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What are the taxes involved in the purchase, holding, and sale of your property in Spain?
The purchase and sale of real estate in Spain, as well as its ownership, generate the obligation to pay different taxes, also for non-residents in Spain. This publication’s aim is to explain in a simplified way what these taxes are, for the specific case of non-tax resident buyers or sellers in our country, whether these are individuals or legal entities. For more on the residency definition, read more in the first two papers we wrote on that:
- Tax Residence in Spain: Why is it important for you? Definition and examples(Part I)
- Tax Residence in Spain: Why is it important for you? Why do you have to pay taxes in Spain?(Part II)
What taxes will I pay when I buy?
The purchase of a property in Spain may be taxed either by VAT (Value Added Tax) or by ITP (Transfer Tax), which in both cases must be paid by the buyer. The application of one or the other tax may depend on many factors; among others, the condition of the seller, and also that of the buyer. A purchase that is not basic, such as those that will be explained below, will always require a detailed study of these conditions, but, in general, we could summarize the operations and basic rules as follows:
- An operation made between non-entrepreneur individuals will be taxed under ITP. The ITP is a tax assigned to the Autonomous Communities, so its rate varies in each one of them; in Barcelona, for example, it is 10% if the purchase value does not exceed one million Euros. The tax is paid to the Autonomous Administration through a specific Form which must be submitted in the month following the date of the public deed.
- The sale of a new real estate made by a property developer will be subject to VAT, whoever the buyer is, at a 10% rate if it is a home or 21% if it is a business premises. In this case, the tax is paid to the seller at the time of signing the deed.
- Finally, the sale between businessmen (companies or individuals) can be subject to VAT or ITP, depending on multiple factors that, as we said, it is necessary to analyze in each case.
And when I already have the property, what taxes should I pay?
There are two kinds of taxes that may have to be satisfied by the mere possession of the property if it is not leased, depending on whether the holder is a natural or legal person:
- One is the IBI (Tax on Real Property), a local tax that is calculated based on the property’s cadastral value. It is satisfied annually or quarterly to the City Council of the town where the property is located, whoever the holder is. It is advisable and habitual to ask for a direct debit of the tax, to avoid oversights and formalities.
- The second, which only individuals pay, is the Non-Resident Income Tax. It is calculated on 2% of the cadastral value of the property (1.1% under certain conditions), and the general rate in force for non-residents is applied, which is currently 19% for EU residents and 24% for the rest. It must be paid annually.
Legal persons residing in a country qualified as a tax haven, however, must also satisfy a special type of Non-Resident Tax, consisting of an annual 3% of the property’s cadastral value.
Finally, note that in Catalonia an additional tax was approved for legal entities that detain real estate not affected by any activity, but it was appealed against without having been yet resolved for the time being.
If the property is leased, on the other hand, both legal entities and individuals must satisfy, in addition to the IBI, the Non-Resident Income Tax, calculated as follows:
- EU resident: 19% of the net income obtained (rent received minus deductible expenses according to Law, which are in general all those inherent to the property, interest included if there is a mortgage, and amortization).
- Non-EU resident: 24% of gross rent (that is, without deduction of expenses).
Generally, the tax will be paid in this case quarterly.
Finally, when I sell?
Again, two taxes are due at the time of sale, whether this is done by a non-resident natural person or legal entity:
- The so-called “Municipal Surplus Value” (“Plusvalía Municipal”), a tax again of a local nature that in this case taxes the increase in the value of the land over the years. It must be settled by the seller at the corresponding City Hall within one month from the conclusion of the operation.
It should be noted with respect to this tax that there is great controversy in Spain regarding the way to calculate it by the municipalities, both because there might not be a real increase in the value of the land due to the crisis, and also because the formula used is not adequate. When the amount is high, it is very convenient to consult a professional to evaluate the convenience of filing an appeal before the Courts.
- And, again, the Non-Resident Income Tax: it is calculated on the capital gain obtained in the sale (sale value less acquisition value), which is taxed in this case at a 19% rate, be the seller EU resident or not.
Note that the buyer, when buying a property from a non-resident, is obliged to withhold a 3% on the sale price and pay it to the Tax Authorities within a month from the sale.
The seller will subtract the amount withheld in the result of his Non-Residents Tax declaration, which must be presented in the 3 months following that former month. Should there be a difference in his favour, he is allowed to be refunded.
This article is written by one of our independent partners in Spain, Maite, who is one of our Fiscal partners in Catalonia. Check her profile.