Taxes on foreign property

Do you have real estate abroad and are you renting or selling them? If your answer is positive, you should know that if your tax residence is in Spain you will have to pay taxes on the profits obtained.

It may happen that, as a result of the death of a relative residing abroad, you have inherited an apartment in France, for example, and decide to sell it after a while. The sale, in general, could give rise to a capital gain that you will have to declare in the personal income tax return as a capital gain.

The valuation of the property transfer for tax purposes will be calculated, taking into account articles 33 and following the Personal Income Tax Law.

Double taxation deduction

The problem is that in the country where the property is located, it may also be necessary to pay taxes on the profit obtained from the sale. To avoid the problem of double taxation, it will be necessary to analyze the application of the International Double Taxation Agreements with the country in which the property is located and article 80 of the Personal Income Tax Law regarding the deduction for international double taxation, which establishes the next:

1. When the income of the taxpayer includes income or capital gains obtained and taxed abroad, the lesser of the following amounts will be deducted:
   1. The effective amount of what is paid abroad is because of a tax of an identical or analogous nature to this tax or the Non-Resident Income Tax on said income or capital gains.
   2. The result of applying the effective average tax rate to the part of the taxable base taxed abroad. (…)

Example of sale or rental of an apartment in France by a resident in Spain

To continue with the previous example, in the case of France, it will be necessary to analyze the Spanish-French Double Taxation Agreement that establishes the following:

• The first thing to determine is where the person’s tax residence is located. It will be understood that a natural person resides in Spain when any of the following circumstances occurs:
  • That it remains more than 183 days, during the calendar year, in Spanish territory.
  • That the main nucleus or the base of his activities or economic interests resides in Spain.
  • That the spouse and minor children who depend on the natural person habitually reside in Spain.
• If real estate income is obtained according to article 6 of the Spanish-French Agreement, they may be taxed in Spain and France. Still, the taxpayer may apply the deduction for international double taxation in Spain that we have seen before.
• In the event of the sale of the property, the same occurs, the taxpayer will have to pay taxes in Spain and France, and the deduction for international double taxation may be applied.