Taxation for opening a business in Spain
To open a business in Spain you need to register with the tax office and pay taxes according to the law. There are different types of taxes. Today we are going to explain the tax retention of rental income.
Tenants must file tax retention return
A company (or individual doing business as freelancer) must file tax retention return for the rent they pay to the landlord.
In general terms, the landlord receives rent every month, which is taxable as income (or personal income tax if the landlord is an individual). The law, in order to prevent landlords from concealing unreported income, requires tenants to withhold a portion of the rent when they pay it each month, and then pay the amount retained to the tax office.
In other words, the “tax retention” (officially called Retenciones de rentas o rendimientos procedentes del arrendamiento o subarrendamiento de inmuebles urbanos) is the tax that tenants pay on behalf of their landlords.
After the tenant pays the tax for the landlord, in the following year when the landlord files the income tax return, he or she may get the tax refund.
How do I file rental tax retention?
Rental tax retention needs to be filed every quarter on the official website of the tax office, in January, April, July and October of each year.
The declaration is done with the official tax form MODELO 115. All you need to do is to fill in the official template and submit it to the tax office.
Retention tax rate
The law states that the tax paid by the tenant on behalf of the landlord is 19%. This means that if the rent is €1,000, then the tenant would have to pay 190*3=€570 per quarter to the tax office. This way, each month the tenant only has to pay 810 euros to the landlord (with an additional 210 euros for VAT, if applicable).
Annual summary of rental tax retention
According to the above, the tenant has to file a MODELO 115 four times a year and the tax office also requires the tenant to file an annual summary (MODELO 180) in order to facilitate the management of information.
The MODELO 180 filing is due in January of the following year. For example, in January 2024, information regarding 2023 will be reported.
