Nearly two years have now passed since the new Income Tax Act came into force in Spain.

This would not be of any great interest to non-Spaniards had not the Act (Law 18/1991, in force from 1 January 1992), not only introduced new provisions on income tax but also implemented new provisions and reinforced others which have a direct effect on the taxation in Spain of non-residents.Law 18/1991 does not contain many new provisions: its aim is mainly to reinforce and make enforceable obligations that were already contained in other legislation (Law 44/1978 (income tax), Law 61/1978 (corporation tax) and Law 5/1983 (taxation of non-residents)).

There were several reasons why so much legislation was needed to put in place the same obligations.

First, it was difficult to control the payment of taxes by non-residents; and, secondly, the tax authorities did not devote very much time or resources to the prevention of non-payment of taxes by non-residents since the unpaid taxes were often quantitatively not important.Despite these new provisions, a villa in Spain is still a pleasant option.

The sun and the sea are still the same, services are appreciably better than they were some years ago and, owing to two devaluations of the peseta, the country is relatively cheap.However, the regulations have had an impact.

The obligation on non-residents owning property in Spain to appoint a representative for tax purposes was already in force before 1 January 1992.

The difference between the earlier regulations and those now in force is that the latter penalise those who do not comply with this duty with a fine ranging from 25, 000 to 2 million ptas.The representative must provide an address in Spain and act as a point of contact between the Spanish tax authorities and the non-resident: the non-resident's address in Spain for tax purposes will be that of the representative.

The representative will also assist the non-resident in filing tax returns, applying for a tax identification number and, in general, in all his or her dealings with the Spanish tax authorities.This obligation has attracted the interest of the European Parliament: a British member asked the commissioner, Mrs Scrivener, to consider whether the obligation affecting EC residents to appoint a representative domiciled in Spain for tax purposes was proportional in view of the amount of tax usually owed.

In her answer, Mrs Scrivener recognised that the obligation applies, among other cases, to those non-residents who have a second home in Spain and that this obligation 'often involves expenses which are excessive in relation to the taxes owed'.

Mrs Scrivener concluded that the commission would ask the Spanish authorities to reconsider this formality and try to replace it with another simpler and less expensive measure.

At the moment, however, the old law still applies.The key date for those who own property in Spain is 20 June.

This is the deadline for filing wealth tax returns and in some cases income tax returns, and also for paying the corresponding tax.Wealth tax should not, in theory, be a significant amount.

The payable amount is fixed by a progressive rate-scale: it starts at the rate of 0.2% for values up to 25 million ptas, and continues with 0.3% for the excess over and above 25 million ptas, and 0.5% for the excess over and above 50 million ptas.

The highest rate is 2.5% for properties worth more than 1600 million ptas.Income tax applicable to non-residents has caused some controversy.

Here we are referring to those individuals (not companies) who own property in Spain which is not leased out but given over to the owner's use.

In such cases, Spanish tax law presumes that the owner obtains a notional income of 2% on the value of the property.

The tax to be paid would be 25% on 2% of the value of the property.

In theory, this does not apply if the owner is resident in a country which has signed a treaty to avoid double taxation with Spain, unless the treaty specifically provides that the notional income is subject to taxation in Spain.The provision under examination if the owner is a company was introduced by Law 18/1991.

No such provisions existed prior to this Act and its aim is to prevent tax evasion through companies and, in particular, through companies domiciled in tax havens.In principle, companies which own property in Spain are subject to the special tax on real estate.

The rate is 5%, the taxable amount is the value of the property and the time for payment is between 1 and 31 January of each year for the tax which has accrued on 31 December of the previous year.In some cases companies are exempt from this tax: first, if the property is used to carry on some economic activity in Spain; secondly, if a double tax treaty with an exchange of information clause exists between the country of residence of the owner and Spain and the company has owned the property since before 4 August 1990; or, thirdly, if the owner of the property is able to prove that the acquisition of the property was carried out in compliance with the formalities required at that time for such a transaction and the Spanish tax authorities are provided with the identity of the previous owners of th e property.A large number of companies have initiated applications for the exemption based on the third case above.

There seem to be several thousand files waiting to be dealt with by the authorities at the Ministry of Finance.Probably the most controversial measure introduced by Law 18/1991 is that concerning the selling of property.

Before 1 January 1992, proof of having complied with relevant tax obligations, including filing the appropriate tax return and paying the amount due, was a prerequisite for any Spanish bank obtaining authorisation to transfer the proceeds of a sale of property out of the country.

If the funds were transferred without such proof having being provided, the bank was jointly and severally liable for the amount due.Keeping such a measure in force after 1 January 1992 would have been contrary to the free movement of capital among EC countries.

As a consequence, Spanish tax law replaced the condition outlined above with the obligation on the part of the purchaser of property owned by a non-Spanish resident (be it an individual or a company), to withhold 10% of the sale price and pay it to the tax authorities together with the corresponding tax return.

For the non-resident, the amount withheld is a payment on account of any capital gains tax which may be payable.If the amount withheld exceeds the tax due, the tax authorities reimburse the seller.

If it does not exceed the tax due, the seller must pay the balance within three months following the date of transfer.

Only one exception applies in this case: the retention does not have to be made where the non-resident is an individual who has owned the property for more than 20 years.

This is because, in such cases, the capital gain is exempt from taxation in Spain.In the event of any reimbursement, however, the Spanish administration takes its time to audit the transaction and the refund only takes place around six months after the date of the transfer.Anyone looking to buy property in Spain should not be discouraged.

However, they should be aware of Spanish provisions on tax matters which have sometimes been portrayed as more negative than they really are.

Being correctly informed will help owners of property in Spain to enjoy it to the full.