Property tax, wealth tax, and ITSGF in Spain. What are the obligations of non-residents? [LEGAL ANALYSIS]

The beginning of the year is also a good time to consider tax issues and plan your tax returns for the year ahead. In the legal analysis prepared by the law firm LTA (Łukasz Tkaczyk & Asociados), you can read, among other things, about the wealth tax – Impuesto sobre el Patrimonio, as well as the Temporary Solidarity Tax on Large Fortunes, or Impuesto Temporal de Solidaridad a las Grandes Fortunas.

What taxes apply to non-residents who own property in Spain?

Tax for non-residents owning property in Spain (known as IRNR – Impuesto sobre la Renta de No Residentes)

This applies to individuals and companies who are not tax residents in Spain but own property there (apartment, house, commercial premises, plot of land).

1) If the property is not rented out (own use): Spain calculates the so-called “imputed income” (renta imputada) – a fictitious “income” – resulting from the mere fact of owning the property. The basis for calculating this tax is part of the valor catastral (cadastral value from IBI): 2% of the valor catastral, or 1.1% if the valor catastral has been updated in the last 10 years (the lower rate applies). The IRNR tax rate is 19% for EU/EEA residents and 24% for others. Deadline for filing returns (on form 210): as a rule, for the previous year, usually by December 31 of the following year.

2) If the property is rented: IRNR is paid on rental income, which is the basis for calculating the tax base. EU/EEA residents may deduct reasonable costs related to the rental (e.g., interest, community fees, insurance, repairs, depreciation – within the limits of the accepted rules). Others pay on gross income. The applicable rates are identical to those in point 1: 19% for EU/EEA citizens and 24% for others.

3) If the property is rented only for part of the year: in this situation, as a rule, two separate tax returns should be filed in proportion to the periods of use of the property for personal and commercial purposes.

IBI (Impuesto de Bienes Inmuebles) tax, i.e., property tax

Regardless of the IRNR, the property owner pays IBI (Impuesto de Bienes Inmuebles) every year. This is a “property” tax, not an income tax, paid annually to the municipality. It is calculated on the basis of the valor catastral (cadastral value), and the rate – usually between 0.4% and 1.3% – depends on the specific municipality. The obligation to pay lies with the owner of the property as of January 1 of a given year and is independent of other taxes, such as IRNR or wealth tax.

What is the property tax in Spain (Impuesto sobre el Patrimonio) and who does it apply to?

Inspections carried out by the Spanish tax authorities cover, in particular, non-residents who own real estate in Spain and who, although they have so far complied with the obligation to submit annual non-resident income tax returns (form 210), resulting from the income attributed to these properties, but have not paid particular attention to tax thresholds or the possibility of other tax liabilities.

As indicated by experts from the Łukasz Tkaczyk & Asociados law firm, wealth tax is a Spanish state levy aimed at taxing the net value of an individual’s assets as of December 31 of each year. In the case of non-residents, this tax applies on the basis of “actual liability,” i.e., it covers only assets located in Spain, including real estate, funds in bank accounts, financial investments, and shares in companies.

The basic principles of the law are as follows:

• tax-free amount: EUR 700,000,
• exemptions: including for assets and rights related to business activities conducted in Spain,
• rate: progressive – from 0.2% to 3.5% – depending on the autonomous community.

It is worth noting that tax policy in this area varies greatly depending on the autonomous community. Some regions, such as Andalusia and Madrid, have introduced a 100% property tax rebate to attract investment. In practice, this means that this tax is not applied in Madrid (since 2015 for non-residents) and in Andalusia (since 2022) – provided that they are not subject to other, overriding regulations.

What is the Temporary Solidarity Tax on Large Fortunes (ITSGF) and why was it introduced?

To offset the impact of the rebates applied by some autonomous communities, in 2022 the government established a Temporary Solidarity Tax on Large Fortunes (ITSGF) at the central level. It is an “actual obligation” and applies to individuals whose net assets in Spain exceed €3,000,000 on December 31 of each year, although, as in the case of property tax, there is an exemption amount of €700,000, which means that the actual value of real assets (real estate, shares, deposits, bank accounts, etc.) in Spain is €3,300,000. €700,000, which means that the actual value of real assets (real estate, shares, deposits, bank accounts, etc.) in Spain exceeds €3,700,000.

Initially planned for 2022-2023, the tax has been extended indefinitely from 2024 until a comprehensive reform of the property tax system.

Basic rules:

• scope: assets in Spain worth more than €3 million,
• rate: progressive – from 1.7% to 3.5%,
• declaration: form 718 – submitted online only between July 1 and July 31.

How are Polish investors and persons covered by the Beckham Act taxed?

Persons covered by the preferential tax system for foreigners who move to Spain for work (the so-called Beckham Act) are taxed on the basis of non-resident income tax (IRNR). Thus, they are subject only to the “actual obligation” – both in relation to property tax (IP) and the Temporary Solidarity Tax on Large Fortunes (ITSGF) – only on assets located in Spain – for the duration of these taxes. This means that they pay tax only on assets located in Spain, regardless of assets abroad.

For other non-residents (not covered by the Beckham Act), IP and ITSGF taxation issues may be subject to the provisions of double taxation agreements (CDI) concluded by Spain with other countries. In the case of Poland and Spain, such an agreement does not mention either property tax (IP) or the Temporary Solidarity Tax (ITSGF). This means that Polish property owners (non-residents) in Spain are, without exception, subject to the above-mentioned rules. Furthermore, shares in companies whose assets consist of more than 50% of real estate located in Spain are also subject to taxation.

What are the most common mistakes and tax risks when investing in real estate in Spain?

Audits and the need for tax planning

Recent audit campaigns by the Spanish Tax Agency show that property owners, especially non-residents, should conduct a thorough analysis of their tax situation. Early planning of settlements (preferably before starting to invest in Spain or at the initial stage) allows you to identify risks, optimize your tax burden, and avoid costly surprises.

Łukasz Tkaczyk & Asociados, a law firm specializing in advising Polish investors in Spain, offers individual analysis of tax situations and advice in this area—both in simple cases of personal property ownership and within complex international corporate structures.

Contacting a tax advisor before the end of the tax year can save you a lot of problems, and in the current reality, it is a necessity.

Serious tax risks of currently popular investment models

Tax experts at LTA warn against a recently popular investment model based on the assignment of rights to purchase real estate. In practice, the scheme works as follows: the investor reserves a property “off-plan,” signs a preliminary agreement, waits several months (until the investment is almost ready for completion), and then resells the right to purchase the property to another entity.

In theory, with the price increases observed in many tourist regions of Spain, this model may seem like an easy way to make money. In practice, however, it is often based on unprofessional advice and misinterpretation of tax regulations. As a rule, ITP tax is payable on the transfer of property (the rate depends on the region, but generally ranges from 7 to 10%), and the tax authorities interpret this tax as being calculated on the basis of the “thing” (the value of the property) and not on the “right” itself (the value of the preliminary agreement). This means that the tax base is the price of the property, and not just the amounts paid so far by the assignor.

In response to this problem, some advisors propose solutions aimed at “circumventing” ITP – for example, setting up a special purpose vehicle for a single property and then selling shares in that company instead of assigning it. Such a structure is seriously vulnerable to the accusation of “simulación del negocio jurídico,” i.e., the pretense (simulation) of a legal transaction within the meaning of Spanish law.

This refers to a situation in which a single transaction is formally carried out (the sale of shares in a company), while its actual and sole purpose is to circumvent the law and effectively transfer the rights to sell a specific apartment. This is because the company does not conduct any real business activity and its existence is purely instrumental. Such constructions are challenged in Spain on the basis of:

• Articles 1275 and 1276 of the Código Civil (acts without a real, lawful cause and the presumption of the existence of a “causa”),
• in conjunction with Article 6.4 of the Código Civil (prohibition of circumvention of the law – fraude de ley),
• and established case law of Spanish courts, which consistently consider simulated transactions to be invalid or ineffective.

In addition, this model completely ignores the practical and legal significance of AML/KYC (anti-money laundering) procedures. In the case of newly established companies, the beneficial owners are verified in detail, and any change in their status triggers a new compliance analysis. As a result, the developer is under no obligation to maintain the reservation if there is a change in the beneficial owner of the company, regardless of previous arrangements.

In summary, this is a model that can be clearly assessed as provisional, unprofessional, and incomplete, generating unjustified additional costs and carrying a very high legal, tax, and regulatory risk—without any real benefits for the parties to the transaction, but with clear benefits for those handling such a transaction.

Property taxes in Spain: how to avoid problems?

Finally, it is worth emphasizing that most models of ownership and use of real estate or other types of property in Spain can be legally optimized – so as not to “circumvent” the regulations and not expose the owner or contractors to unnecessary risks. It is crucial to choose a structure that suits the actual situation and the purpose of the investment. In practice, the best approach is to ensure full transparency and well-documented sources and flows, and to consult a tax advisor – this will allow you to plan a safe and cost-predictable solution.

It is also worth remembering that the tax authorities in Spain often do not react “immediately” – an audit or summons may only appear after a considerable amount of time has passed and significant arrears have accumulated. If the matter is not settled voluntarily, it may enter the enforcement stage (procedimiento de apremio), where, in addition to the tax itself, interest for late payment and additional recargos are added (in practice, up to 20% in a standard “apremio,” depending on the time of payment).

Importantly, if violations are found on the part of the taxpayer, administrative penalties may reach up to 150% of the amount of unpaid tax, in addition to interest, if they are classified as the most serious violations. We are therefore talking about extremely “aggressive” tax regulations, which are better not to be underestimated.