When you possess a piece of land or property, there must be any motive you have with that property when you invest your money in it. It could be for commercial purposes, residential purposes, or merely as an investment to gain a profit in the long term. There are many legal proceedings and agreements you have to follow according to the nation and its provisions by property law with rules and legislation established for that purpose.
The Agreement and the contract between the owner of a property is the most basic requirement I.e., Landlord and the person occupying that for his self-interest I.e. The tenant. These are two parties involved in a contract in which they both mutually sign and decide the duration, price, and objective by which that contract is legally defined. However, the Contract is renewed on an annual basis and under the current ‘Rental law’ of the country to which land belongs to.
This article will cover core elements about renting a property in Spain i.e. in a foreign land as a foreigner.
Points this article will cover are:
- Legal Provisions
- Tax and Residential Status
- Benefits of Renting Out Your Property in Spain
Legal Provisions On Renting Out Your Property
As this article particularly pertains to letting out a property acquired in Spain, we will broadly discuss the rental or housing laws and policies.
Law of urban lettings, 1994 (Ley de Arrendamientos Urbanos) is a fundamental law of Spain in which legal provisions on letting and renting a property in Spain. It has come into action for contracts signed for the rental purpose from January 1, 1995, onwards.
According to Spanish law, contracts signed between the agreed parties are primarily governed by them as far as they follow the compliance of the requirements stated in the law of urban lettings.
Essentials Of The Contract
Essentials of the contracts are elements which both parties have mutually agreed upon while signing a contract and they must include items that are related to the law and contract. They are:
- Details of the parties I.e.Landlord and tenant
- of the contract i.e.Purpose
- If it is residential or commercial
- Of the property
- Its location, Structure, etc
- Term of the contract
- If it is short term or long term
- Rental Charge or amount
- Other commitments defined in the contract agreed by both parties.
About Deposits, Term, And Inventory
To ensure the safety of the property, the landlord normally demands a rent of one month in advance from the tenant as a deposit. It is merely an assurance that when a contract will terminate or the tenant will leave, his property will be the same as it was before it was occupied. It is like covering damages on letting out; however, the tenant is liable to get deposits back at the end of the contract if it is not carried further.
The term of the contract, as usually specified is 1 year or less for a short-term contract. These types of contracts are signed mostly for holiday lettings or any short-term business event.
The contract is bound to be considered as a Long-term contract if it exceeds 1 year.
Furthermore, the contract is automatically deemed to be renewed after 1 year unless otherwise specified and a maximum of 5 years if the owner is not a company and, in the case, when the landlord is a company, the owner can terminate after 7 years giving 4 months’ notice to a tenant at the end of a contract.
In many contracts, be it residential or commercial purpose tenants are required to sign an Inventory by the landlord assuring the safety of their property contents which may include furniture, fixtures, fittings, and their condition. If any damage is done to the content, then the tenant is responsible for its expense or he may lose his deposits.
If you are renting a property in Spain for a short term as a holiday let, then it is obliged to obtain a Tourism License in the Valencia region.
For this purpose, you need to register your property in the tourist office under the law of tourist license in Alicante with effect from 9th July 2018.
To obtain a tourist license you will need:
- NIE Number (Foreigner’s identity number under Spanish tax authorities)
- SUMA (council tax bill)
- Habitation Certificate
- Certificate of compatibility
- Maximum occupation details
- Application form with your original signatures.
Tax and Residential Status
For the Non-European Citizens that they have the tax status as non-resident landlords as for instance USA CITIZENS: you are required to pay 24% tax per quarter, and it is not allowed to deduct any expenses, therefore the taxation is on the gross incomes.
However, maintenance expenses can be eliminated as per Spanish income tax.
Know that Rates of Spanish local property taxes depend on the region in which property is rented and discounts are available up to 10% with the condition of two or more tax return years and are not applicable if any deduction is granted to the payer.
Benefits of Renting Out Your Property In Spain
If you own a property to let out on a rental basis then it benefits you in many ways such as
- You can rely on your rental income as a side income. it may turn into your regular fixed income if you are owning a residential property for the long term.
- If you let out your property for a holiday purpose, for a short term period, it gives you a long term financial assurance, and also, you can change your rental amount according to the demand and market situation of that particular period to gain additional benefits.
- There is a significantly lower risk in investing in a property that you can let out than other investments. Even if you do not get your expected returns by renting out, you can resale it anytime when the market rates are high or when you need money.
- Though Service tax is levied on your rental property on a residential basis, you can put your property in the name of the company if you are not using it for your personal use. It is also a beneficial and most eminent part of overseas investment.
As a study, investing in a property for a purpose of letting out is quite a better investment strategy followed by most of the potential investors. Moreover, landlords can increase or decrease a rental amount in the terms of agreement according to the current CPI I.e.Consumer Price Index.