Taxation

PROPERTY TAXES - For foreign Owners

• Foreign non-resident owners are now legally obliged to appoint a Fiscal Representative for their property.
• You are also required to make an annual tax declaration and pay a small wealth tax on your properties.
• Your annual Wealth Tax declaration can be made at any time during each particular year.
• 'IF you let' and 'HOW you let' has a bearing on which type of submission offers the best savings in tax.
• Don't forget annual local 'Rates'. Its your responsibility to find out when they are due - so avoid fines.

It is your responsibility to find out what and when things are due, and how and where you pay them. If you have not been making submissions, or paying taxes, when you go to sell your property, you could be in for a very nasty shock.

If you were ignorant of these facts, contact me and I will explain the best way of handling this situation.

Owners of property will generally fall within one of the following categories -

1. Non-Resident and Non-Letting (uses property solely for own purposes)
2. Non-Resident and Long Letting
3. Non-Resident and Holiday Letting
4. Resident and Non-Letting
5. Resident and Long Letting
6. Resident and Holiday Letting

For example, if you are a category 1-3 owner, most professional will only charge between 40-60 Euros to submit your returns and minimise your tax liabilities. For those who prefer to know the principles, here is an example tax calculation for a Category 1 owner.

Example Tax calculation. (Non-Resident, Non-letting Foreign Property Owner)

The annual Income Tax & Wealth Tax (Form 214) will require you to know following information -

• Your Municipality: Which Municipality is your property located in, (eg, Adeje, San Miquel etc)
• Rateable Value: Has your Rateable Value been updated? Our example will use an Updated value of 50,000 Euros.
• Property Value: as written in the Escritura - For our example 60,000 Euros
• Tax Rate: This is currently 25%
• Taxable Fraction: 2% or 1.1% of rateable value. (1.1% if rates recently updated else 2%)
  

The formula for calculating your tax is - Rateable Value x Taxable Fraction x Tax Rate

If your Rates have been Updated, use the the 1.1% fraction, for example (using the above formula)

TAXES - Businesses

Generally, like most other countries, the 'Self-Employed' status confers many tax advantages when compared to the Limited Company. Although forming a limited liability company, or SL is an instinctive option for most business people, in Tenerife, there is a good case for avoiding doing this. Tax on profits for SL's (32% at the time of writing) is about 8% more than the Self Employed status. SL and SA companies must undertake all of the accounting and statutory obligations for a Spanish limited company. More information on companies can be found on the about this on the EuroSol site.

Self Employed business people submit their accounts every three months and pay about 24% tax on 'declared profits'. In addition, once a year, your annual personal tax return (your 'Renta') is submitted, at which time many personal costs can be offset against tax. A good accountant will ensure that you do not pay unnecessary taxes and will usually cost about 50-90 Euros per month - depending on the number of transactions and employees involved with your business. IGIC Tax (equivalent of the EC Value Added Tax, or VAT) is not normally payable during the first year.

Special arrangements can be made to reduce some quite heavy liabilities. Some of these cost-saving techniques are not generally known, even by experienced accountants. Such information is obviously not for public consumption, so interested business persons should contact me to find out more.

The key points are probably best summarised as -

1. Company Tax Rates. Are higher than Personal Tax rates. Mandate for using an SL must be thought out.
2. Tax Accounts are usually submitted every 3 months to the Hacienda (Trimesters, 1st=Jan-Mar, 2nd=Apr-Jun, etc)
3. Module Tax. Certain activities, a fixed monthly Tax, independant of turnover. No accounts or other tax payments.
4. IGIC (VAT). Often exempt for first years trading, after which, it must be accounted for on the usual input/output basis.
5. Personal Tax Return. (La Renta, annually). Can be used creatively when combined with quarterly business accounts.
6. Capital Investment used to setup a new business may not qualify for Tax relief if you did not Notarise the transactions.
7. Existing SL Companies. May have used up all their Tax allowances - May be better to form new SL
8. The ZEC Canarian Offshore Zone. Corporate Tax 1%, but summary accounts required, little confidentiality.

This is a big, big subject, in any modern country. Contact us for details on how we account our clients.