Purchase / Sale Tax

Many are the doubts that can arise when it comes to obtaining the title of property of a estate located in Spain. Questions such as how much, how and who may emerge, and it is convenient to have some basic knowledge that we will try to clarify in this summary report.

SELECTION OF PROPERTY:  We recommend that when you think about acquiring a property, consider the services of a Real Estate Agency with experience supported in the sector. A professional team will indicate the steps to follow and guide the buyer and seller in all stages of the process, such as pricing, possible financing, guidance on possible refurbishments of the property, issues related to the payment of taxes, among others, in addition of the own act of purchase sale and writing of the property. This step has cost to the buyer.

OPTIONS FOR PURCHASE/SALE: There are several options that are presented when buying a property. In Spain, the verbal agreement is already valid (but infrequent and not advisable), it is convenient to have some kind of signed document so that in the purchase sale there is no mistake.

Next, the most common types of contract:

RESERVATION CONTRACT:  When the interested party in the acquisition of the property requires some time or must make inquiries before formalizing the operation, it is usual to sign a reservation contract. This is a document that commits the selling party not to sell the property to a third person who is not the interested party signing, for a short period of time. It is common to advance a symbolic amount as a reservation. This amount that will be discounted in case the sale is made or will be returned, or not according to agreement between the parties, in case it is not completed.  The reservation of the property is carried out according to the terms and conditions specified in the reservation contract.

PURCHASE OPTION CONTRACT: This type of contract is more binding than the previous type of contract since it commits both parties to buy and sell with the conditions stipulated therein. The terms of execution and the payment or payments to formalize the sale are reflected in its wording. Thanks to it, the seller is obliged to sale and the buyer to purchase or to pay an economic compensation. Normally, a 10% premium is usually determined, which will be deducted from the final price when the purchase occurs. If the sale does not take place by decision of the buyer, there is no refund of the premium. Otherwise, that is, if the sale does not take place by decision of the bidder, normally for having sold the property to a third person or for change of opinion, the double of the received premium will be returned or may demand compliance of the option if the contract stipulates so.

PRIVATE CONTRACT OF PURCHASE/SALE:  With this type of contract you can carry out the purchase sale. A private contract is drafted when both parties decide to formalize and finalise the transaction . Only a judge can determine a solution in case there is a conflict of interest at the time of formalizing the operation. It has legal support and validity.

PUBLIC DEED OF SALE: With the public deed, where the new owner must register as owner of the property in the  Property/Land Registry. It is very necessary that this condition is given since the deed contains the description of the property together with the exposure of the possible charges and easements that may exist, the price and mode of payment. It is the notary who, following its catalog of actions, verifies buyer and seller identities, corroborates the registration data, controls the payment of the last IBI (Real Estate Tax) and verifies that, if the property is located in a community of neighbors, the owner is up to date with payment of the community fees, upon declaration of the president of the same and attests to said transmission. It is important to know that a power of attorney can be granted, before a notary, to a natural or legal person to be able to carry out the public deed of sale, in case the buyer, the seller or both can not be present at the time of making effective the operation.

REGISTRATION OF THE PROPERTY:  The notary informs the seller and buyer and at the same time initiates the registration in the Property Registry, so any other annotation for said property is blocked, the period of registration in the Registry is extended by about 60 more working days. When the corresponding Tax on Property Transfers is settled in the Tax Agency, you can proceed to make the definitive registration in the Property Registry. In any case, the notary can request a property presentation seat by fax.

TAXES AND EXPENSES ARISING FROM THE ACQUISITION / PURCHASE OF A PROPERTY IN BALEARIC ISLANDS:

If the SELLER is a PRIVATE INDIVIDUAL (not company or entrepreneur): The buyer must pay to the Department of Treasury Balear the TAX ON PERMANENT TRANSMISSIONS (ITP) applying a scale of 8% to 10% on the value of the property. For example:

Total value of the property up to (€)

Complete tax quota (€)

Rest value up to (€)

Applicable rate (%)

0

0

400.000

8

400.000

32.000

200.000

9

600.000

50.000

400.000

10

1.000.000

90.000

upwards

11

To this tax it would be necessary to add other expenses inherent to the acquisition (notary, property registration, processing, lawyer if required, etc.) that can be approximately between 0.5% and 1.20% over the value of the property. Expenses and taxes would be somewhat higher if the purchase is financed with a mortgage loan, around 1.75% of the amount borrowed.

If the SELLER IS A COMPANY OR ENTREPRENEUR and delivers a new building (which has been built or rehabilitated) or a plot: The buyer must pay the seller VAT. 10% VAT is applied if a new finished home is delivered.

21% VAT is applied if a lot, factory hall, commercial place, office is delivered …

The buyer must also pay to the Department of Treasury Balear the TAX ON DOCUMENT DUTIES AND REGISTRATION FEES  (AJD) applying 1.2% on the value of the property.

To these taxes will be added approximately between 0.5% and 1.00% for expenses inherent to the acquisition (Notary, Registry, Consultant agency..) (something else if financed with mortgage loan depending on its amount)

If the SELLER IS A COMPANY OR ENTREPRENEUR and delivers a second-hand building (housing, commercial place, hotel, etc.) the operation will not be subject to VAT + AJD, but the ITP will be paid (from 8% to 10%) . In any case, if the buyer is also an entrepreneur (for example a Spanish company) and buys the property for an economic activity (for example, a local or industrial building to rent, or a hotel to operate or rent) there is the possibility of subject the operation to VAT which is a tax that can be deducted and recovered (unlike the ITP and the AJD).

If the SELLER IS A COMPANY THAT OWNS THE PROPERTY it is quite usual to offer the buyer to buy the company and not directly the property.

Non-resident vendors intend to obtain a certain tax advantage (even not to tax in Spain on the profit derived from that sale) and buyers can save the tax for the purchase only when certain requirements are met, in particular that there are several buyers and that no one purchases more than 50% of the company. In any case, it is an operation that has significant legal and fiscal risks for the buyer, so it is very convenient to make a prior in-depth study.

TAXES DERIVED FROM THE PROFITS AND LOSSES FOR A PROPERTY SALE BY NON-RESIDENT: (It is paid in the I.R.P.F.)

TAX DERIVED FROM THE SALE OF A PROPERTY

Profit and Loss Patrimonial
I.R.P.F. Annual
Annual Societies Tax
Municipal Added Value Tax

PERSONAL INCOME TAX (IRPF)

The capital gain obtained from the sale of a home must be declared in the Income Tax of the corresponding fiscal year, and will be included in the income taxable amount of savings.

To calculate the capital gain, the transfer value of the acquisition value is subtracted.

The following taxation rates will be applied to the capital gain obtained:

 

 

 

However, for the properties acquired prior to the date of December 31, 1994, the calculation is made as follows:

To the proportional part of the capital gain for the days elapsed from the acquisition of the home until January 19th, 2006, a reduction coefficient is applied according to the year of acquisition.
To the resulting amount is added the capital gain corresponding to the days elapsed from January 20, 2006 until the date of sale.
The amount obtained after adding all the assets, provided that it does not exceed a maximum of 400,000 euros, will be taxed by applying the tax rates mentioned above.

On account of this tax the buyer is obliged to withhold and deposit in the Treasury 3% of the agreed price.

If the property has been purchased between May 12 and December 31st, 2012, the profit obtained when they are sold will be exempt by 50%.

PROPERTY TAXES FOR COMPANIES (sale of property) CORPORATION TAXES:

If the property is sold by a Spanish company owned by a non-resident, in principle, said company will have to pay 25-28% on the profit obtained.

Then if the non-resident decides to dissolve and liquidate the company to take the money from Spain could have another gain for which would have to return to pay. If you reside in Germany with the current agreement you would have to pay in Germany on that other gain and not in Spain, covenant that could become effective, you will have to pay taxes in Spain.

If a company has purchased real estate from 12 May to 31st December 2012, the profit obtained when they are sold will be exempt by 50%.

MUNICIPAL PLUSVALÍA. ( Municipal Added Value Tax  ) TAX ON THE INCREASE OF THE VALUE OF THE LANDS OF URBAN NATURE: 

If any urban property is sold, the seller has to pay the City Council this tax, which will be calculated according to the cadastral value of the land and the number of years it has been owner. The higher the cadastral value and the greater the number of years, the more tax must be paid. It is paid in sales, inheritances, donations, contributions to Societies.

SALE OF A COMPANY WITH PROPERTY:

If, instead of selling the property, is the company (Spanish or not) that is sold and directly or indirectly owns the property, in principle it would have to pay Tax in Spain on the gain obtained because this is established by Spanish law. However, the Double Taxation Agreements prevail over the Spanish law and for example, if the seller resides in Germany with the current covenant, he would have to pay taxes in Germany and not in Spain. With the new covenant that could become effective, you will have to pay taxes in Spain.

TAXES DERIVED FROM THE HOLDING AND / OR EXPLOITATION OF A PROPERTY IN THE BALEARICS by non-residents:

I.B.I.
In heritage
In rent I.R.P.F.
Corporate Taxes I.S.
Special tax 3%
Inheritance tax

TAX ON REAL ESTATE PROPERTY (IBI), which is a tax that is paid each year to the City Council and that can be approximately 0.4% to 1.1% on the CATASTRAL VALUE of the property (value that in principle should be at most half of the market value of the property).

TAX ON ANNUAL HERITAGE, tax that was eliminated in Spain in 2008 and has been restored.

Each Autonomous community applies its regulations. It is paid annually.

Non-resident individuals must pay this tax (applying a scale of 0.2 to 2.5%) for goods and rights located in Spain, with a minimum exemption of € 700,000 and taking into account the corresponding Double Taxation Agreements.

For example, with the current Spanish-German Dual Taxation Agreement, tax will have to be paid by natural persons resident in Germany who have real estate in Spain with a value greater than € 700,000 (mortgage loan debts can be deducted invested in the acquisition), but they will not have to pay if they have those properties through a Spanish or German company. With the new Hispano-Alemán Double Taxation Agreement that is expected to come into effect, if Spain decides to continue applying the Heritage Tax, residents in Germany who have real estate in Spain through companies will also have to pay.

TAX ON REAL ESTATE RETURNS. NON-RESIDENT IRPF: (Annual)

If the property has been purchased directly by a non-resident individual, it will have to pay this tax every year. If the property is for your own use, you have to calculate a fictitious rent of 1.1% of the cadastral value, and on that rent pay 24.75%. If the property is rented, it is necessary to pay 24.75% on the rents charged, although residents in the European Union can deduct the necessary expenses and pay that 24.75% on the net rent yield.

If the property has been purchased by a non-resident entity, this tax of 24.75% will have to be paid if it is rented and also on the rent at market price if the property is sold to related persons (partners, administrators, etc.)

TAX ON PERFORMANCE OF A PROPERTY  OWNED BY A COMPANY:

If the property is purchased through a Spanish company, it will be subject to the Spanish Corporate Tax, in principle to 25/28% on the income that can be obtained from the lease or exploitation of the property, less expenses, for the market rent if the real estate is transferred to related persons, or for the sale thereof.

SPECIAL TAX ON REAL ESTATE OF NON-RESIDENT ENTITIES: Annual 3%

If the property has been purchased by a non-resident entity, it will be subject to this tax and must present a declaration each year. It will be exempt and will not have to pay anything if with the declaration of each year it is proven that the entity resides in a State that has Double Taxation Agreement with Spain with exchange of information (for example Germany) and that the natural persons that ultimately are holders of the company also reside in a State that has a Double Taxation Agreement with Spain. Otherwise, 3% of the cadastral value of the property will have to be paid each year.

TAX ON INHERITANCE AND DONATIONS:

Following the recent Judgment of the Court of Justice of the European Communities of September 3rd, 2014, regarding the discrimination suffered by taxpayers and non-resident taxpayers in the Spanish inheritance and donation tax with respect to residents in Spain that can be applied the Legislation of the Autonomous Communities that is usually much more favorable.

To give equivalent treatment to non-residents with respect to residents as determined by the Judgment, the rule in process, deals with three aspects:

First of all, it limits its application to residents of the European Economic Area (28 of the European Union and Iceland, Liechtenstein and Norway).

It also establishes the option for non-residents to apply the State law or the Autonomic law when they consider it to be in their favor.

In case of inheritance:

When the deceased was not resident in Spain, in the Community where the greatest value of the relict assets and rights located in Spain is found.

When the deceased was resident in Spain in the Autonomous Community where he was a resident.

OTHER IMPORTANT CONSIDERATIONS

It is very important to take into account a whole series of details when formalizing a transaction of this type.

Tax identification number. (N.I.F.):

In Spain each person (whether resident or not) has or must have by law assigned a tax identification number that must be recorded in the tax returns and in any communication addressed to the Tax Administration. It also happens with any type of society. The N.I.F usually coincides with the National Identity Document (DNI). For persons of foreign nationality, the NIF is the Foreigner Identification Number (NIE). Nowadays, obtaining the NIE is very long and tedious (it takes between 3 or 4 weeks). It is recommended that once the contract of sale or option is signed, the Notary comes to take a certified photocopy of the passport of the buyer or buyers, an essential requirement to be able to subsequently request the corresponding N.I.E.

Habitual residence in Spain:

Legally, it is considered a habitual resident in Spain when it stays more than 183 days a year in Spanish territory or that resides in Spain the main nucleus or the base of its activities or economic interests, directly or indirectly.

Will:

It is highly advisable that the non-resident who has acquired real estate in Spain grants a testament before a Notary in relation to their assets located in the Kingdom of Spain. It is a fairly simple procedure, and it is recommended that it solves many problems, especially bureaucratic, in case of death of the owner or owners.