Taxation of Rental Income on Mallorca

Anyone who rents out a property on Mallorca must tax the income in Spain. The first decisive factor is whether the owner is tax resident in Spain. Then it depends on whether the property is rented out permanently for residential purposes, seasonally, touristically or only temporarily. This overview does not replace tax advice, but helps to correctly classify the most important Spanish tax terms.

Resident or Non-Resident

A natural person is generally considered tax resident in Spain if they stay in Spain for more than 183 days in the calendar year or if the center of their economic interests is in Spain. Residents declare rental income basically in the Spanish income tax IRPF via Modelo 100. Non-residents declare income from Spanish properties via IRNR, usually with Modelo 210.

Residents: Rental Income in IRPF

For Spanish tax residents, rental income from a private property generally counts as income from real estate capital, as long as the rental is not classified as an economic activity. Residents basically tax the net amount: income minus deductible costs such as financing costs, repair and maintenance expenses, IBI, municipal fees, community fees, insurance, management costs and depreciation.

For rentals that serve the permanent residential use of the tenant, reductions on the positive net income may be possible. This reduction is not intended for tourist rentals.

Non-Residents: IRNR and Modelo 210

Non-residents must tax rental income from a property on Mallorca in Spain because Spain has the right to tax income from properties located in Spain. Residents of the EU as well as Iceland, Norway and Liechtenstein are subject, according to published AEAT information, to a tax rate of 19 percent and can deduct directly related costs if proven. Residents of third countries are generally subject to 24 percent on gross income without cost deduction; due to legal developments, this should be checked individually.

Modelo 210 for rental income is generally to be submitted quarterly. Since the rental income obtained from 2024 onwards, under certain conditions an annual summary may also be relevant.

Owner-Occupation, Vacancy and Partial Rental

A Spanish holiday property is not tax-neutral just because it is not rented out. For owner-occupied or vacant urban properties, non-residents incur an imputed real estate income in IRNR. Residents must also generally include a corresponding imputed rental income for second homes in IRPF. In the case of partial rental, rented days are treated with actual income and remaining days proportionally with imputed income.

Cost Deduction

• Mortgage interest and financing costs for acquisition or improvement.
• Repairs and maintenance measures.
• IBI, waste or municipal fees, insofar as no penalties.
• Community fees, insurance, management and advice.
• Depreciation on buildings and rented-out furnishings according to Spanish rules.

Costs that belong to private use are not deductible. Improvements or extensions are to be treated differently than pure repairs.

Tourist Rental, IVA and Tourist Tax

On Mallorca, IVA applies, not IGIC. For tourist rentals, a distinction must be made between pure accommodation provision and hotel-like services. If only accommodation is provided, without typical hotel services, the rental is generally exempt from IVA according to AEAT information. If, on the other hand, hotel-typical services are provided, such as regular cleaning during the stay, regular linen change, reception or luggage storage, 10 percent IVA may become relevant.

Tourist renting can additionally trigger obligations regarding IAE classification, platform reporting, tourist license and, in the Balearic Islands, the Impuesto sobre estancias turísticas.

IBI and Advice

The IBI is a municipal property tax and is incurred regardless of whether the property is rented, owner-occupied or vacant. The IBI assessment is also relevant because it shows the cadastral value, which can be important for imputed income.

Especially for owners resident in Germany, Austria, Switzerland, the United Kingdom or the USA, the Spanish declaration should not be viewed in isolation. Advice that examines IRPF or IRNR, Modelo 210, IBI, possible IVA issues, Balearic tourist taxes and obligations in the country of residence together is advisable.