March 5th, 2015
Every non- Spanish resident owner of a property in Spain has to file during each calendar year (in respect of the immediately previous calendar year), a tax return in Spain (Form- Modelo 210). It is a simple matter, involves a relatively modest cost; and (generally) a fairly modest amount of tax to pay, based on the property’s rateable (Catastral) value.
Although it is obligatory for these tax returns to be made, the follow-up by the Spanish Tax Authority against those who have failed to declare in the past has been fairly limited in practice; and the consequences not disturbingly significant.
But this is changing.
Purchasing or Inheriting a Spanish Property Puts The New Owner ‘On The Radar’
Very simply (and quite unsurprisingly) technological advances in the manner of operation of the Spanish Authorities- and therefore improvements in communication between them- are occurring at a rapid pace.
It is therefore naïve in the extreme to assume that dealing with a Spanish asset through one Spanish Authority does not trigger awareness in others.
Shortly following completion of Spanish property purchases and inheritances now, those acquiring the property are immediately notified of the awareness of the change of ownership by the corresponding tax authorities. (A helpful ‘pointer’!)
Consequences of Failure to File Non-Spanish Residents’ Returns
1. A significant issue (which we are now seeing occurring automatically) is that if a filing date is missed, a recalibrated demand is sent out including penalties/ interest. The powers of enforcement for failure to pay can be extreme- legal action, embargoed accounts/ assets; ultimately the facility for the Spanish Tax Authority to seize and auction assets to cover tax debts due. (Extreme cases obviously, but the point being that the Spanish Tax Authority does have- and does exercise on a case by case basis- extensive rights and facilities to recover tax debts).
2. A further potentially alarming consequence is something which is coming as a nasty surprise for many sellers of Spanish properties who have failed to file their annual tax returns.
When a non-Spanish resident sells a Spanish property interest, 3% of the declared sale price is retained for the Spanish Tax Authority. This is, in effect, on account of Spanish capital gains tax liability. But if the retention is greater than the actual tax liability, the seller can reclaim the tax.
But the Spanish Tax Authority is now scrutinising the tax return history in dealing with reclaims- and if found to be inadequate or incomplete, the tax retention on sale may not be refunded.
So, 3% of the property sale price can be ‘lost’ (even if there is no gain on the sale) for a simple failure to make this tax return. To put that in context, on recent property sale we saw for 900,000 Euros (at a loss) the seller waved goodbye to 27,000 Euros, for this administrative oversight.
Particular attention therefore needs to be paid to this issue in the context of (and indeed following) a Spanish property sale.
The Spanish Tax Authority ‘means business’ over this. Compliance is, in reality, neither complicated nor expensive. We will be happy to refer enquiries to associates who provide this service extremely efficiently and cost-effectively; and their service being provided in English, for non-Spanish speakers.
This general commentary is not intended to be exhaustive; and case-specific legal advice should always be sought.
Please speak to us at Legal 4 Spain when considering a sale or purchase of a Spanish property, to ensure you have the best quality legal representation to protect your interests fully; but always at a competitive cost.