Property Buying Guide

BUYING, SELLING & OWNING PROPERTY IN SPAIN / LEGAL ISSUES / CONVEYANCING IN SPAIN

Basic requirements for foreign buyers:

  • Habitual Residence in Spain; Legally, you are considered a resident in Spain when you spend more than 183 days per year in Spanish territory, or if the main core or basis of your activities or economic interests are based in Spain.
  • N.I.E. In Spain each person (being resident or not) must be assigned a fiscal identification number that must be used for income tax declarations and in any communication addressed to the Tributary Administration.

A NIE is a legal requirement for the purchase of property.

Nowadays obtaining the NIE takes between 3 or 4 weeks; you should apply for it as soon as possible if you are intending to make a purchase. We advise that you visit a Notary in order to obtain a notarised photocopy of your passport, something that is necessary when requesting a NIE. You can also go directly to a police station and have it verified there.

It is also possible to apply for the NIE in the Spanish embassy of your native country, and doing so it normally very straightforward.

All non-European citizens will also have to justify their entry to Spain, which means that when passing through customs a document must be sealed.

THE PROCESS:

1. Choice of the property.

We advise that you visit well reputed real estate agencies.

2. Private Contract.

Once the property has been chosen, the buyer can contact an attorney, potentially one specializing in conveyance for peace of mind if you consider it necessary. However, we advise you to request Prestige Real Estate SL to provide you with all kind of legal and juridical information, such as property deed, registrar document, I.B.I. etc.

3. Purchasing a property:

A property can be purchased:

a) Directly through a public deed granted by a notary.

b) By means of private purchase contract (deposit); this contract is drawn up by both parties. Normally there is no changing hands of property immediately, and the buyer transfers an agreed amount of money to the seller as a deposit. There are two types of deposit contracts: penitential or confirmatory deposit.

The first case is commonly known as “arras” on Section 1454 of the Spanish civil code, which means that parties agree that if the purchase and sale deed were not signed because of the buyer, he or she would lose the deposited amount of money. On the contrary, if it is the seller's fault, he or she will have to return the money received plus a a second amount equal to the one received as a penalty.

The second case: in terms of the confirmatory case the contract has to be drawn up by both parties unless they have reached a penalty agreement between themselves.

c) There also exists the possibility of offering purchase option. This prevents the seller from selling to other interested parties for a period of time, but it has fiscal implications:

TVA TAXABLE PERSONS (*TVA = IVA in Spain)

When the grantor of the purchase option is a businessman (TVA taxable person) and grants it against payment, the purchase option is considered as provision of services, so a general VAT rate is charged (21 % in 2015). Moreover, if a public deed is granted and should be formally registered, the purchase option would be charged a Stamp Duty (Impuesto de Actos Jurídicos Documentados) which is equal to 1.5 % in Catalunya’s territory.

NON-TAXABLE TVA PERSONS

Granting of the right of purchase would be taxable for the grantee (the person who acquires the right), as it is charged a 10 % Property Transfer Tax (Impuesto de Transmisiones Patrimoniales) within Catalunya’s territory. For this type of transfers, tax base will be equal to the amount of money paid as first option or, in other case, equal to 5 % of tax base to which purchase contract settlement given that a purchase rate would represent less than 5 % above mentioned.

4. Inscription in the Property Register

In Spain it is essential to register a purchase in the Property Register, since it is of public domain, and from the moment of registration, this purchase title has juridical effects on third parties. This information is of great importance because if a property is not registered in this public establishment, it can be seized or be subject to a penalty. For example, if a property is still listed under the name of the seller, then the new buyer could later on become deprived of his asset if it is subjected to the seller’s debts (notwithstanding juridical actions that could protect the buyer).

Registration takes approximately one month.

In order to issue the Deed, we need to provide the following documents:

  • Buyer's NIE
  • Receipt of the IBI (tax charging real estate property)
  • Certificate of the owners' community charges specifying that all community and maintenance fees have been paid, and adding details about maintenance works that should be done in the property (It has to be explained if such tasks have already been stipulated by the owner’s community, and if so, the corresponding part should be paid by the seller).
  • Receipt of payment or subrogation agreement if there is a mortgage
  • The payment has to be verified, which means that there must be written proof  of the amounts of money already paid: transfer slip or cheque with source account information.
  • Recent water, gas and electricity bills need to be provided in order to change the name of the account holder.
  • Local property certificate (Cédula de habitabilidad). This is a document from the local government that certifies that the property has met the requirements to be habitable
  • Energy efficiency certificate.

Note: From 1/6/2013 it is compulsory that all properties have a CEE – Certificado de Eficiencia Energética, which shows the property's energy efficiency rating. The purpose of this document is to give buyers an idea of the property's potential running costs.

5. Costs

Generally, the basic expenses in a purchase are the following:

  • Value-Added Tax (IVA): In Spain, if the seller is a business, the operation of dealing is submitted to the Value-added tax. Currently TVA represents 10 % of the price when purchasing properties in new openings, and 21 % when purchasing plots and commercial premises.
  • If this Tax is not applicable or if the seller is not a business (he is an individual), then the dealing (of housing, plot or commercial premise) will be subject to the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales), which is established nowadays at 10% in Catalunya’s territory.
  • Notary fees: These are established depending on the value of the building, and are applied according to duties previously established.
  • Property Transfer Tax: Nowadays the tax rate is 10% on the price that appears in the public deed.
  • Stamp Duty (Impuesto de Actos Jurídicos Documentados): Once the VAT has been paid in conformity with the previously explained impositions, the buyer must also pay a stamp duty, the rate of which in Catalonia represents 1.5 % of the sale price.
  • Municipal Tax on increase on the value of urban plots (known as Plus Valia Bonus): As its own name explains, it is a Tax that it is paid at municipal level and requested by the Town Hall or local authority where the asset is located. This Tax considers the increase of the value of land over time. To calculate this tax, the number of years passed between the date when the seller acquired the asset and the date of the current transfer are taken into account. To make such calculations, the value of the land that appears in the receipt of the IBI is taken into account, and then each local authority requires an specific payment according to specific local rules.
  • Record of the Property Fees: The Property record receives duties for the inscription of the Deed of dealing, duties that change in accordance with the value of the property.
  • Attorney fees: The common procedure (generally follow, although is not binding) that lawyers’ offices dedicating to real estate dealings earn between 0.5 % to 1.5 % of real purchase price. However, as there is not any established rule, this procedure may change depending on criteria of each office.

6. Taxes and annual payments for property ownership

After seeing the steps and payments required for the acquisition of properties, the non-resident owner will have to pay three types of annual taxes. For your information, the taxes are:

a) Real Estate Tax: a municipal tax (to be paid to the Town Hall where the asset is located). Both residents and non-residents must pay it. It is calculated on the basis of the value that the Town Hall grants to the property (property value), and each Town hall applies its own rate to calculate such value.

b) Income tax for Non Residents.

– Depending on the location of the building, the revenues submitted to taxes are the following:

1. Revenues from OWNED urban real estate: The amount to declare will be the quantity of applying 1.1 % to the property value that appears in the receipt of Tax on Real estate (I.B.I.), if this value has been checked before January 1st, 1994 (something that is usual in most cases); Otherwise it is necessary to apply 2 %. On the resultant quantity, a 24 % tax rate must be applied to calculate the final payment.

2. Revenues obtained from RENTED real estate: The amount to declare is the complete amount paid by the renter, deducing expenses for European, Icelandic and Norwegian residents. Such amount will be subject to a 20 % tax in 2015 and 19 % tax in 2016.

c) Patrimony tax for Non Residents: minimum not subject € 700,000--0.2 % to 2.5 % in other cases.

7. Profit derived from the sale of Real estate in Spain

Normally, the profit will be decided by the difference between the values of acquisition and sale.

The value of the acquisition will be calculated on the basis of the real amount for which the property was acquired, to which the amount of the expenses and taxes accumulated through acquisition will be added, excluding the interests that had been paid for the current person who undertakes the transmission. Depending on the year of acquisition, this value will be corrected by means of the application of some rates that are speacially established and updated by the Law of General Budgets of the State every year.

The value of the sale will be the amount appearing in the public deed of sale, to which it is necessary to deduct the amount of the expenses and taxes inherent in the change of ownership that have been paid by current seller (for example fees payable to the real estate agency). By virtue of the date of acquisition several reductions in the Patrimony Tax can be applied (providing that the property was acquired before 31st of December 1996).

The rate to be applied to the above mentioned profit will be equal to 20 % in 2015 and 19 % in 2016.

8. Deduction from profit arising from the sale of a property

When the seller is a natural or legal person non-resident in Spain, the buyer, being a resident or not, will have to withhold 3 % of the price that appears on the public deed, and will have to deposit this amount in the Tax office in a one month delay (from the date of issue of the above mentioned Deed)

This amount replaces the tax that the seller would normally have to pay for selling his/her property. The buyer must deliver the 211 Form to the seller; this form proves that 3 % has been deposited to the Tax Office, and therefore the seller can deduct the above mentioned quantity from the amount that otherwise he would have to pay for profit obtained from the sale of the property if the quantity held by the Tax Office (3 %) is superior to the quantity that should be deposited with a view to the obtained profit.

This document is purely informative; under no circumstances has a binding effect and it must be reviewed periodically according to changes in tax policies.

Barcelona 2017