Everything that follows is general information about the tax framework, not personalised tax advice. Taxes depend on your specific situation, and the return is signed by a professional. Even so, understanding the general scheme saves you money and, above all, unpleasant surprises.

The general scheme, in two sentences

Spain taxes the income generated by the property located in Spain, because the criterion is where the asset is located. Germany taxes you on your worldwide income, because the criterion is your tax residence, and it also includes what you earn in Spain.

So that this does not mean paying twice for the same money, there is a treaty to avoid double taxation between the two countries, which in practice means that what you have paid in Spain is taken into account in Germany.

What you pay in Spain: IRNR (non-resident income tax)

As a non-resident, you are taxed under the Non-Resident Income Tax (IRNR). In the case of a rental, without going into the rates and brackets that depend on each year and each situation:

  • You declare net rental income, that is, income minus deductible expenses.
  • You file periodic returns during the year (usually quarterly) and an annual summary.
  • If the tenant acts as withholding agent — for example, when the tenant is a company — part of the tax is already paid on account.

Expenses that are usually deductible: mortgage interest, IBI (local property tax), comunidad (owners' association fees), insurance, management costs, repairs and maintenance, utilities you pay for and amortisation of the property. Keeping this in order is not an accounting whim: it is money you stop paying.

What you declare in Germany

In Germany, as a tax resident, you declare your worldwide income. Rent from a property located in Spain is included in the return and, in particular, in the form for rental and lease income (Anlage V).

The result can be especially relevant because of a detail many people are unaware of: in Germany rental income can be taxed progressively and push up your marginal rate, even if the deduction for what you paid in Spain is then applied there. In other words, your Spanish property income can end up affecting how much you pay on the rest of your German income.

The double taxation treaty in practice

The treaty between Spain and Germany follows, in essence, the classic allocation: the country where the property is located has the right to tax the property income, and the country of residence takes it into account but eliminates double taxation by deduction or exemption with progression, depending on the case.

In practical terms it means that the Spanish tax you have paid is not duplicated in Germany, but you do have to declare it. And that is where the most common mistake comes from: declaring in only one country. Omit the return in Germany and you will have a problem with the German tax authorities; forget it in Spain and the Agencia Tributaria (Spanish tax agency) will come after you with surcharges and interest, regardless of what you have paid in Germany.

If the flat is empty: imputed income

One of the things that surprises first-time investors most: in Spain there is an annual charge on the property even if it is not rented out. It is calculated by applying a percentage to the cadastral value and it must be declared as a non-resident all the same.

In other words, an empty flat is not a flat without tax costs. If the property sits idle for several months, count on that obligation in addition to IBI (local property tax), the comunidad and insurance.

Taxes when you sell

At the time of sale, two elements come into play:

  • Capital gain in Spain, on the difference between the acquisition value and the transfer value, with the adjustments that apply.
  • Buyer's withholding: when the seller is a non-resident, the buyer is obliged to withhold a percentage of the price and pay it over, as a guarantee of the seller's tax. That money is taken into account on settlement and, where applicable, refunded.

The existence of a withholding does not mean you pay twice: it is a guarantee mechanism. But it is worth planning the transaction in good time, because the refund of the difference is not instant.

Costly mistakes and how to avoid them

  1. Not keeping the property's accounts separate. Without orderly income and expenses, you lose deductions you are entitled to and pay more than you should.
  2. Declaring in only one country. Both tax authorities have information exchange mechanisms; the «not finding out» option does not exist.
  3. Forgetting imputed income in the months without a tenant.
  4. Not reviewing the impact of the German marginal rate. It can change the real net return on your investment considerably.
  5. Filing late. Surcharges and interest are avoidable if you put the dates in the calendar from day one.

What I would do in your position

Having a tax adviser in Spain and another in Germany, coordinated, and keeping the property's accounts from the first month. It sounds excessive for a single flat; it stops sounding that way as soon as you see the first properly prepared return next to the one you would have filed without help.

In the consultation I explain the framework as it applies to your case and prepare the exact questions for your advisers. You can book a call or see the service for non-residents.