Today, we are focusing on the taxation involved in real estate operations in Spain and some final comments on the taxation applied to foreigners. As we are going to explain, some of them are paid just once (the first three) whereas others are periodical (the latter two). Anyhow, let us remember that this is a post on taxation and does not include other spendings related to this matter, such as insurance policies, community services and so on.
TAXES ON REAL ESTATE OPERATIONS
- Transfer tax or VAT
The transfer tax (called ITP in Spanish) is intended to collect money from transactions between individuals. In Spain it depends on the different regions or Autonomous Communities. In Andalusia, it goes from 8 to 10%, in a proportional scale. It is worth saying that the rate is not applied upon the cadastral value nor the selling price, but upon a third concept that usually people ignore: tax value.
VAT, on the other hand, falls upon the purchase of newly built houses, and has a fixed rate of 10%. Therefore, VAT and transfer tax are incompatible.
It is the buyer who pays this tax, unless it is agreed otherwise.
Ranging from 19 to 23%, this tax is intended to capture part of the profit from selling a property. Thus, it is calculated applying that rate to the positive difference between selling and adquisition price. It must be paid by the seller.
Nevertheless, there are deductions and reductions potentially applicable to this tax so that it does not represent such a high proprotion of the price (because 20% of the net difference is quite a high amount if we speak of real estate).
- Tax on the real estate surplus value (IIVTNU or plusvalía municipal):
This tax addresses the increase of value of urban areas and falls upon the positive difference between the selling price and the acquisition cost. As we may expect, the seller is the one who pays, unless it is clearly stated differently on the public deed of purchase.
The rate depends, however, on many factors, such as how long ago you got the property. This is because it would be excessively onerous for sellers to pay a certain fixed tax rate that treats the same way properties whose prices have been increasing only for the last 5 years and others that were bought 40 years ago, when housing was much cheaper.
Overall, the rates go around 3 and 3,7% (applied to the benefit, not the whole price of the property, let me remark that). And if the seller is not resident in Spain, it will be the buyer who must pay.
- Land value tax (IBI):
Paid every year. Since it is actually the main tax by which local governments get funds, to see the rates we have got to check town by town what the policies are.
Expect it to be somewhere between 0.4% and 1.3% of the cadastral value, not the market value. For instance, for a property valued at the cadastre in 500.000 euros and a 1% of IBI, the yearly payment should be 5.000 euros.
- Notary fees
Although not technically a tax, it is important to include here this expense. First, because it is unavoidable. And second, because after all you are paying and requiring the services of a public servant.
This is simply the fee you pay to a public notary for elevating documents to public deed, something absolutely necessary when it comes to real estate issues (but also in many other areas).
Expect it to be betwen 600 and 1000 euros, to be paid by the seller. Again, if it is not agreed otherwise.
Expense related to the legalization of the documents before the notary. Depends on the region, it goes from 0,7% to 1,5% of the price. Paid by the buyer.
- Rubbish tax:
Another tax collected by the municipal government. This is paid to cover the expenses to collect and move all the rubbish and the waste in general to the appropriate places for their treatment.
Paid once a year, it consists of a very low sum. Quite often it is around 200 euros or less, but depends on every municipality and every area within it.
TAXES A FOREIGNER MUST BEAR IN MIND
Although we have drawn already some comments during the article, this category is worth a separate section.
The first question one must answer here is this: are you tax resident in Spain or not? Depending on the answer, you face two slightly different situations.
Let me remind you that, like in many nations in the world, in Spain you become tax resident once you spend over 183 days in a year inside the country (more than half the year, consecutive or not).
Then, if you are resident in Spain (again, tax resident, not simply that you have a residency document that allows you to enter Spain for a while), you are subject to IRPF (personal income) for your worldwide earnings, according to the progressive scale that was explained in the last post when we went through this tax, and you can benefit from certain deductions that reduce notably the final sum to pay.
If you are not tax resident, you are only subject to personal income for the money you made inside Spain, and according to a fixed tax rate of 19% if you are a national of an EU member or 24% if you are not. This is what is called IRNR (Impuesto sobre la Renta de los No Residentes or Non-Resident Tax).
Aside from this, you will be subject to Inheritance and gift tax, wealth tax, capital gains tax, transfer tax, VAT, etc. These apply regardless of your residency status, but being a non-resident, you lose the chance to benefit from deductions.
Besides, if you sell as a non resident, the buyer will retain 3% of the selling price as a guarantee for paying any tax that might be pending, since chasing after non residents abroad could be tedious and sometimes impossible.
This has been a short guide to the Spanish tax system. Of course, here we have only included the most important concepts in an attempt to get non-Spaniards to understand how these matters work here.
Nevertheless, we strongly recommend you to hire the services of expert local lawyers and economists if you are interested on buying a property or simply live in this beautiful country.
Contact us to get the best legal and economic advice and let us handle all the trouble for you.