Graham Whitfield lives in Leeds and since 2019 has owned a flat in Alicante, let all year round to a retired couple. He receives 12,000 € a year and pays about 3,500 € in community fees, IBI (the annual municipal property tax), insurance and repairs. An acquaintance from the golf club assures him that he does not have to file anything in Spain, because "there is a treaty between the United Kingdom and Spain and you already declare the rent at home". Graham has gone two years without filing Modelo 210. His neighbour across the landing, Ingrid de Vries, who lives in Utrecht and lets an identical flat, does file it, and pays less than Graham would owe. Both want to understand what exactly the treaty does.
What the treaty says about a property
Almost all the treaties Spain has signed follow, with variations, the OECD Model Tax Convention. Its article 6 establishes that income from real estate may be taxed in the state where the property is located. Article 13 does the same with the gain on its sale. They do not say that only that state may tax it, but they do say that it can do so with no cap on the rate.
Spanish law sets out the same idea from the other side. Article 13.1.g) of the IRNR Law (the non-residents' income tax law) treats income from properties located here as income obtained in Spain, and letter h) adds the imputed income of urban properties. Article 4 says the law applies without prejudice to treaties. As the treaty does not take away Spain's right to tax the flat, Spanish law applies in full.
The treaty, therefore, does not release Graham from anything in Spain. What it does is something else: it obliges the country where he lives to eliminate or reduce double taxation, by the method the treaty itself lays down.
Three questions, three different sets of rules
| Question | Which rule answers it | Who applies it |
|---|---|---|
| Can Spain tax the rent from the flat? | The treaty, normally its article 6 | Both states |
| How much does Spain charge, and on which form? | The IRNR Law | The Agencia Tributaria |
| How is paying twice avoided? | The treaty and the law of the country of residence | That country's tax administration |
Salama Legal SLP takes responsibility for the first and the second. The third depends on the law of the country where the client lives, and we give no opinion on it: it is resolved by the adviser the client has there, with whom we coordinate the Spanish data.
Graham and Ingrid, figure by figure
Article 25.1.a) of the IRNR Law sets 24 % in general and 19 % for residents of the European Union or of European Economic Area states with an effective exchange of information: Iceland, Norway and Liechtenstein. In addition, article 24.6 only allows those residents to deduct expenses. Since the United Kingdom left the Union, Graham falls into the general group.
Graham, resident in the United Kingdom:
- Gross income: 12,000 €.
- Expenses deductible in Spain: none.
- Tax: 12,000 × 24 % = 2,880 €.
Ingrid, resident in the Netherlands:
- Gross income: 12,000 €.
- Directly related expenses: 3,500 €.
- Base: 8,500 €.
- Tax: 8,500 × 19 % = 1,615 €.
The difference between the two of them, 1,265 € a year, is not corrected by any treaty. It comes from Spanish law. There is an open court debate on whether that different treatment of residents outside the Union is compatible with the free movement of capital, explained in deducting expenses when you live outside the EU. For now, the rule that applies is 24 % on the gross income.
Avoiding double taxation is not the same as not paying
The OECD Model offers two methods for the country of residence to correct double taxation: exemption, in which it leaves the foreign income out or uses it only to set the rate, and credit, in which it taxes the income and subtracts what was paid abroad, subject to a limit. Which one each treaty applies, and how it is calculated, is decided by that treaty and by the law of the country of residence.
With the credit method, the credit usually cannot exceed the tax the country of residence would charge on that same income. Suppose, purely to see the mechanism, that Graham's country works out its own tax of 1,700 € on this rental income:
- Tax paid in Spain: 2,880 €.
- Tax of the country of residence on that income: 1,700 €.
- Maximum credit, limited to what that country would charge: 1,700 €.
- Additional tax in the country of residence: 0 €.
- Total cost: 2,880 €, not 4,580 €.
The treaty has stopped Graham paying twice. But it does not give him back the 1,180 € by which the Spanish tax exceeds his own country's: nobody recovers that excess. That is why we say the treaty avoids double taxation, not the Spanish tax.
The tax certificate from your country of residence proves where you are resident and which treaty applies to you. It serves to apply the 19 % rate to a European resident or to prove residence in a procedure. It does not make the rent from a Spanish flat exempt, nor does it replace the 210.
The two years Graham did not file
If Graham wants to regularise, each year omitted means an annual 210 with its 2,880 € of tax plus the surcharge in article 27 of the General Tax Act (Ley General Tributaria), which depends on the months of delay. And there is a second effect, which is not Spanish: if in the United Kingdom he declared the rent without a credit for foreign tax, because he had paid nothing in Spain, paying in Spain now may leave something to correct there. That is for his British adviser to look at.
If you would like us to review what you have to pay in Spain for your flat and prepare the supporting documents your adviser in your country of residence asks for, you can send us the escritura (the title deed), the tenancy contracts and your residence certificate through the non-residents form.
What documents the country of residence asks for
To apply a credit or an exemption, the country of residence usually asks for proof of what was paid. What Spain can provide:
- The complete Modelo 210 for each year, not just the debit on the account.
- The payment receipt with its reference number.
- In a sale, the buyer's Modelo 211 and the 210 for the gain.
- Any refund decision, because it reduces the tax actually paid. If Spain refunds later, the credit applied abroad may have to be corrected.
Empty flat, sale and plusvalía
If Graham's flat were left empty, Spain would charge him on the imputed income under article 85 of the IRPF Law (the Spanish personal income tax law). If the country of residence taxes nothing for a flat that produces no income, the Spanish tax will have nothing to be set against there; that is for the adviser in that country to confirm, not us. If he sells, the buyer will withhold 3 % and Graham will be taxed in Spain at 19 %, the rate that article 25.1.f) applies to the gains of all non-residents.
The plusvalía municipal (the municipal tax on the increase in land value) is a local tax. Whether a particular treaty covers it depends on the list of taxes in its article 2, and it should not be taken for granted. It is developed in who pays the plusvalía.
When Spain charged too much
If Spain mistakenly applied 24 % to a European resident, the correction is requested in Spain, not in the country of residence: a rectification of the 210 within the four-year period in article 66 of the General Tax Act. If the two states disagree on how to apply the treaty, there is the mutual agreement procedure, with time limits set by each treaty.
If both countries consider you resident, the tie has to be resolved first: see two countries consider me resident. The difference between certificates, in ordinary certificate or treaty certificate.
The Salama Tax non-residents page explains what is filed in Spain for a flat that is let, empty or sold, and which documents you take with you to declare it in the country where you live.