Non-Resident Imputed Income Tax in Tenerife – NRIIT

I’d like to point out that this article IS GOOD ADVICE but in no way replaces any legal or fiscal advice, so please don’t take it as such. Rates and laws change all the time and you should seek that information from your legal and fiscal advisers. 

At times life can seem unfair…especially at the end of the year.

No, I don’t mean that you don’t get the presents that you want at Christmas, I mean the dreaded tax man.

“Class… does anyone know what the word – Impute – means?”

“Anyone?” “Anyone?” – a nod to Ferris Bueller.

OK…from one of the online dictionaries, the word Impute in financial terms means:-

To assign a value to something by inference from the value of the products or processes to which it contributes…ie “recovering the initial outlay plus imputed interest”

In my way of thinking…maybe imputed could mean – Assumed.

So, when the Spanish tax office, Hacienda, asks you to pay your Non-resident Income Tax at the end of the year, they’re really asking for the Non-resident Imputed Income Tax….or assumed income tax.

You see, the Spanish government have, for many years, assumed that if you have a second home in Spain, you’ll almost certainly derive a benefit of income from it in one way or another.

The government assumes that you rent your property – even if you don’t.

Whether you rent the property legally or not, you still have to send in your annual tax return and pay your Income Tax one way or another.

This generally raises some questions, so I’ll attempt to answer the most frequently asked ones below…

But what if I’ve never rented my property in the whole time I’ve owned it? – You still have to pay it.

What if I’ve rented my property legally and declared the income? – You’ll have to pay your income tax on that.

As a property owner, can I get away with not paying my Non-resident Imputed Income Tax? – Yes…but they’ll get you eventually – see below. There are LOADS (yes that’s shouting) of people in Tenerife that are not paying this tax. Generally because they don’t know about it because they were never told about it when they bought the property.

Are there any benefits to paying my Non-resident Imputed Income Tax? – Yes, you can sleep at night and when you come to sell your property and you’re deemed not fiscally resident and Hacienda retain 3% of the sale price of your property and hold it in lieu of any taxes that you may owe, you’ll probably be able to claim some, if not all, of it back.

3% of the sale price is quite a lot of money on most property sales in Tenerife, so can I get it back?

Well, if you’re up to date with your annual Non-resident Imputed Income Tax for the last 4 years, then possibly all of it – you see, there is the benefit of paying your NRIIT.

It’s assumed that this 3% that Hacienda retain not only takes into account your unpaid NRIIT payments but also takes into account any Capital Gains that you’ve made on the property.

The thing is that they’re so busy that they’d rather take the 3% and have something back rather than having to chase you for any more, so they kind of turn a blind eye in most cases.

So how do I find out if I can claim any of the 3% retained by Hacienda?

You really need to employ the services of an accountant for that. They’ll normally charge you a fee of something like €100 to work out if you will be able to claim anything back. That’s the best thing to do…work it out first before going to Hacienda to claim anything – you don’t want to open a can of worms.

In general, Hacienda are happy with the 3% to cover them for the NRIIT you owe them as well as any Capital Gains tax, so in a way the majority of you reading this will be able to sit back and relax and assume that once you’ve left your 3% behind, they’ll be happy and show no future interest in you. And that’s probably true in 99% of cases but there’ll be the 1% where the Capital Gain is enough for them to open a case and go after you for the balance that’s owed over the 3% that’s been retained…but to be honest, you’ll probably know that yourself.

If you’ve ever had to do paperwork in a Spanish office, allow yourself the 3 minutes 30 seconds to watch this…it’s actually not as bad now as it used to be….

So, what’s the best advice?

If you’re a property owner here in Tenerife, keep up to date with your Non-resident Imputed Income Tax.

OK, it’s another tax to pay but it’s not loads of money every year, in fact, in comparison to most taxes it’s quite low.

It’s due at the end of the year, every year and payable on or before the 31st December to not receive a fine.

When you do sell your property here the 3% will be retained by Hacienda…that’s a given and will always happen.

Then, if you’re up to date with your NRIIT and you feel that you’d like to see if there’s anything that you’ll be able to claim back, get in contact with a reputable accountant or Gestor.

This is one of the main reasons that I shout about NOT paying anything in black money under the table when you buy a property.

If you buy now for €120.000 and declare €90.000 on the deeds and you’re told that you’re saving tax…you won’t be saving anything in the future, because when you sell in 10 years for €175.000, Hacienda see that you’ve made a €85.000 profit..not the €55.000 that you really have…and that can make all the difference in reclaiming anything back.

As I write, Hacienda are obliged to pay back any outstanding tax within 12 months…I know, you’re bound to get it back on the 364th day but it might be worth the effort.

I should point out that this article IS GOOD ADVICE but in no way replaces any legal or fiscal advice, so please don’t take it as such. Rates and laws change all the time and you should seek that information from your legal and fiscal advisers. 

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