who use Marcos Cabrera S.L. as tax representative, having the security not only to pay the due taxes, but also to have an address to receive whatever notifications are sent by the Tax Office, and thus avoiding possible problems.