TAX OBLIGATIONS FOR REAL ESTATE PURCHASE BY NON-RESIDENTS IN SPAIN
a) The SELLER IS A PRIVATE INDIVIDUAL
The buyer must pay to the Balearic Treasury the PROPERTY TRANSFER TAX (ITP) on a scale of 7 to 10% of the value of the propert.
On our web page www.consultingdms.com you can find a TOOL FOR AUTOMATIC CALCULATION OF THE GENERAL ITP IN THE BALEARIC ISLANDS since 1/5/2012 (Appendix I)
Other inherent expenses for the buying have to be added to the aforementioned tax, (Notary, Property Register, processing, lawyer if necessary, etc.) which may sum up to approximately between 0,5% and 1,00% on the value of the property. The expenses and taxes would be slightly higher if the purchase is being financed with a mortgage, around 1,75% of the financed amount.
b) The vendor IS A CONSTRUCTOR who is selling a new property (which he had built or refurbished) or a plot:
The buyer must pay to the seller the VAT (IVA). 10% VAT (IVA) is applied if the property is new and construction completed. However, the Spanish government have made a concession to assist the property industry and for sales completed on or before the 31 December 2012 a reduced rate of 4% will be applied. VAT (IVA) of 21% is applied if what is property is a building plot, land, industrial unit, business premises or office..(up to the 31/8/2012 – VAT (IVA) 8
Additionally, the buyer must pay to the Balearic Treasury a tax of 1% on the DOCUMENTED LEGAL ACTS (AJD).
To those taxes must be added approximately between 0,5% and 1,00% for additional costs of the purchase (it will be higher if it is being financed with a bank mortgage, depending on the amount)
c) The vendor IS A BUSINESSMAN who is selling a resale property (housing, business premises, hotel, etc.)
The transaction initially would not be subject to VAT (IVA) + AJD, but the ITP ( 7% to 10%) must be paid. In any case, if the buyer is also a business (for example – a Spanish company) and buys the property in order to assign it to a commercial activity (for example, business premises or an industrial unit to rent, or a hotel to exploit or rent) there exists the possibility to subject the transaction to VAT (IVA), which is a tax that can be deducted and recovered (as opposed to ITP and AJD which may not).
d) The vendor is a limited company
It is not unusual to purchase the shares in the company rather than the assets (i.e. the property).
The non-resident sellers try, in this way, to achieve a fiscal advantage (even not to pay in Spain on the benefit derived from this sale) and the buyers can save this tax, when complying with certain conditions, in particular if there are several buyers and nobody buys more than 50% of the company.
In any case, this is a transaction, which involves important legal and tax risks for the buyer. Therefore, it is essential to take sound legal and financial advice before entering into any binding contract.
TAXES ARISING FROM THE OWNERSHIP AND USE OF A PROPERTY IN THE BALEARIC ISLANDS by a non-resident
Tax payable each year to the Town Hall, its amount is approximately 0,4% to 1,1% on the PROPERTY TAX VALUE of the property (a value, which initially must be maximum half of the market value of the property).
Tax, that was eliminated in Spain in 2008 and has been initially re-established for 2011 and 2012 only.Private individuals, non-residents, must pay this tax (applying a scale from 0,2 to 2,5%) for the goods and rights situated in Spain, with a minimum exempt of 700.000 € and having in mind the corresponding Agreements on double taxation.For example, with the Spanish-German Agreement on double taxation, currently in force, the ones who have to pay this tax during 2011 and 2012 are the private individuals, residing in Germany and have properties in Spain, with a value superior to 700.000 € (debts for bank mortgages invested in the purchase can be deducted). With the new Spanish-German Agreement on double taxation, which will be in force in 2013, if Spain decides to continue applying the Capital Gains Tax, the residents in Germany, who have properties in Spain through companies, must pay as well.
INCOME TAX OF NON-RESIDENTS
If the property has been bought directly by a private individual, non-resident, he has to pay this tax each year. If the property is for private use, a fictitious income of 1,1% of the property tax value has to be calculated, and on that income must be paid 24,75%. If the property is rented, one must pay 24,75% on the received rent amounts, although the residents in the European Union can deduct the necessary expenses and pay these 24,75% on the net yield of the rent.
If the property has been bought by a non-resident, legal entity, also must be paid this tax 24,75% if it is rented and also on the amount of the rent, with a market price if the property is transferred to linked people (partners, administrators, etc.).
SPECIAL TAX ON PROPERTIES OF NON-RESIDENT ENTITIES:
If the property has been bought by a legal, non-resident entity, it will remain subject to this tax and must be presented with the Income Tax Return each year. One will remain exempt and will not have to pay anything if one can prove with the Income Tax Return file of each year, that the legal entity resides in a State, which has an Agreement on double taxation with Spain, with exchange of information (for example Germany) and that the private individuals ultimately are titleholders of the company and also reside in a State, which has an Agreement of double taxation with Spain. On the contrary, each year a 3% tax on the property tax value of the property, must be paid. It is very probable that from 2013 only those entities, residing in tax havens, have to declare and pay this tax, as it has been envisaged in this way in the Bill of Law for loosening of the regulations governing the Rent
CORPORATE INCOME TAX:
If the property is being bought through a Spanish company, it will remain subject to the Spanish Company Tax, initially 30% of the income that could be obtained for the letting or exploitation of the property, for the market rent, if the property is transferred to connected people, or for the sale of the same.
TAXES ARISING FROM THE ONEROUS TRANSFER OF A PROPERTY in Spain for a non-resident
FOR THE DIRECT SALE OF THE PROPERTY:
INCOME TAX OF NON-RESIDENTS:
If a private individual, non-resident person, or a non-resident entity, without a permanent establishment, sells a property, he has to pay 21% of the obtained profit. On account of this tax the buyer is obliged to retain and deposit in the Treasury (within a month through Statement 211 (Modelo 211)) 3% of the agreed price. In 4 months from the purchase the seller must present Statement 210 (Modelo 210) declaring the corresponding benefit or loss derived from the transfer, deducting that retention, with the possibility of having to pay or having to receive.
On our web page www.consultingdms.com you can find a TOOL, which allows you to calculate in just a few seconds the DERIVED PROFITS FROM THE TRANSFER OF PROPERTIES and the INCOME TAX TO PAY by natural persons, RESIDENTS OR NOT in 2010, 2011 or 2012
It is important to warn the non-resident sellers, who do not present this Statement (Modelo 210) with the result to pay, that the Spanish Treasury can require from them the payment and seize goods in their country of residence (with the corresponding interests and sanctions), through the international assistance in matters of collection (it is common in Germany).
There is a special Statement – Certificate of Fiscal Residency, which should confirm that the seller is a resident in Spain, so that he is not retained 3%. This special certificate is asked for in the Spanish Tax Agency with the Statement 02 (Modelo 02).
If urban properties are bought between the 12th May 2012 and the 31st December 2012, 50% of the benefit obtained once sold will be exempt.
CORPORATE INCOME TAX:
If the property is sold by a Spanish shared company, by a non-resident, initially the aforementioned company has to pay 30% on the obtained benefit. If the non-resident decides to close and liquidate the company in order to take the money outside of Spain, he might have another benefit, for which to pay again. If he lives in Germany, with the current Agreement, he has to pay in Germany for the mentioned benefit and not in Spain, but with the new Agreement, which will come into force in 2013, he has to pay in Spain.
If a company buys urban properties from the 12th of May till the 31st of December 2012, 50% of the benefits obtained from the sale, will remain exempt.
INCREMENT VALUE TAX:
If any urban property is sold, the seller has to pay to the Town Hall this tax, which is calculated according to the Property Tax Value of the plot and the number of years it has been owned. The higher the Property Tax Value and number of years owned, the more one has to pay.
On our web page www.consultingdms.com you can find a TOOL, which allows you to calculate in just a few seconds the TOWN HALL ADDED VALUES 2011 and 2012, in one of the most important areas of Mallorca (Palma, Calviá, Andratx, Inca, Marratxí, Alcudia, Pollensa, Llucmajor, Felanitx, etc.).
FOR THE INDIRECT SALE OF THE PROPERTY:
INCOME TAX ON NON-RESIDENTS:
If instead of selling a property, a company is sold (Spanish or not), which directly or indirectly is the owner of the property, initially a tax on the obtained benefits has to be paid in Spain, as the Spanish Law states it. However, the Agreements on double taxation prevail over the Spanish Law, and in this way for example, if the seller resides in Germany with the Agreement in force, he has to pay in Germany and not in Spain. With the new Agreement, which will come into force in 2013, he has to pay in Spain.
TAXES ARISING FROM THE TRANSFER OF A PROPERTY in Spain due to INHERITANCE
Currently, in an inheritance, with capital in Spain (real estate, money, companies, etc.) if the deceased or the heir are non-residents, this tax has to be paid to the State Treasury, applying a progressive scale from 7,65% to 34% of the real value of the capital, if in the case of an inheritance between direct relatives (from parents to children or grand-children, between spouses, etc.).
A lot more is paid in the case of an inheritance between non-direct relatives (brothers, nephews, etc.) or in favour of strangers.
However, in the case of inheritance between direct relatives, residents in Spain/ Balearic Islands, a maximum of 1% Inheritance Tax is paid.
This shows a clear discrimination of the non-residents, and the European Commission has lodged an appeal on the 7th of March 2012, to the Tribunal of Justice of the European Union – Case C-
127/12 (asunto C-127/12) against Spain, for this reason. Due to that, it is possible that in the short run, the regulations in Spain will be modified, so that in the inheritance between direct relatives, who are non-resident, there is no such a high Inheritance tax involved, to be paid by them.
In order to avoid this high Inheritance Tax, some non-residents buy the properties through non-resident companies (for example, German companies) or through Spanish companies, where non-resident companies have a share. Other non-residents try to reduce this tax by buying the property through a bank mortgage, so that the debt can be deductable in the inheritance.
INCREMENT VALUE TAX:
For the direct inheritance transfer of urban properties, the heir must also pay this tax to the corresponding Town Hall.