If you are fortunate enough to own a property in a popular holiday destination, then maybe you have considered the idea of letting it out while it’s vacant. This is an ideal way for many holiday home owners to cover the costs of owning a property and perhaps earn some extra income on the side.
However, if you earn an income from a property overseas – even from short term holiday bookings – it is likely that you will have a tax filing requirement in that country.
In this guide, we will outline some of the key tax rules nonresidents should be aware of when renting property abroad in France, Germany, Hungary, Poland, Spain, UK, USA or Ireland.
- In this article property tax rules for nonresidents in:
If you are an individual who is letting short-term accommodation in France, you need to declare your rental income in France. Even if you are non-resident in France for tax purposes.
You need to make sure that you understand the following types of taxes and pay any that are applicable to you.
- Income taxes and social contributions
- Value added tax (VAT) – in case you have opted for VAT in France
Tax Rules and Rates
If you intend to rent your property on Airbnb, it is in the category of furnished lettings.
Furnished letting in France is treated as a type of Business activity for individuals (BIC – Bénéfices Industriels et Commerciaux).
There are two tax options to consider:
1. Régime Micro-BIC
The régime “micro-BIC” applies to a lessor whose annual income, does not exceed a certain threshold:
- Regarding non-classified tourism accommodation – the threshold for the 2020 tax year to avail of Micro-BIC mode of taxation is €72,600, and a notional deduction of 50% from the rental income applies.
- Regarding tourism accommodation – the threshold for the 2020 tax year is €176,200. A notional abatement representative of expenses of 71% will be applicable to determine the taxable income.
2. Régime Réel
The real mode of taxation applies to lessors whose annual income exceeds the threshold for both non-classified (over €72,600) and classified (over €172,600) tourism accommodations or for those who have opted for it.
The taxable profit is determined under common law conditions by listing all the rental income and rental expenses that originate from operations of any kind, carried out by an individual.
If you decide to rent your furnished property in France, your rental activity must be registered with the French tax authorities before doing so.
- Régime Micro-BIC – Only standard abatement is applicable under this option. There is a notional deduction for expenses – either 50% or 71% (when the property is categorized “tourisme classé”) of the rental income.
- Régime Réel – All the expenses that originate from operations of any kind carried out by you are allowable expenses. This includes repair costs, maintenance, land tax, utilities, insurance, property management fees, depreciation, interests paid during the tax year and insurance on the mortgage, etc.
Income tax and social contributions
If you are letting accommodation in France, and you earn income from it, you will be required to submit an annual income tax return and to pay income tax and social contribution, if due.
The tax rate is 20% for net taxable income up to € 27,794 and 30% for taxable income over € 27.794 (for 2019 income)
When to file
The tax year coincides with the calendar year – from 1st January till 31st December.
If you are earning income from short term letting of a property in France, you will be required to file your French tax return in mid-May next.
Tax rules and rates
Where a nonresident individual earns income in Germany, it’s likely that they will have to pay a percentage of the tax on this income to the German tax authority.
Most cities require a permit for short term rental and different municipalities have different regulations and requirements.
Rules for short term lettings (such as holiday lettings) vary based on the specific case in Germany. Short term lettings could be considered passive property rental income or as business income with the consequence of being subject to trade tax.
The type of tax you must pay will depend on the individual case:
- Apartment is solely used for rental purposes – property kept for holiday guests and is subject to passive property rental income tax.
- Apartment is used for personal use and rent. You can’t claim for expenses which were incurred while you used the apartment for personal use.
- Rental of Guest House – categorized as business income and subject to trade tax if the income exceeds the €24,500 tax allowance.
German income tax is levied at rates rising on a sliding scale.
The rate to be levied depends on the amount of total taxable income.
- Income between €9,001 – €54,949 is taxable at 14% to 26%
- Income between €54,950 to €260,532 is taxable at 42% less €8,621.75
- Income over €260,533 is taxable at 45% (less €16,437)
For more information on how much property tax you have to pay on your German rental income, check out our guide.
What expenses can be deducted?
If you earn income from short-term lettings, you can include the following deductions on your tax return:
- Interest Expenses
- Maintenance Costs
- Property taxes
- Street Cleaning
- Water Supply
- Home Insurance
When to file
Your German income tax return must be filed by 31 July the year after the income was received.
An extension to 28 February applies where a tax adviser prepares the return on your behalf.
Tax Returns and rates
For private individuals, there are two taxation options when paying personal income tax on short term rentals.
With the lump sum taxation option, you should register yourself using form XXT101 (where XX is the tax year – 19 for 2019; 20 for 2020, etc) in the first year, and include this on your annual return.
This option can only be chosen for a maximum of three properties owned by the landlord.
If you do not choose the lump sum taxation option, the income derived from short-term letting is regarded as income from an independent activity.
The tax rates on such income are 15% personal income tax, and 19.5% healthcare tax. Healthcare tax is only due if the letting is short-term, that is, if it is provided to a lessor for less than 90 days.
Short-term letting expenses
In Hungary, if you are availing of the lump sum taxation option, there is no deduction for costs against rental income.
However, there are two options for expenses if you are paying regular taxation.
It is possible to deduct 10% of the gross income as a cost, or you can deduct the actual costs paid from the rental income, such as:
- Online website fees
- Other taxes including the healthcare tax paid
- Deduction of mortgage payment and insurance is not allowed
When to file
The deadline for filing a tax return in Hungary is 20 May. So for the 2020 tax year, the deadline to file your tax return is 20 May 2021. There is an extended deadline to 20 November for those who state a reasonable excuse for why their return could not be filed.
Tax Rules and Rates
The Poland tax year runs from 1 January to 31 December.
Short-term rental income is taxed under the general tax rules.
This income can be classified as business income by the tax authorities, and taxed under appropriate rates.
There are two tax rates that you need to consider.
The tax rates depend on which category your income falls into:
- 17% and 32% – taxation according to the general rules, where income is treated as rental income; Deductible expenses are allowed and you have a tax free threshold.
- 17% – for flat rate taxation (if the taxpayer applied for these rules).
Under the flat tax rate for rental income (17%), there are no tax free amounts.
With the general tax rules (17% since Jan 2020), once income exceeds €3,091, you will be obliged to pay the first tax advance by the 20th day of the month following the month the income exceeded its threshold.
The benefit of the flat rate is that you don’t need to keep accounting books. While for progressive rate receipts, documents should be saved and provided to the Tax office in case they are requested.
Expenses that are generally allowable as deductions in Poland include:
- Interest on the loan (excluding loan installment)
- Property maintenance fees
- Renovation costs, if they serve to preserve the property in a proper condition and not only increase its value (this is real estate preservation but not an improvement)
These expenses, however, are not allowed to be deducted if the flat rate taxation is chosen (17%).
When to file
The deadline for filing your Polish tax return and paying your tax bill is 30 April of the year following the year you earned the income.
The flat tax rate of rental income (17%) is slightly different – the deadline falls on 31 January of the year following the year of earning income.
Here’s everything you need to know about your rental income tax obligations in Poland.
The Spanish tax year runs from 1 January to 31 December.
Tax rules and rates
For regular tax resident individuals, a progressive scale tax method ranging from 19% to 45% is used.
If you are subject to the special tax regime, a 24% rate applies to the first €600,000 of income.
Non-resident individuals are subject to a 19% rate if they are residents in an EEA, Iceland, Norway or a 24% rate on income (regular fixed tax rate with no possibility to deduct any rental expenses).
The tax rate of 24% applies for UK residents from 01/01/2021 due to Brexit restrictions.
Expenses that are paid by rental owners, related to the leasing, can be deducted from this income. They include:
- Mortgage interest
- House insurance
- Property taxes
- Garbage taxes
- Agency costs
- Maintenance and repair costs
- Аdvertising costs
- Running costs
When to file
Quarterly returns are obligatory to be filed after the end of the relevant quarter. For the first quarter – 20 April, 2nd quarter – 20 July, 3rd quarter – 20 October and 4th quarter – 20 January.
Tax returns with negative or zero results: the submission period is from January 1 to 20 of the year following the accrual of declared income.
Deemed tax returns*: the submission period is from January 1 to December 23 of the year following the accrual of declared income
- Spanish tax payer calendar
- Consolidated legislations from the Ministerio de Economia y Hacienda (last update 31.12.2019)
*Deemed tax returns for non-residents:
The deemed rental income for urban real estate not rented or used as a second residence is 2% cadastral value (Valor catastral); 1.1% if the cadastral value was revised after 1 January , 1994.
If the cadastral value cannot be determined, then the value used is 50% of the property cost. In this case, the percentage applicable is 1.1% (this is used in very few cases, not preferable because IBI document is issued each September)
The resulting taxable amount is currently taxed at 19% for EEA residents, Iceland and Norway and 24% for others (including UK from 2021).
Airbnb income would generally be treated as ordinary rental income unless it meets the Furnished Holiday Lettings (FHL) criteria and as such it constitutes taxable income for UK tax purposes.
There are special tax rules for rental income from properties that qualify as FHL. To qualify as a FHL, your property must be:
Satisfying the occupancy conditions:
- The pattern of occupation- not more than 31 days by the same tenants
- The availability condition – must be available for at least 210 days
- The letting condition – must be actually occupied for 105 days
- There is a tax free personal allowance available on the first £12,500 of income.
- The next £37,500 is taxable at 20%.
- The income from £37,500 up to £150,000 is taxable at 40%.
- Income above £150,000 is taxable at 45%.
The Personal Allowance goes down by £1 for every £2 of income above the £100,000 limit. It can go down to zero. You do not get a Personal Allowance on taxable income over £125,000.
Deduction available to be offset against your rental income should be:
- ‘Wholly and exclusively’ incurred for the purpose of the property business, and
- Revenue expenditure – day-to-day expenses in relation to the running of the business.
- Airbnb Commissions
- Building and contents insurance
- Mortgage interest (for 2019/20 tax year you could deduct 25% and the rest available as a tax reducer)
- Maintenance and repairs to the property (but not large/capital improvements)
- Utility bills, like gas, water, and electricity
- Rent, ground rent, service charges
- Council Tax
- Services you pay, e.g. cleaning or gardening
- Other direct costs of letting the property, like phone calls, stationery and advertising
Property income allowance
Allows Airbnb hosts to use up to £1,000 of property allowance against their property business profits. Cannot be used in addition to other tax deductions/allowances.
Replacement of Domestic Items Relief – calculating the amount of deduction.
The amount that you can claim as a deduction for a new replacement item is:
- the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent) plus
- the incidental costs of disposing of the old item or acquiring the replacement less
- any amounts received on disposal of the old item
When to file
The tax year in the UK runs from 6 April to 5 April the following year.
Individuals would normally be expected to make a UK tax return in case their property income is in excess of £12,500.
A tax return is due for filing 10 months after the year end, so for example, the return for 2019/20 (y/e 05 April 2020) is due for filing by 31 January 2021.
Tax due is payable to HMRC by the same date – so for 2019/20 this is 31 January 2021.
Penalties would be charged in case return/payments have not been made on time.
Tax Rules and Rates
You are subject to US income tax if you have a US source of income. This includes income from US assets, such as rental property.
If you are subject to US income taxes, you must include the amount you receive as rent in your gross income.
Taxable rental income is the gross amount of rent received less any allowable expenses. Any taxable rental income/loss must be reported and calculated on a Form 1040 or 1040 NR (for non-residents). If you are also renting out property in the US, you have to consider the amount of gross rent to report.
Examples of these include advance rent, security deposits, if a guest pays any of your expenses or cancels a reservation.
Nonresidents must file income tax returns on time in order to be permitted to claim deductions.
A nonresident is subject to tax at graduated rates for income that is connected with a US business, like compensation for services.
When to file
The income tax deadline in the USA is 15 April. In the case of a nonresident who does not have compensation that’s subject to tax withholding, the tax return is due on 15 June.
Do you own a property in the USA but live in Europe?
Here’s what you need to know about US property tax and how to file a US property tax return easily online.
If you own a property in Ireland, but you are not living in the country, you are considered a non-resident landlord.
As a non-resident landlord, you are obliged to declare any Irish rental property, file a tax return for any income earned and pay rental income tax for which you are liable.
Regardless of the jurisdiction you are coming from, if a property you own is located in Ireland, Revenue (the Irish Government agency responsible for customs, excise, taxation and related matters) will seek to tax the profits from any income arising from it. This applies both to foreign nationals who may never have set a foot in the country and Irish citizens.
It’s important to know that only the profit is taxable. The typical expenses and deductions can be taken from the rental income that is received such as capital allowances, management fees, insurance costs, maintenance and repairs. If you don’t take into account any allowable expense, you could be overpaying tax.
Filing your taxes while living abroad can be both time-consuming and frustrating, so it’s important that you have all the information that you need before you sit down to file.
All non-resident landlords are obliged to register for self-assessment and deliver a tax return – Form 11.
Irish income tax rates
- The lower rate of income tax in Ireland is 20%.
- The higher rate (or the marginal rate) of income tax is 40%.
Universal Social Charge (USC), an additional tax, and Social Insurance Charges (PRSI) could also apply at various rates and this is depending on your level of income.
Short-term lettings (such as holiday bookings) are in general regarded as trading activity, so they are taxable as trading income and not as rental income (long-term lettings).
Where the activity is a once off letting – it could not be considered as ‘other income’ and not as trading income or as rental income.
Where income is deemed to be trading income, a deduction will be available for expenses which have been wholly and exclusively paid out for the purposes of the trade.
This could include but is not limited to:
- Insurance premiums
- Maintenance costs – e.g. cleaning, painting
- Repairs carried out on the property
- Cost of goods or services that you have provided – e.g. gas, electricity
- Management costs – e.g. property management fees
- Advertising fees or online commission payments.
- Pre-trading expenditure incurred up to three years prior to the commencement of the trade.
- capital allowances on furniture and fittings
No capital allowances are available if your income is considered as “other income”.
However, Revenue allows a deduction for the incidental costs directly associated with the provision of such a service – commissions paid for online sites, cleaning fees, breakfast, gas, heating, etc.
Annual costs such as insurance, general maintenance, TC license are not allowed. Pre-trading expenditure is also not allowed as a deduction.
When to file
As a non-resident landlord living outside of the Republic of Ireland, you are required to file and pay your income tax return by 31 October each year following the year of assessment. Deadline is extended till mid Nov every year if you pay & file online.
Penalties and interest will apply for late filing and payment of liability.
Who can help?
At Property Tax International (PTI), our team of tax experts specialise in international property tax returns and ancillary services for overseas property investors.
- We offer a comprehensive worldwide tax return service ensuring our clients are compliant in each relevant tax jurisdiction.
- Our team of tax experts can answer any of your international property tax related questions.
- We filed over 322,000 tax returns last year.
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