Spanish property purchase process and taxes
Spanish property purchase process and taxes
How to buy real estate in Spain?
A step-by-step guide
A step-by-step guide
how to buy property in Spain
Buying a real estate in Spain
Buying property in Spain is a little different to buying in your home country, but there are three main parts.
- the purchase process
- taxes before and after the purchase
- the necessary administrative steps
NB! The following information is not a substitute for professional legal advice. Laws and tax rates are subject to change, so it’s worth consulting our lawyer or the tax office for the latest information.
The purchase process
Before you can decide, you need to find the right villa or apartment. It can take several months or even more to find it. Together, we’ll find the right property for you. But let’s start at the beginning.
Before you even start looking for and buying an apartment or house, please make sure you know what your budget is and what you can invest.
Then look at the prices and what you get for your money. Not vice versa.
NB! When buying property in Spain, always add an extra 10% – 14% to the price for various taxes and expenses. More on this later.
I kindly ask you to calculate your payment options. Do you need a loan to buy a property? How much money can you get for a loan?
You can borrow in your home country or in Spain. In general, if you are taking out a loan in your home country, be aware that property you buy in Spain may not be suitable as collateral.
Before you start your search, please formulate your purpose for buying a property. Is the apartment or house just for your family? Would you like to buy a property to rent out?
The buying process starts with finding a property, and often starts through property portals. They all allow you to search by region, type, size, price and other parameters.
Alternatively, you can use a local estate agent who knows the area and will be able to help you find the right apartment or house because they have more information.
It’s a good idea to set your own key criteria before you start looking and to consult a local broker who can point out aspects you haven’t thought about.
Once you’ve selected your property (preferably 3-5 properties), the agent will arrange a site visit so you can see for yourself if it’s suitable for you and meets all the requirements.
Before you decide to come and look at a property, please check that it meets all your main requirements on paper (e.g. location, surroundings, etc.).
Pre-prepare the questions you want to be answered before the viewing, and what you want to ask the seller, or be sure to see or check on the spot.
This way, you avoid wasting your time and the time and money of others.
Once you’ve decided that the apartment or house is the one for you, I always advise you to negotiate the price. Your local broker can act as an intermediary here.
He or she may already have information on the price at which this property has been rejected, or may be able to advise you on how much it is reasonable to underbid.
Always use the opportunity to reduce the price.
In this case, I strongly recommend that you involve a local lawyer from the beginning of the process. In Spain, the bureaucracy is much bigger than you think.
If you make a power of attorney for a lawyer, he will arrange all the documents for you and check that everything related to the real estate complies with the law.
At this stage, you will be supported by a real estate broker, who will convey the price you have offered to the seller, and by this time the important conditions will also be clear. For example, whether furniture is included in the price or what the payment schedule is, etc.
If the seller agrees to the price and conditions offered, you will have to pay a deposit, or down payment, which guarantees that your apartment or house will be taken off the market.
The reservation contract must contain the final sales price, all agreed conditions, the amount and times of the installments, and information about the execution of the contract and transaction. The seller takes care of this, but you have to check and give your consent.
The amount of the deposit depends on the price of the property, whether it is new or not and other conditions. It usually starts at 6,000 euros and is paid into the real estate company’s account. Your estate agent will give you detailed instructions.
NB! If you have paid a down payment and you decide not to buy the property, consider that this money remains with the seller and you cannot get it back.
It is a simple agreement (A private purchase contract or Contrato privado de arras) between the buyer and the seller, in which the seller agrees to sell the property and the buyer agrees to buy the property at an agreed price.
The contract contains all relevant details such as the description of the property, purchase price, payment method and date of purchase.
At this stage, the buyer is expected to make a first down payment to the seller’s bank account, which is usually 10% of the purchase price, but this amount can vary.
In this contract you will find a clause that states,
- that if the seller decides to withdraw from the sale, the buyer will receive double the advance payment as compensation.
- and if the buyer decides to withdraw from the purchase, he loses the amount of the deposit.
Before signing the contract, so-called due diligence is carried out by a lawyer, where a legal inspection of the real estate is carried out.
After signing a private contract, a public sale transaction (Escritura de compraventa) must be formalized at a notary.
Both the buyer and the seller must be present in person or represented by a notarised power of attorney.
On this day, the balance of the purchase price will be paid, and both parties must bring documents proving that all required taxes have been paid.
The sale includes all the agreed terms and conditions and a description of the property, and must be notarised. After that, the transfer deed is issued to the buyer.
The act of alienation is forwarded to the Spanish Tax Office and the Real Estate Registry.
Once again, it is advisable to involve a local lawyer early on in the process to help protect your rights and interests.
Taxes related to the purchase of real estate before the transaction
As mentioned above, in addition to the purchase price, 10% – 14% for various expenses related to the transaction must be taken into account. You also need to take into account the fact that there will be other obligations after the purchase of the property.
The purchase of a new development is almost always subject to VAT (IVA, Impuesto sobre Valor Añadido) and stamp duty (AJD, Actos Jurídicos Documentados).
VAT and stamp duty apply to residential properties that have never been occupied before and building plots.
VAT is a national tax that does not vary depending on the location of the property (except for the Canary Islands). Currently, in Andalusia, for example, the VAT rate is 10% of the purchase price of new housing (villas, apartments, etc.) and 21% for plots.
Stamp Duty is a percentage of the purchase price. Stamp Duty in Andalusia is 1.2% of the purchase price.
Since the property has been used, the so-called transfer tax (ITP, Impuesto sobre Transmisiones) is now applied, which varies from region to region.
In the Andalusia region it is 7%. This tax can also be called property transfer tax, which in Spain is the responsibility of the autonomous regions themselves.
The lawyer’s fee is usually 1% of the purchase price and includes arranging NIE documents, help in opening a bank account, etc.
It is not required by law to use a lawyer when buying real estate, but I strongly recommend that you do.
The lawyer will organize all your documents and check that there are:
- proof of the absence of debts to the community
- latest payment receipts for water and electricity bills
- IBI (Impuesto de Bienes Inmuebles) or annual property tax payment receipt. In the case of ordinary apartments-houses, the annual tax paid to the local government is usually within the range of €100-500.
- an extract from the real estate register about the object’s legal status (proving that the object does not have a mortgage, liens or other restrictions)
- bank certificate of the seller’s canceled mortgage, in case the seller has bought with a loan, returned it financially, but has not submitted the corresponding certificate to the real estate register
A lawyer can also help you sign water and electricity contracts in your name.
I recommend giving the lawyer a notarized power of attorney authorizing him to do all the necessary actions for you. You have less to worry about and manage.
Any company can acquire real estate in Spain. For this, it is necessary to apply for a local tax number, just like a private person.
In order to get a tax number, you must prove that the company was established according to the rules of your home country and is registered in the business register. All documents must be translated into Spanish and be apostilled. A local lawyer will help with the more detailed requirements.
Fees vary depending on the purchase price and the complexity of the transaction. The costs of a notary office are between 600 – 1500 euros. The fee for property registrations can range from 500 to 1000 euros.
PROPERTY ON THE RESALES MARKET:
- 7% ITP (Impuesto sobre Transmisiones) Property transfer tax
- Notary fee between €600 – €1,500 depending on the purchase amount and attached documents
- 1% attorney’s fee for conducting “due diligence.”
- Registration of 500-1000 € in the land register
EXAMPLE OF A PROPERTY SALE IN SPAIN
A privately owned property in Spain with a purchase price of 500,000 euros.
- Purchase price = 500,000 euros
- transfer tax 7% = 35,000 euros
- legal fees 1% (+ VAT 21%) = €6 051
- Notary and registration fees 0,5% = €2 500
Total 543,551 euros (other costs 43,551 euros).
NEW DEVELOPMENTS:
- 1O% IVA (‘Impuesto sobre el Valor Añadido) – VAT
- Notary fee between €600 and €1,500 depending on the purchase amount and attached documents
- The costs of the land register range from €500 to €1,000
- 1% attorney’s fee for conducting a claim review
- 1.2% stamp duty (taxes for registration of all documents only for new developments).
If you choose a mortgage loan from a Spanish bank to buy your property, a service fee of 0.5% to 1.5% must be paid. Property appraisal costs around €400.
Taxes related to the purchase of real estate after the transaction
I definitely recommend that you also ask your Spanish real estate advisor about these questions and options before the transaction. There will be fewer surprises and you will make smarter choices.
The local property tax (IBI) is calculated based on the value of the cadastral unit by the Spanish Tax Office.
It is advisable to determine what the annual land tax is when choosing a property, i.e. before buying it.
These taxes vary and depend on the location, the size of the land and building, and the region.
Your real estate advisor can definitely help you with this information.
The community tax applies to those apartments or townhouses located in the area of this community. As a rule, there is no community tax when buying a detached house.
The community fee is paid monthly or quarterly, and the amount depends on the community’s expenses (cleaning, repairs, pool or elevator maintenance, etc.).
Again, your local real estate agent can tell you how much the monthly community tax is before you buy.
Non-resident income tax is paid in Spain if you are not a Spanish tax resident and applies if you own real estate in Spain.
Even though you do not earn income from the property, in the eyes of the Spanish tax authorities you still benefit from owning the property. Which is why income tax still has to be paid every year.
The tax rate is 1.1% – 2% of the value entered in the cadastre of the real estate and plus VAT, which is 19% for EU citizens. The value of real estate in the same cadastre is much lower than the market value. Your lawyer can tell you exactly that.
The tax must be paid for the period when the property was rented out.
The applicable tax rate is based on the income you get from renting out the property.
Various expenses can be deducted if you are an EU taxable person. For example, you can deduct all maintenance costs and management costs of the property.
If you have no other income in Spain, the tax rate for EU residents is 19% of earned income.
Current legislation stipulates that anyone who owns real estate in Spain (both residents and non-residents) must pay property tax each year, based on the net value of the property, from which it is allowed to deduct, for example, part of the mortgage.
Residents must also include all personal property they have in the world.
The applicable tax is based on the net value of the following amounts such as real estate and other assets located in Spain (shares, bank instruments, fund shares, art collection, etc.).
The tax rate operates on a sliding scale starting at 0.2% and rising to 2.5%.
At this point, it is again necessary to consult a lawyer in advance, but the good news for you is that there will be no property tax in Andalusia and Madrid from 2023.
Necessary administrative procedures
You can buy real estate as a private individual, as a company in your home country or create a separate company in Spain.
Non-Spanish residents need an NIE or tax identification number and a local bank account.
You can have a NIE done already at the Spanish embassy of your home country, where the reason must be stated as economic interest or buying real estate.
But it can be done here on the spot for you by a local lawyer, who needs a power of attorney, which is certified by a local notary.
It is most sensible to do this at the very beginning of the property search to avoid unnecessary delays later on.
You need a Spanish bank account to carry out the transaction.
The bank may ask you for proof of origin of the funds used to buy the property.
For example, it may require:
- Bank statements for the last 12 months
- Proof of salary for the last 6 months in the institution where you work
- The last income tax return
- Confirmation from a company or institution that your income will come from there
The sooner you visit the bank with a lawyer or real estate agent and know exactly what documents are required of you, the smoother the whole process will go.
As already mentioned, your home country company can also acquire real estate in Spain.
For this, it is necessary to apply for a local tax number, just like a private person.
In order to get a tax number, you must prove that the company was established according to the rules of your home country and is registered in the business register.
The local lawyer needs the following information for this:
- Company name
- company registration number
- date of establishment
- manager or directors
- share capital
- the company’s field of activity
- address
- names of shareholders and their percentage (%).
All documents must be translated into Spanish and be apostilled. A local lawyer will help with the more detailed requirements.
You can create a local company here, which is a subsidiary of your home country or a separate company.
When creating a local company, again use the help of a lawyer and consider that its creation will cost approx. 1500€. You must have a person on site, i.e. a company manager, for whom you have to start paying social tax of at least €300 per month.
You can get more detailed information from our local lawyer.