Are you expat in Valencia and own a second home there? If so, bear in mind that every year, Non-Resident Income Tax (IRNR) awaits you. In addition to IBI, property tax and household waste disposal taxes, this often little-known tax should be on your tax radar. Particularly important for those who derive no income from their holiday property, IRNR can be an unpleasant surprise when forgotten… However, if you are a tax resident in Spain, this article is probably not for you.
Income tax for non-residents in Spain: what are we talking about?
Let’s assume that you are an expat in Spain but not a tax resident. In this case, IRNR, or non-resident income tax, applies to you if you are in one of the following situations: you receive income generated in Spain (whether professional or rental), you make a profit from the sale of a property in Spain, or you own a property in Spain.
To be considered a tax resident in Spain, you must satisfy at least one of the following conditions:
- Have stayed in Spain for more than 183 days during the calendar year;
- Have the centre of your economic activities, directly or indirectly, in Spain;
- Have your spouse and/or minor children permanently resident in Spain.
If these criteria do not apply to you, you will be required to pay IRNR. In addition, if the property is rented or sold, you will also have to declare this income in the country where you are resident for tax purposes.
How IRNR is calculated
Firstly, it is essential to know whether or not your property in Spain has been rented out.
If the property is not let:
If your property has not been let during the calendar year, the basis for calculating IRNR will be the cadastral value of the property. This value is shown on your property tax notice, the IBI.
The Spanish tax authorities assume that a property has the potential to generate income, even if it has not been let. Even empty, a property could theoretically generate rental income. This is the basis on which the tax is calculated, proving once again that when it comes to raising funds, the State is resourceful.
A practical example:
Let’s say your property in Valencia has a cadastral value of €80,000 in 2022, a value that has remained unchanged for over ten years. The tax authorities determine a ‘notional’ rent representing 2% of this cadastral value, i.e. 2% of €80,000 is equivalent to €1,600.
This notional income is subject to 19% income tax – this rate applies to residents of the European Union, Norway and Iceland. You will therefore have to pay 19% of €1,600, which equates to €304 of IRNR to be paid for the year.
Special case :
If the cadastral value of your property has been revised in the last ten years, the applicable rate will be 1.1% rather than 2%.