Poles are increasingly keen to buy flats and houses in Spain, with as many as 4,213 purchased in 2024 alone. Many of the properties are intended for rental, being a holiday home or simply an investment. Read on to find out what – also in light of recent regulatory changes – landlords need to pay attention to. This information has been prepared in collaboration with María Ruiz López of the law firm AdvocatSpain.co.uk.
Taxes: what is worth bearing in mind?
A Polish tax resident renting a property in the Iberian Peninsula should first pay tax on this income in Spain. The rental must therefore be declared to the Spanish tax authorities. Tax must be paid on the income – after deducting expenses. For residents of the European Union, including Poles, the rate is 19 per cent.
Polish tax residents must report foreign income in their Polish annual tax return. This also applies to the rental of real estate abroad, even if it has been taxed in the country where the premises are located. According to the double taxation avoidance provisions in force between Poland and Spain, the proportional deduction (credit/credit) method is currently used in the settlements.
The proportional deduction method means that income earned abroad is taxed in Poland, but the tax paid abroad is deducted from the tax due. This deduction is only possible up to the amount of tax falling proportionally on income earned in the foreign country. With the application of the proportional deduction method, the obligation to show income earned abroad in the annual return always exists – regardless of whether the taxpayer has obtained other income taxed in Poland in addition to income from abroad.
What is double taxation?
From 2019. Poland applies the so-called MLI (Multilateral Instrument) Convention, which modified the provisions of a number of agreements – including the one in force with Spain since 2022 – to avoid double taxation. In practice, it has changed the settlement rules, eliminating some reliefs and double-deduction possibilities.
Double taxation consists of taxing the same income in different countries. In order to limit the adverse effects of double taxation, the contracting states apply mechanisms known as double taxation avoidance methods. In relations between Poland and Spain, as a result of the ratification of the MLI Agreement, the method of proportional deduction is currently in force, which is illustrated by the following example:
(a) income earned in Poland: PLN 30,000
b) income earned abroad: PLN 20,000
c) tax paid abroad: PLN 5,000
d) total income (a+b): PLN 50 000
e) Polish tax on PLN 50 000: PLN 7 974,88
(f) foreign tax to be deducted from Polish tax:
PLN 7 974.88 × (PLN 20 000/50 000) = PLN 3 189.95
(g) tax to be paid in Poland: PLN 7,974.88 – PLN 3,189.95 (lesser of: c or f) = PLN 4,784.93 minus any advance payments made in Poland
See also:
New regulations tighten the fight against ‘ransomware’. They also apply to holiday rentals
Housing allowance for property purchase in Spain?
How to account for rent in case of private hire? You should:
1. declare the income in Spain by filing a local tax return and paying the tax due.
2. collect documents: rental agreements, Spanish tax receipts, income and expense statements, among others.
3. include the income in the Polish tax return (PIT 28). Tax is calculated according to Polish flat rates (8.5% up to PLN 100,000 and 12.4% above this amount).
4 Apply the proportional deduction – calculating how much of the foreign tax can be deducted from the Polish liability.
Experts emphasise that the best solution is to consult a tax advisor – familiar with both Polish and Spanish regulations. It is worth remembering that the deduction of Spanish tax is only possible if it has actually been paid and confirmed – by confirmation of transfer to the Spanish office.
This information has been prepared in cooperation with the law firm AdwokatwHiszpanii.pl. It does not constitute legal or tax advice and therefore cannot constitute the basis for any action related to the implementation of the solution described herein. The document also does not constitute an offer within the meaning of the Civil Code.
