Now, for most of the persons who plans to acquire real estate in Spain, being non-resident in this country, the most convenient and simple way is to purchase as individuals and not through Spanish or foreign companies.
In this way, in case of sale, will pay for the non-resident Income Tax to 19% on the possible equity gain, compared to 25% that would be incurred if the sale is performed by a Spanish Society.
In any case, for the acquisition of real estate WITH A HIGH VALUE may be desirable FROM THE POINT OF VIEW OF TAXATION FINANCE A LARGE PART OF THE PRICE, better with bank loan secured by a mortgage, even if the buyer really doesn’t need such funding.
You can get certain tax benefits in the following taxes:
Non-residents who are owners of real estate in Spain to December 31 (date accrual) must pay this tax when the value per person exceeds the exempt amount of Euro 700,000. On the value that exceeds the minimum applies a scale that goes from 0.2 % to 2.5 %.
In any case, the article 9.4 of the Act establishes the Wealth Tax that the non-resident may deduct debts by capital invested in the property to determine the tax base. That is to say, they can deduct a mortgage loan invested in the acquisition of the property, but not if you have requested later, when the building had already been bought and paid for.
For example, if a German married couple purchases in end of 2017 a property in Mallorca for 2.800.000€ without funding, each spouse will have to declare in Wealth Tax 2017 a value of 1.400 .000€ and may deduct €700,000 of the minimum exempt. Each one pays tax on the remaining 700,000 euros, which will be about 2,790 Euros (each) in May-June 2018.
If such a married couple finances the purchase of 50 %, each spouse will have to declare a value of Euro 700,000 (1,400,000 -balance loan 50 %) and, after deducting the exempt amount, there will be nothing to pay.
For example, if a married German couple purchase in the end of 2017 a property in Mallorca for 5.000.000€ without funding, each spouse will have to declare in Wealth Tax 2017 a value of 2.500.000€ and may deduct €700,000 of the minimum exempt. Each one pays tax on the remaining 1.800.000€, about 14,500 Euros (each) in May-June 2018.
If such a married couple finances the purchase of 50 %, each spouse will have to declare a value of 1.250 .000Euros (2,500,000 -balance loan 50 %) and, after deducting the exempt amount of €700,000 , will be a basis of €550,000 on which they will have to pay the tax – some 1,900 € (each).
The Government has decided to extend the Wealth Tax and to apply this for 2017. Although 2018 started without wealth tax in Spain, we do not have any doubt that the government will decide to apply the wealth tax before the 31.12.2018.
TAXATION ON INHERITANCE AND DONATIONS (GIFTS)
In inheritance of real estate in the Balearic Islands between non-residents must paid an inheritance tax to the State Treasury at a rate from 7.65 per cent to 34 per cent between direct relatives and much more between more distant relatives or strangers. To calculate the tax it can be subtracted from the value of the property the debts of the deceased in Spain, for example the balance of a mortgage loan on the date of death.
In any case, after the judgment of the Court of the EU Justice of 3/9/2014 (which forbade the discrimination of non-residents in the Inheritance and Gift Tax) is permitted to non-residents (who are resident in EU or EEA) implementing regulations of the Autonomous Community with whom there is a connection point, so that by the inheritance of real estate in the Balearic Islands are taxed at a maximum of 1 % up to an inheritance value of 700.000 € per heir.
From a value of more than € 700.000 on, taxation increases progressively (8,11,15,20 %) so it is still of interest to finance the acquisition of high-value real estate with loans.
Since then, is still of interest finance the acquisition of real estate with loans to those who do not reside in EU or EEA (and live for example in Switzerland, USA, etc. ) because of time (we have appealed to the Central economic-administrative Court) the Spanish legislation continues to discriminate against them and inheritances taxed between direct relatives of the 7.65 % to 34 %. You can also prove very interesting funding when the heirs are not direct family or strangers, for in such a case the taxation can reach up to 68% or even more.
NON-RESIDENT INCOME TAX
Non-residents residing in another State of the EU or the EEA and who decide to rent their property in Spain can pay income tax 19% on the net yield and not on the gross rent. These people are able to deduct all the expenses of the property (in proportion to the period that the property has been rented): depreciation, property tax, garbage rate, community fees, costs of repair and maintenance, interest on loans that have served for the acquisition or improvement of the property, etc.
The recovery can reach up to 19% of the interest paid on a loan, to reduce the performance of the rental and in consequence the Income Tax to pay on performance.
We have already seen some potential tax benefits to finance the purchase of real estate in Spain/Balearic Islands by non-residents, even though the buyer does not need such funding.
Of course, the constitution of the bank loan secured by a mortgage will have a few costs (appraisal of the property, bank fees, tax on Documented Legal Acts, notary, registration of the property, processing), which can be approximately 2% of the amount borrowed.
In addition, the loan will have to pay each year the corresponding interests. However, the non-resident without doubt you can get a good return on the money that he had, and that finally has not invested in the purchase of the property. It is possible, even, that some people should be able to get with that money a higher level of profitability to the financial cost of the loan, and if you decide to have that money in Spain it should be borne in mind that the Agreements on the avoidance of double taxation (Germany, UK, etc. ) require that the non-residents in Spain should be taxed on the money that they can have here (bank accounts, securities, funds, etc. ).
Palma, Octubre 2017
Alejandro del Campo Zafra
Lawyer and tax advisor
This post is also available in: German