Property taxes when buying in Mallorca
I.B.I . (Impuesto Bienes Inmuebles)
This is a real estate tax levied by the local townhall and is usually 0.85% of the cadastral value (valor catastral).
Every owner of a property in mallorca is obliged to make his annual income tax declaration. In the framework of income tax (Impuestos sobre la Renta de las Personas Físicas), even owner-occupied property is taxed.
Owner-occupation is seen from the tax point of view as fictitious rental income. In the case of non-residents a fictitious usage value of 2% of the rateable value or, as appropriate, of 1.1% of a rateable value set by a law of 01.01.94 is established. If there is no known rateable value, half of the purchase price is used as the basis. Income tax at 25% is to be deducted from this value.
When property is rented gross income is taxed at a flat rate of 25%, with the tenant being liable alongside the non-resident owner for his/her tax bill, and even being obliged to retain the tax payment every month from the rent and pay it directly to the tax authorities.
Tax on assets
In the case of physical persons, ownership of all kinds of assets and rights with economic value is the basis of tax on assets.
The qualifying date for the tax on assets declaration is 31.12. The tax on assets declaration is made at the same time as the income tax declaration
Taxpayers are not called on by the tax authorities to make the appropriate payments form income tax and tax on assets. It is recommended to employ a tax adviser for filling in the tax declaration.
The local land tax, known as IBI, is calculated on the basis of the rateable value and has to be paid at the municipal administrative offices (Ayuntamiento) before 31.06 every year. The IBI tax form also shows the rateable value of the property as established by the local authority. It is recommended to make the payment by standing order from a bank. The relevant forms are available from the local town hall (Ayuntamiento).
Is it necessary to register the new ownership? Yes, this is done by entering the deed of conveyance “escritura publica” at the land register office.
Taxes of your Mallorca Property Income
In the case of leased property, the taxable base is determined by the total income (without deducting expenses) and, as 1-1-2007, the tax rate is 24%.
Nevertheless, as we are dealing with taxpayers resident in another European Union Member State, with regard to income earned from 1-1-2010, the expenses described in the Personal Income Tax (IRPF) Law can be deducted when calculating the taxable base, provided that proof is provided that these expenses are directly related to the income.
In general, non-resident organisations who are owners or are title holders of real estate assets in Spain or have rights in rem over their use for enjoyment or leisure are subject to a Special Tax. The taxable base will be the rateable value and if no such value is available, the value taken will be that resulting from applying the provisions of Spanish Wealth Tax. The tax rate is 3%.
However, the Special Tax will not be required of:
- Foreign States, foreign public institutions and international organisations.
- Organisations entitled to apply an agreement to avoid double taxation which contains an information exchange clause, in the terms and fulfilling the requirements of article 42 of the revised text of the Non-resident Income Tax Law.
- Organisations which carry out in Spain, in a continuous or habitual way, economic operations other than simple tenancy or renting of buildings in the terms of section 20.2 of the Non-resident Income Tax Regulation.
- Companies listed in the officially recognised secondary securities markets. This clause will also apply when the property is held indirectly through an organisation with the right to apply an Agreement to avoid double taxation with an information exchange clause.
- Not-for-profit charity or cultural organisations, in the terms of article 42 of the revised text of the Non-resident Income Tax Law.
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