Business and Finance

A Spanish lawyer that is specialized in property transactions or a registered administrative agent normally intervenes both before and after the purchase. Prior to signing the private purchase contract or the Deeds, any of these two should check the property registry for any encumbrances etc. on the property and if there are, suggest how they should be dealt with; and examine the proposed purchase contract. After the purchase has been made and the parties have exchanged Title Deeds, it has been customary among non-residents to hire a Spanish lawyer or administrator to administer the property and fiscal matters, such as settling property taxes and community fees or administering the payments of a potential Spanish mortgage. Appointing a fiscal representative has nowadays become obligatory for non-residents. A Spanish lawyer is also often useful when the purchase bears on other financial and family relationships, or when the home involves tax or urban development problem.

When you have located the property that fits your requirements, the next step is to contact a Spanish lawyer, or a registered administrator, alternatively a bank if you're planning on getting a Spanish mortgage. When purchasing a property in Spain, there are a few taxes that would have to be settled, depending on whether you are buying directly from a developer (new construction) or a re- sale, they are as follows:

-The VAT (IVA)
This tax is levied when buying a new property or a property in the course of construction and is currently fixed to 7%, applicable to the official purchase sum. It is paid directly to the developer/vendor. In addition you would have to settle the 0, 5% Stamp Duty. If you purchase parcels of land, commercial premises or garage spaces, the IVA rate is 16%, plus 0,5% Stamp Duty. However, if you purchase the garage with the property, the IVA is reduced to 7% (the maximum numbers of garages that can be included is two). Note: The IVA is incompatible with the ITP-tax.

-The Transfer Tax (ITP)
When purchasing a second hand property, a transfer tax of 7% is applied to the official purchase sum. This tax is not the same as Value Added Tax, which does not apply to second hand property, neither does the 0, 5% Stamp Duty tax.

-The Plusvalía
In general this tax burdens the increase of value of lands between the moment of its acquisition and its sale, and is levied by the local Town Hall based on a) the particular area where the property is located; b) the surface area of the plot; c) the cadastral value; d) and on the date of the previous title deed. This tax may range from a few euros to as much as hundreds of thousands of euros on larger properties with a lot of land. By the law the vendor is obliged to pay this tax, however it has become customary to negotiate this, why it is not uncommon that the purchaser settles this amount.

-Notary Fees
The Notary charges according to a fixed scale and depending on the official value of the property. Minimum charge is approx. 300 euros. As rule of thumb the costs of registering your newly acquired property in the municipal property registry amounts to approximately 40% of the Notary fees.

-Lawyer's Fees
There is a minimum fee of 1.200 to 1.800 euros that the lawyers usually charge; otherwise they are entitled to a fee of around 1% of the purchase value.

-Local Property Tax (IBI)
This tax is levied by the local town hall and is paid annually. It is based on the fiscal or rateable value, of the property, and takes into account the value of the land plus the value of the building, according to type, location, and usage. Upon this value, each municipal Town Hall decides on the percentage to be charged in respect of local rates. In the case of Marbella, the formula applied is 0.85% of the rateable value of the property, which is usually far less than its true market value.

-Wealth Tax
This tax is set on your assets in Spain, mainly property, bank account, car, bonds, stocks and shares. Non-residents are subject only to wealth tax on their assets in Spain, whereas residents in Spain also pay taxes on their off-shore assets, although they are exempt from the dwelling in the tax form if it has a value of less than approx. 150.000 Euros. Non-residents are subject to Wealth Tax on any property located in Spain at the same rates as residents, and a tax return must be filed and presented every year to the Tax Authorities. The tax on urban property is based on the highest value among the cadastral value, the purchase value or the value given by the Tax Authorities in an evaluation carried out for other tax reasons. This is the base value for taxation and the final taxable value is determined by the difference between this base value and the charges or liens on the property and the main debt invested in the property, if there are any. A tax scale is applied to this final value in order to determine the payable tax amount.

-Income Tax (IRPF)
Also non-residents are liable to personal income tax in Spain, on property included, as the Spanish Tax Authorities assume that the owner of the property is receiving an annual income from it. Income on property is set to 2% of the cadastral or rateable value of the property and then a rate of 25% tax is applicable to the base value. This tax is filed annually. The tax on capital gains is 35% as opposed to a resident who will pay 20% on the nett gain. Non-residents must file a tax return within 30 days from the date the income is collected. This tax return can be filed monthly or quarterly in certain cases.

-Capital Gains Tax
Capital gains are due with the sale of a property and the tax is calculated as the difference between the value of the property at the time of its acquisition and the value at the time of its sale. The tax rate is 35% applied to the base value.

- 5% retention tax on non-residents
At the public notary a non resident will have 5% of the sale price retained by the buyers on account of the Capital gains tax. This retention was implemented to avoid tax loss from non residents whom may sell and return to their country of Domicile. After your tax liability is assessed a refund may be available. There is in Place a ten year count back as of Dec 31 1996 there if you have owned the property since before Dec 31 1986 then you are not liable to Capital gains tax. There are also rules in Place regarding deductions for every year before 1994. You are well advised to Speak to your legal representative regarding this matter.

Community Fees
When you purchase a home in Spain there are also normally fees connected to the running of a community in which the apartment, townhouse or villa is located, for instance a gated residential complex or urbanisation or a residential zone with a shared administration. These fees depend on the area and the size of the community and covers maintenance of gardens, pools, security etc. Please also note that there is a local litter collection tax to be paid to the local Town Hall annually.

We strongly recommend seeking help from professional tax counsellors when purchasing a property or acquiring any other asset in Spain, as the Spanish tax system can be quite complicated. Please also note that according to Spanish law, all non-residents with assets in Spain are required to appoint a fiscal representative to secure the carrying out of tax duties.