TAXATION OF LOANS IN SPAIN – NON-RESIDENT LENDER
1.- Loans without mortgage guarantee are taxed by VAT or ITP in Spain?
In Spain, loan or credit transactions are not taxed by VAT or ITP.
This is stated in Article 5.2 of Council Directive 2008/7/EC. This Directive expressly provides that neither credit nor loans, by any party or borrower, shall be subject to indirect taxation.
The Spanish VAT Law and the ITP (Property Transfer Tax) law also establish the exemption.
However, the revised text of the Transfer Tax Law establishes the obligation to submit the corresponding SELF-ASSESSMENT by ITP.
Therefore, although there is no subjection to these taxes, there is the obligation to declare them for the purposes of ITP (model 600) is collected.
2.- How are taxes with mortgage guarantee taxed?
Loans, including mortgage guarantee loans, are exempt from VAT and ITP.
However, since the mortgage guarantee constitutes a valuable real right and registrable in the Land Registry, it must be subject to the payment of the AJD tax (Documented Legal Acts-Stamp Duty).
According to recent regulations, the lender is liable to pay this tax. Therefore, in the event that the mortgage loan comes from a bank, the bank will be obliged to pay said tax.
3.- How are the interests obtained by the lender taxed?
It will depend on the case:
– In the event that the lender is an individual / natural person, he must declare such interests as savings income in the IRPF.
– In the event that the lender is a company, it must declare such interest in the Corporation Tax.
4.- But, what happens when the lender is a FOREIGNER or NOT RESIDENT IN SPAIN?
It is very common the practice of making loans between people or companies resident abroad to people or companies resident in Spain.
To know and detail the conditions and consequences derived from this type of loans, it is necessary to go to the Conventions to avoid double taxation signed between Spain and the country in which the lender is resident. Normally, in general, the agreements signed by Spain with other countries establish that the interest obtained by the loans granted by companies resident in another foreign country, can be submitted in the country of residence of the company.
For example, in the event that a French, Belgian, USA, UK, or German company/indidvidual lends money to a Spanish company, the interest obtained from said transaction may be subject to taxation in the country of origin, that is, France, Belgium, USA, UK, Germany, etc.
It must be said that such interest can also be taxed in Spain, and also a tax retention can be practiced which could not exceed in any case a percentage of the amount of interest, which is usually 10% depending on each agreement.
Therefore, apart from the tax payable in the state of which the lending company is resident, double taxation treaties may enable Spain to record this income, which, according to the income tax of non-residents in Spain, would be 19%.
However, the same article of the law on income tax for non-residents, in its article 14.1c) declares that the interest obtained by the transfer to third parties of own capital obtained without mediation of permanent establishment in Spain by residents in another member state of the European Union or by permanent establishments are not subjected to this tax.
Therefore, we are faced with two situations:
- Non-resident lender in a member state of the European Union: In this case, depending on the Double Taxation Agreement, Spain could subject such income to taxation, with a withholding close to 10%.
- Lender Resident in a Member State of the European Union WITHOUT permanent establishment (PE) in Spain: In the event that the Spanish resident borrower receives a loan for which he pays interest to a lender who has residence in a Member State of the European Union, such interest will not be subject to taxation in Spain.
- Lender Resident in a Member State of the European Union, but WITH permanent residence in Spain. In these cases, the interest obtained will be submitted to the tax in Spain as per Income Tax for non residents (IRPFNR).
In any case, in the case of loans made from companies or individuals resident in other member states of the European Union without PE, although there is no obligation to pay tax for such interest, there are formal obligations. These formal obligations translate into the obligation of both the declaration of said loan for the property transfer tax (form 600), as well as formalizing the declaration of the amount obtained from these interests in form 216.