Saturday, May 7, 2022

Approach to tax authorities of the property located in Spain

How is the property located in Spain treated by the tax authorities?

Approach Belgian tax authorities of the property located in Spain

Belgium had already been condemned for some time by the European Court of Justice in Luxembourg.

The condemnation was because the Belgian tax authorities treated the owners (landlords) of a second residence abroad differently from the owners (landlords) of a second residence in Belgium. This violated the "free movement of capital" within the European Union. 

Property located in Belgium is taxed on cadastral income. While property located abroad was taxed on the (notional) rental income. 

Belgium was therefore ordered to eliminate this discrimination.

The equivalence could have gone two ways, namely one could have opted that the owners of a second residence in Belgium would be taxed on their rental income (as was the case for the property located abroad at the time). 

Fortunately, the choice was made to assign a cadastral income to property located abroad as well. 

Via a correction coefficient, the current sales value will be reduced to the 1975 sales value. From this, 5.3% is then calculated to calculate the foreign cadastral income. 

This cadastral income is a fictitious rental income linked to the property, which is usually a lot lower than the actual rental value.

Whereas previously the actual rental income was declared (which meant there was a good chance you would end up in a higher tax bracket), now only the cadastral income of the property is taken into account. 

Which, of course, is more advantageous. 

Those who do not rent out also benefit. Because until the law was changed, the rental value of the property was taken into account. And this rental value is usually a lot higher than the amount that will now be added to their income (cadastral income).

How the cadastral income will be determined will obviously lead to further discussions. The owner of the property in Spain will have to provide the necessary information so that the tax authorities can determine the cadastral income. 

What will certainly be asked is the location and the sales value of the property.

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