Since the dramatic drop in housing prices in Spain in 2008, it’s hardly surprising that so many foreigners are keen to invest in Spanish real estate. Why not invest in a 3 bed, beach-facing villa in Valencia rather than that minuscule London studio you were previously considering?
If you do decide to purchase a property and invest in Spain, be sure to follow these vital steps for completing your transaction without any problems or hassle.
1. Ensure you apply for an NIE. The first step toward buying a property in Spain is to apply for a Foreigner’s ID number, commonly known as an NIE. It’s required by law that all non-citizens in Spain obtain one of these whether you are from the European Union or not. The number should start with the letter “X” or “Y” which is then followed by 8 numbers. Since the application system for an NIE is carried out via Spanish administration services, several documents need to be filled out in the country itself. Consequently, a couple of trips to Spain may be necessary as well as an official proof of why you need to obtain an NIE. Should you wish to avoid these trips to Spain, as well as potentially complex administrative procedures, TAS Consultoría is able to carry out your NIE application and all other related necessary processes on your behalf. Our in-depth experience combined with our convenient location here in Barcelona allows us to tend to complete applications within just one day.
2. Remember to request and verify all related paperwork. Once you’ve decided to buy a property in Spain, it’s really important you ask the seller for certain documents in order to confirm the legal status of the property prior to the sale – these include the construction license, the land registration certificate, the certificate of first occupation in the property, the residence certificate, the administrative authorisations and the electricity, gas and water bills. The Spanish Minister advises requesting the latest tax forms for the property, a formal confirmation and an official document confirming that the property is not currently rented. It’s also highly recommended to check the property’s status at the Property Registry Office, a state agency whose officials provide free information via requested documents on their website. Finally, it’s essential to do some research into the property’s current mortgage: this can be done by contacting the bank directly and also by seeking a notary’s opinion. Of course, once you are a property owner in Spain, you’ll also need to take the necessary steps to register yourself at the Registry.
3. Ensure you obtain a preliminary sale agreement… After finding your perfect property, the first step is often an initial verbal offer. Once both the buyer and the seller have made a verbal agreement following this offer, the next step consists of formalising the details via a preliminary sale agreement. In Spain, this agreement is only rarely signed before a notary. However, although the agreement is private, it does hold some legal value between the parties since it makes it very difficult to go back on the clauses made (except for the sale agreement). It is especially important that when you sign in front of your notary that you are vigilant in the negotiation and in the composition of the condition precedents (i.e. obtainment of a loan, elimination of any charges or easements encumbering the property etc). There is no law with regards to reservation fees but they do tend to go up to 10% of the sale price. Paying a deposit guarantees that the property is taken off the market and is kept at the previously agreed sale price – remember to agree upon how this 10% payment will be made. Payment via cheque is rare in Spain so agencies often ask for the payment in cash. It’s advised not to pay by bank cheque or through a deposit trustee as whilst this may be practical, it’s not done often here in Spain, but, having said that, it isn’t impossible either. The whole process is a little complicated and length but it is really important to go about it this way in order to best protect you, as the buyer, and your interests.
4. …And a private contract… When your offer is accepted by the property owner, the next stage in the process is to sign a purchase option. This generally happens within 2 weeks following the formal offer agreement. By this time, our professional cabinet will have finished their research into your property and will have organised the cancellation of any debt. The private sale contract should contain all the general offer and sale conditions and should clearly indicate the handover date. From this moment in negotiations, the buyer generally pays the aforementioned non-refundable 10% deposit. It’s also common here, in addition to this step, to go directly to the notarised deed of sale should the buyer pay the required amount and that it’s not dependent upon a mortgage. Do remember that our accounting experts and consultants at TAS Consultoria can advise and assist in all the aforementioned legal proceedings as according to Spanish law.
5. …as well as a notarised deed of sale. In Spain, a sale is officially finalised when the notarised deed of sale is signed before a notary, when the final payment is made and when the property itself has been transferred to the buyer.
6. Transfer of goods taxation. Once the purchase of the property is completely finalised, you should proceed to the tax payment commonly called “Impuesto sobre Transmisiones Patrimoniales” which applies when the property concerned is not a new-build. This tax can vary between 8 – 10% of the sale price. When the property is in fact a new-build, you’ll need to pay VAT, known as “IVA” in Spanish, which can go up to 10%.
7. Be aware of other costs and taxes. So, what exactly are the other expenses and taxes you’ll need to pay?
- Property tax “IBI”
If you decide to buy an apartment in Spain, you’ll need to pay an annual tax known as “IBI”. This tax is paid annually and is calculated on the basis of the cadastral valuation or the taxable value of the land assigned to it by the Spanish tax authorities. The cadastral valuation takes into account the value of the land plus the value of the building by type, location and usage.
- Community charges
You’ll need to pay for community charges every month which generally comprise of: – concierge’s salary, the maintenance of the community garden, up-keep of the lift, repair for general communal areas, garbage collection, water for the communal gardens, electricity for communal areas, insurance, security and management fees. The Community of Co-owners is a legal entity, formed exclusively of the owners of a building’s apartments or of the properties in a housing scheme, whose aim is to ensure the maintenance of the plot’s communal areas. Every owner is required to contribute proportionally to these expenses incurred from maintaining the areas as well as the shared services. The percentage of costs attributable to each owner is usually fixed according to the area squared of the flat or the plot when compared to the total fixed plot size of the building. The annual budget for community expenses is stated at the general annual meeting of the landlords who, in person or via their authorised representatives, must approve the budget via a majority vote amongst those present at the meeting. Spanish law requires that the President of the Community is the owner of a property in the same complex and is elected by a vote by the other joint owners. N.B The President should receive no compensation for this role.
It should be highlighted that in a building’s apartments, the Community of Landlords is required to maintain the building’s reconstruction value. The individual insurance policy for each apartment should, therefore, not guarantee the full value of the apartment, if not only the damage to the interior of the apartment itself, its contents and its liability to third parties. It is also advisable to insure the building at first risk in case the Community does not have combined insurance.
- Revenue tax in Spain
You must also pay an annual tax on any revenue generated here in Spain, whether you are a resident or not. “Non-residential landlords in Spain must pay tax on Non-Residential Revenue (IRNR)” because they must declare their private income made on the property”. There are two ratings for this type of private income generated from property: - Income from renting your property: 24% of the profit (i.e. revenue minus expenses) -Tax for property income derived from the property’s own use: 24% on 1.1% of the Cadastral Value of the Building. If you are intending on becoming a Spanish resident, you should declare your income and show your Statement of Personal Income Tax (Déclaration d’Impôt sur le Revenu des Personnes Physiques – IRPF) regardless of how you acquired it. Fiscally speaking, if you have lived in Spain for longer than 183 days in a year, you’re considered to be a resident even if it may not officially be the case.
- Tax on capital gains and retentions
The tax on capital gain for residents in 2016 is 19% for capital between 0-6.000€, at 22% for 6.000- 50.000€ and 23% for 50.000€ +. With regards to tax for residents selling a habitual residence in Spain, the received funds from the sale may be used for the purchase of another habitual residence during the two years preceding and following the sale of the first house. If the sale total is reinvested into the new house, the previously paid tax on the former house will be fully exonerated. However, if only a portion of the sale of reinvested, the tax liability will be reduced correspondingly. Under the new law, all non-residential sellers, regardless of the date on which they acquired the property, are subject to retention of 3% of the sale price. This is paid to the tax authorities by the buyer on behalf of the seller and is applied in exchange for the tax on the seller’s capital gains. Ensure you know how to differentiate between constructed square meters and real square meters You should know that in Spain there is a significant difference between the two. We advise checking the actual square meters of a property before buying because they are often poorly marked. A Spanish seller will often let on to you that the property is 60 constructed meters squared when, in reality, the area is 48 meters squared.
Whilst hiring a professional firm is an additional cost on top of your payments (taxes, notary, registry etc), it is also imperative you avoid wasting your time and your money when deciding to invest in Spanish property.TAS Consultoría, a consultancy and accounting firm in Barcelona, advises and supports you in every step towards buying a property in Spain. Our legal experts will be at your side throughout all contract negotiations and will review it once complete. Find out more about our real estate services by purchasing our Spanish property pack or feel free to contact us via telephone for free at +34 93 159 48 91 or by email at firstname.lastname@example.org.