Spanish authorities to crackdown on lease-tax avoidance

Published: 2nd May 2012

Spain is to crackdown on investors with a second home in Spain and not declaring the rental income (illegal renting).

It is estimated in Malaga alone, there could be up to 65,000 holiday homes rented out every year where 75% of income is not declared. This is probably costing the taxman €104.8 million.

It has been muted there is a lack of awareness by both the home owner and law.

There is obviously no excuse for home owners not declaring holiday home income. However, it can be difficult for foreigners to find out how o to go about things as there is so much red tape involved it is often hard to know where to go for proper advice.

Legal firm Perez Legal Group has offered five pieces of advice to buyers who want to ensure their rental agreements are legally sound:

– Make sure the rental contract is registered with the housing department for full legal protection in the event of any court case about your rental that could arise. Only registered contracts, where the landlord is completely legal in his operations and declares the rental income for tax purposes, have the full protection of the law.

– If the owner hires a real estate agency or management company to handle your letting, it must add 18% of VAT to the rent, which must be paid to the tax agency.

– Declare your rental income and set aside 24% of the rent as a withholding tax payable to the Spanish government every month or, if applicable, every quarter.

– UK or German residents must declare to their respective tax authorities. The double taxation agreement between the two countries allows owners to claim back from Spain what they’ve paid in the UK, so they are not taxed twice.

– A tax resident in Spain should add rental income to other income when making his or her annual Spanish income tax declaration. Registering a property as a tourist letting operation allows maintenance expenses to be put down as a business expense, deductible from tax.

You should always check with an appropriate account or lawyer.

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