Below is a brief overview of the various fees and taxes incurred for the sale of property in Spain, including the consequences of some peculiar cases, such as that of the seller not having a tax residence in Spain.
Fees for real estate acquisition
Buyer:
- Liability for the fees incurred for the notarisation and entry into the land registry generally lies with the buyer
- If a lawyer has been commissioned for the transaction, the lawyer’s fees will have to be paid by the commissioner
- Regular taxes generated by the property must be paid by the owner: these include an annual real estate tax (IBI) calculated based on the property’s cadastral value as well as income tax for the property’s use. The latter is incurred both in case of rent and in case of private use.
Seller:
- The seller is legally liable for the notarisation fee. However, the seller will often try to contractually shift this obligation onto the buyer
- If the seller went through an agent, the seller is liable for the agent’s fees. Again, the seller will often try to shift this burden onto the buyer
- Finally, the seller is liable for whatever fees of any lawyer the seller may have commissioned for the transaction.
Taxation of real estate acquisition in Spain
Real estate acquisition is subject to either purchase tax (IVA) or real estate transfer tax (ITP). These can never be incurred simultaneously, as one tax precludes the other.
The ITP is incurred in case of acquisition from a private individual, while the IVA is incurred if the property is acquired directly from a developer. The payment of taxes requires a Spanish tax number (NIE), which a foreign buyer should request ahead of time. If the transaction is subject to value-added tax, it also incurs a stamp duty.
Furthermore, the seller is liable for the value increment tax, which taxes the increase in value of municipal land since the last transaction. Sellers will often try to shift this burden onto the buyer.
A peculiar case is that of income tax. When selling real estate, the seller is subject to a one-time tax classified as an income tax. This tax burden can be restricted (for non-residents) or unrestricted (for residents), with the following consequences for the sale of real estate:
- If the taxpayer does not have a tax residence in Spain, a flat 3% of the purchase price will be withheld during notarisation as a security for the tax authority. The seller can then honour the liability by making a tax declaration specifically for the transaction. If the proceeds made during this transaction is greater than 3% of the purchase price, the difference will have to be declared within four months of the notarisation. If they are less, the seller will be entitled to a full or partial restitution of the amount withheld.
- Taxpayers with a tax residence in Spain will simply declare the transactional proceeds in their annual income tax declaration.
Law 26/2014, dated November 27th, and entered into effect on the January 1, 2015, substantially changed the assessment basis of real estate. Before this law, the original purchase price was adjusted by a flat coefficient for tax purposes, thereby nominally increasing the former and reducing the seller’s proceeds. As of January 1, 2015, this coefficient is no longer applied to any transaction made after that date, with no transitional rule, effectively quadrupling the tax burden for any transaction compared to the preceding year. To offset this additional tax burden, the tax itself was slightly lowered, first to 20% in 2015, then to 19% in 2016. However, this has not succeeded in significantly compensating for the earlier increase.
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