Renting property while in Spain on non lucrative visa?

If you rent out properties then you are earning money from them. How can that be considered non lucrative?
When living in Spain you have to declare your world income to the Spanish tax office. I think they will guess that you are earning money in Spain when they see your tax returns.

Interesting point. Is letting a property considered as lucrative employment ?

A holiday home owner who lets his/her property only needs the paperwork to permit that and then to pay his/her tax on a 210.

A person living in Spain, depending on any double taxation agreement between Spain and their country, will be taxable on worldwide income, including rental income.  However, they would not need to be emplyed or self employed

Renting out your property is income in Spain. There is no difference between earning money like a UK PAYE system.
http://www.advoco.es/advice/8-personal- … spain.html
Note the words used in a number of times is business in particularly holiday rental business.
One can live in Spain if you want to invest here. Then you can get what is called a golden visa.

Financial advise is needed, more than what anyone on this forum can offer. That will not be free either.

I have been turning this over  in my mind but I cannot accept that a person who receives a rental income must be considered as earning in the sense that the activity amounts to work.

I do not dispute  “ Renting out your property is income in Spain. “    Thus that would be taxable in Spain.

But cannot agree,  “There is no difference between earning money like a UK PAYE system.”    That would mean every investor, investing in anything,  would have to register that as working.

Re:   http://investvisas.com/index.php?option … Itemid=120 

Although I accept this page has no legal status in Spain, QUOTE  “Non-lucrative visa ……   For those who plan to invest in a business in Spain."

The page you rely on does not in my opinion say renting is a business but the contrary, that it may become a business if other services etc, are included.

Also if letting a property is a business/work then, as I understand,  IVA would have to be charged on all rentals

Johncar, I appreciate your thoughts.
I would like to continue this discussion as I think between the two of us we maybe able to help.
Before that I still like to repeat what I said before.

Financial advise is needed, more than what anyone on this forum can offer. That will not be free either.

Going back to your thoughts.
Maybe I was not clear in the point about PAYE.
It does not matter if you set up a company or not to run such a business in Spain. You are still liable to pay taxes(and retentions) to the Tax office. In the UK if you do not set up a company you are not paying taxes under a PAYE method. You are still considered an autonomo. When working as an autonomo you pay a retention to Agencia Tributaria. The whole system is quite complicated and here is more than enough information about that on the WWW.
The article I linked to states

Many people settling in Spain make extra money by running a holiday rental business based in their own property (e.g. converted outbuildings).  The tax rules are more or less the same as those described above (i.e. rent from short term tourist lettings is treated much the same way as long term lets). There are one or two points to consider:

There is a grey area between renting out and running a business but the distinction is usually made on the basis of what extras are included for the renter.  If they just receive a room then clearly you are just the landlord renting out space.  If they are offered services over and above this like food or leisure/educational activities then you are probably running a business.

You picked up on the service provision, but what is a service? Supply and washing bedding and towels, providing a cleaning service during a stay? It is certainly a grey area.
However IMHO renting out a property, in Spain, is not considered a hobby. It is a business and how you register your business with the authorities is another area that is open for discussion.

Thank you both RibeiraSacra and Johncar, I greatly appreciate your thoughts.  I guess what my main concern is the Visa issue - whether I can come to Spain with this non-lucrative Visa and rent out properties I may purchase.

Perhaps I need to seek legal advice in this respect. 

Nonetheless, thank you both for your assistance.

Tamara

Hi Tam,

I see you're cashing in on Canada's ridiculous real estate prices and planning to buy investment properties just at the perfect time and place in Spain - good job, we did the same! 

There are quite a few VERY important things to consider before you make your move (some of which may not apply to you):

1 - As soon as you have lived for 183 days in Spain in a calendar year (with any short term trips in between still included in this number) you will automatically become a Spanish tax resident.  That means a few things:

A)  You will have to file Spanish tax returns and include all your worldwide income (even from sources in Canada if this will be applicable).  Having said that, here is a tax treaty between the two countries so you won't be double taxed and this may not be relevant at all if you won't have Canadian source income.

B)  You have to make sure this does not trigger any departure taxes for you in Canada.  This is VERY important and most people don't pay attention to it.  So if your intention is to move to Spain for more than 6 months, on the day of your departure from Canada, there's a deemed disposition of all your assets in Canada and you will be taxed on any capital gains even if you're not disposing of the assets.

C)  If you have any properties in Canada, you should seriously consider selling them before the move.  Why?  in Canada, any capital gains from the sale of your primary residence is tax exempt - in Spain, it's not, so you will be taxed on any capital gains from your date of departure (deemed disposition) and the date you actually sell the house in the best case scenario and you are creating a complicated situation with the tax authorities here who may not take into account the deemed disposition and the tax exempt status of the asset and insist that you pay tax on the entire capital gain! 

D)  If you do sell or have sold any Canadian properties recently, the timing of your move is also very important.  Let's say you sell a primary residence in Canada in February 2019 and move to Spain right after.  You won't be filing a 2019 tax return in Canada, rather in Spain.  That means any disposition you made in that year will be subject to capital gains taxes in Spain and not the exemptions in Canada.  So be very careful about this.

E)  The same situation or worse applies to Small Company shares but it's even more complicated so unless this applies (let me know) let's skip it for now.

2 - You do need to get license for any "tourist rentals" in the Valencian community.  The process is not complicated at all but it does take time (up to 6 months). Although, people say you can advertise the property on platforms such as Airbnb as soon as you submit the application, this is not correct at all since any advertisement should include the license number.  Many don't and some people have been getting away with it but they're becoming more strict and the fines are becoming more substantial

3 - For long term rental (non tourist) you don't need a license but you have to consider that in Spain it's MUCH harder than it is in Canada to evict tenants for non-payment.  Right now the process can take up to two years although the government is passing a new law to shorten that to around 6 months (still unclear what situations it will apply to).  So that's a risk to consider with long term rentals.

4 - On the other hand, a very real risk to consider for tourist rentals for apartments is that many bit cities are now cracking down on this.  Barcelona has made it very hard to get a license and Palma has outright banned this practice.  The laws can be very fluid in Spain so you don't want to be in a situation where licenses "may" be revoked or the laws change before you get the license.  On that note, if you're set on apartments vs. single family homes, it may be wise to consider investing in smaller cities or towns.  For the price of a a decent apartment in Valencia you can get a nice townhouse an hour away or two apartments (although the income will be slightly lower of course).

BTW, I don't agree with the gentleman above that says you can't have rental income on a non-lucrative visa.  You can not have any "employment income" with this program but rental income is not considered employment income and you can have such income even as non-resident or foreigner never setting foot here.

Cheers,
Beh

I feel this disagreement about the use of the word incomes comes from it's use in English and Spanish.
Take this example from El Piás
It is about declaring income form moneys gained in Spain or outside.
Paragraph "El Impuesto sobre la Renta de No Residentes ( Non-Resident Income Tax)"
Translates to

When a natural person or non-resident entity obtains income in Spain that is not subject to withholding, it must be taxed on the Non-Resident Income Tax (IRNR). "It is very common for real estate income, but it is not always necessary, since there are double taxation agreements between Spain and other countries that allow the profits obtained to be taxed there," Gallardo says. The tax rate of the IRNR is fixed, of 19% for residents in the EU, Iceland and Norway and 24% for the rest of the taxpayers.

The Spanish word in English can mean rent, income or revenue.
Impuesto sobre la renta in English means income tax.
A translation link.
For the Spanish taxation system all money into a household is calculated as income. No matter which way it is earnt, there some deductions and some different percentage levels  depending on income.
This, from the Spanish tax office states quite clearly that a person resides in Spain for more than 183days  pays taxes in Spain. With a few minor exceptions.
If you search in spanish you will find quite a lot of information on this subject. Like this.

Beh
‘As soon as you have lived for 183 days in Spain in a calendar year (with any short term trips in between still included in this number) you will automatically become a Spanish tax resident. ‘

Just to make it clear,  the183 day rule does not apply in all circumstance, one of which is if one MOVES to spain.  In that case one becomes tax resident immediately .

Hi Ribeira,

The pertinent section of legislation to the Non-Lucrative visa is the Royal Decree 557/2011 of April 20, CAPÍTULO I, “Residencia temporal no lucrative”...

"Artículo 46. Requisitos:  Para la concesión de una autorización inicial de residencia temporal sin realizar actividades laborales o profesionales..."

My Spanish is still elementary but I don't see how one can interpret that passage to have anything to do with "income".  It's very specific that you can't carry out "activities" of an employment or professional nature.

There is of course a more broad governing guideline relating to this and that is, residency and ultimately citizenship in any country are privileges that you gain by completing a set of requirements and with each set of privileges, you gain more rights not lose the previous ones.

On that note, when you have the right to purchase property in Spain and rent it out as a non-resident, you are not going to lose that right by becoming a temporary resident through the non-lucrative visa or  other programs.

That's why the above regulation specifically mentions employment and professional activities, because those are reserved for permanent residents and certain temporary residents under specific programs (work visas, golden visa, etc.).

Thanks for the clarification John... yes, I should have mentioned that it's technically possible to become a tax resident of Spain immediately upon arrival, under special circumstances.

In this case, if Tamara was to sever all ties with Canada on departure (sell habitual residence, file a departure tax return, cancel her health benefits, close all bank accounts, cancel credit cards, etc.), she could become a Spanish tax resident right away.

Beh

Briefly,  that is by making spain their centre of economic activities,  without doing anything else,  they automatically become tax resident

http://www.treaty-accord.gc.ca/text-tex … d=102340EU citizens than they are for EU citizens. 

In this particular situation (which is the same as ours) the issue of tax residency or "fiscal domicile" is determined by the Canada-Spain Income Tax Convention: 

http://www.treaty-accord.gc.ca/text-tex … ;id=102340

Under this convention and most other bilateral income tax conventions "centre of vital interests" (not economic activities) is only a secondary litmus test in determining fiscal domicile.  The primary test is whether you are explicitly considered a tax resident through the regulations of a contracting state.

In Spain, this would be the 183 day rule, meaning if you meet this primary requirement, you are automatically a resident.  For Canada, the primary litmus test is whether you are already a long-term Canadian tax resident because if you are you will be for life or until you explicitly renounce your tax residency by filing the aforementioned departure tax forms and cancelling your health plan (in the US this requirement is even more strict as you may have to renounce your citizenship).

If you don't this, you can potentially become a tax resident of both countries and only then you're subject to the secondary litmus test of where your "centre of vital interests" lie.  This is a very undesirable situation to be in because it's very open to interpretation and therefore should be avoided at all times.

Cheers,
Beh

Beh, I apologize for the delay. I haven't noticed all the comments. You have so much helpful information. I cannot thank you enough for all the information. I am in Valencia this week.
With your comments, I think this could be a problem for me as I own an apartment and stock investments in Canada and I didn't realize that I must sell these off with specific timing before I move to Spain. It was my intention to keep these in case I decide after some time to return to canada.

You are from Canada? And you have done all this? How do you feel about your decision to move to Spain?  Do you feel this is the best for you? You prefer this lifestyle over Canada?

No worries at all Tam... yeah, we're from Canada, eh! 

The decision to move to Spain, particularly this area has been by far the best decision of our lives - in fact, there isn't a day that goes by where we give each other a pat in the back for having left Toronto (right before the crash too) and how we can't even imagine going back. 

But of course, it's good to come and check everything out because it's a different experience for everyone.  I also highly recommend driving down the coast to at least Alicante (2 hours from Valencia) and check out some of the really beautiful towns along the way, like Denia, Javea, Morraira, Calpe, Altea and the more metropolitan Benidrom. 

You never know, you may find the very chill and tranquil atmosphere in smaller towns more refreshing than the bigger city feel of Valencia - a beautiful city of course, but having lived in the busiest areas of T.O., we now enjoy the mellower side of life while being close enough to visit those cities any time. 

And if you do decide to pass through this area (Denia), we'd love to have a beer with you and share our experience in person.  Canadians are a rare breed in this area! 

As far as the financials, you don't really need to sell your assets but you do need to consider that there will be an automatic "deemed disposition" of all your assets on the day you cease to be a Canadian tax resident. 

If you move to Spain after July 3rd of any year you're pretty much safe because you don't trigger the automatic 183 day rule and can file the taxes for that year in Canada and just file a non-resident tax here in Spain and officially become a Spanish tax resident the next year.

So it's extremely important that you don't become a Spanish tax resident in the year where this deemed disposition takes place because of the capital gains exemption on your primary residence in Canada, also if your stock holdings are for a small private Canadian corporation since you may also have a capital gains exemption on those shares.

If your stocks are in publicly traded companies, this is not a major issue as long as you know that you will have to pay capital gains tax on them on the year of deemed disposition, not actual disposition.  When you eventually sell them, you will only pay capital gains on the profits above the deemed disposition price.  So, this could actually be beneficial, especially since Spain has a more favorable tax regime on capital gains.

On that note, it's good to plan ahead and consider the different options so that you don;t automatically trigger something that is not in your favor.  IMHO though, holding on to Canadian real estate and anything with Canadian denomination at this point carries a lot more risk than benefits as analyst after analyst, fund manager after fund manager is criticizing our competitiveness, the real estate mess and the bumpy road ahead for the Canadian dollar.

$CDN vs. Euro was down to 0.62 just a few weeks ago... it has climbed back to 0.66 but I doubt it will go higher or even stay there for too long.  If you consider that we were at 0.76 less than 3 years ago, that's a huge hit already and going back down to the 0.55 range is not out of the realm of possibilities at this point.

Cheers,
Beh

You should write a “how to guide for Canadians” !! You have so much knowledge. Thank you for all your advice and support. It's been my dream to come to Valencia to live but I now feel it's too busy for me - compared to Vancouver. It will be an adjustment that's for sure. You are right maybe I should find something smaller. But then my plans to buy something for vacation rental could be more difficult. I guess I have a lot to consider now...with the capital gains on my investments and property in Vancouver could be a real problem. Thank you again. I let you know how I make out down the road.
Many many thanks and warmest regards,
Tamara

No worries at all Tamara and LOL @ how to guide.  I'll definitely add it to the list of books
I have to write! 

Yeah, Valencia definitely has a serious "buzz" that could be a bit much for people from the west coast or the east coast for that matter, as far as living is concerned.  That's why I said you should check it out first before finalizing a decision.

There's another risk factor with Valencia, especially for tourist rentals and that's the fact that most big cities in Spain will most likely ban tourist rentals in apartments altogether or limit the licenses to those already issued.  Madrid and Barcelona have already done it, Palma (Mallorca) just announced it and there's a lot of chatter about Valencia being next. 

Having said that, Northern Costa Blanca (the cities I mentioned before) offers you the same, if not better returns for tourist rentals - that's exactly what we are going to be doing.  For the price of an apartment in Valencia, you can buy a nice brand new villa on the coast that will rent out for the same amount or more than the apartment in Valencia.

There's always a shortage of tourist rentals here in the summer (you'd be lucky to get a real run down place for a 150 euros a night during the summer months if you don't book early), so you should definitely consider that.  Based on what we've seen in our area, both in terms of construction activity and demand for new homes, we are exactly where Toronto was in 2011 and we all know how that situation unfolded for the next 5 years with prices doubling.

We just met up with our lawyer today and he said properties in the port of Javea for even long term rentals are not staying on the market for even a full 24 hours.  They get listed on Friday night and it's rented on Saturday morning!  Even the rental market in Toronto wasn't like that until 2014. 

It is definitely a very good time to buy in Costa Blanca north because we hit the bottom a little later than the rest of the Spain so you're buying around 5-10% higher than the absolute bottom and still 40% below the peak of 2007 (as much 50% for older properties).  And the demand here from Norther Europeans is just insane and it's not just baby boomers that are retiring but the biggest clientele here now is the upper middle-class Generation X'ers already buying their retirement homes and quite a few people from Valencia moving to greener pastures, literally!

So, I highly recommend you do that tour and not go back home empty-handed with shattered dreams... all those towns are still in the Valencian community, so it's still technically Valencia and just a minor adjustment to the dream.  We were supposed to go to Ibiza originally, bought something in Mallorca and fate finally brought us here and can't be happier about it - all our neighbors have said the same thing.

Best of luck and I hope you do realize your dream.

There's another risk factor with Valencia, especially for tourist rentals and that's the fact that most big cities in Spain will most likely ban tourist rentals in apartments altogether or limit the licenses to those already issued.  Madrid and Barcelona have already done it, Palma (Mallorca) just announced it and there's a lot of chatter about Valencia being next.

Valencia city has already announced measures to regulate tourist accommodation.
http://www.antena3.com/noticias/economi … b9585.htmlhttps://www.eldiario.es/cv/Aprobada-Ley … 73066.html

Thanks for that update Ribeira.  Wow, I can't believe how quickly they passed that law and with no opposition at all!  I just read about the potential amendments on El Pais three weeks ago!

I supposed it's a good plan because there's too much saturation in the big cities and it will spread tourism to the smaller surrounding towns. But I guess those who manage to keep their licences or get new ones will be charging hefty rentals! 

Not that this islways applies but I find it interesting that people buy a property in a holiday area, often intending to use it as a holiday  home, and then complain that others do the same

If I wanted no tourists around me I might have bought a cave or a house  on the top of a mountain or one in U.K.

@BehrouG

Hello

Thank you for your post it was helpful

so can I stay at a purchased property also used for rental as a Canadian for more then 90 days with the non lucrative visa?

@BehrouG

Can I buy a rental property to both stay in and rent out on a non lucrative visa for more then 90 days as a Canadian?

i would like a 6 month stay

thank you