BUYING, SELLING & OWNING PROPERTY IN SPAIN
LEGAL ISSUES
CONVEYANCING IN SPAIN
Conveyancing is a specialist field in the legal profession, since
the property laws are often highly complex.
With this in mind, before purchasing property in Spain, the buyer
must verify in particular the following issues:
a) Make sure the seller owns the property in its totality.
b) Make sure the property is free of debts and charges such as
mortgages.
c) Verify the urban classification of the land on which the property
is built.
d) Verify the urban development plans of the land on which the
property is built.
In order to satisfy these issues, there are a number of checks
that should be carried out by the purchaser. In this sense, conveyancing
will differ from case to case.
Two of the most common are the following:
1) Acquiring a property registry report (Nota Simple Informativa)
from the land registry (Registro de Propiedad), which clarifies
ownership and any charges corresponding to the property. (The Land
Registers record estates, house, etc., including their transfers,
mortgages and other liens and seizures).
2) Checking with the Town Hall the urban classification of the
land on which the property is built, and its place in urban development
plans.
Sales contracts in Spain must be executed before a notary to have
full effect, if they are to be entered in the Land Registers.
It is common practise for both parties to enter into an initial
private agreement (which may involve a deposit, or Earnest) and
afterwards to complete a public deed of sale before a Public Notary
and register the transaction in the land registry.
After the purchase you should notify the corresponding Gerencia
Territorial del Catastro of the change of ownership resulting from
the sale.
TAX ISSUES IN SPAIN
Applicable taxes on the acquisition of property in Spain
VALUE ADDED TAX (VAT)
VAT is a tax on transfers of property, among other things, made by businessmen or professionals in carrying out their activity. This means that, except in the event of exemption, the transfer of property made by a businessman (for example, a commercial company) in carrying out its business activity in Spain, will pay VAT.
Nevertheless, the second and later transfer of buildings are exempt from VAT when they take place after the building or renovation has been completed.
Exemptions relating to the second and later transfer may be the object of renunciation by the passive subject (seller), as long as the following requirements are met:
- The purchaser is a passive subject who acts in carrying out his business or professional activities, and has the right to the total deduction of the tax paid for the acquisition of the properties.
- The renunciation is reported officially to the purchaser prior to or at the same time as the transfer of the property.
- The purchaser justifies his condition of passive subject, with the right to the total deduction of the VAT paid for the acquisition of properties by means of a signed declaration.
The taxation rate of VAT is 7% in the case of housing and 16% in the case of business premises, and the tax is paid to the seller.
As well as VAT we must also add a tax for the concept of Documented Juridical Acts (AJD) which ranges from between 0.5% and 1.5%, according to the autonomous community, and which must be paid to the corresponding autonomous community.
TAX ON ONEROUS PATRIMONIAL TRANSFER (TPO)
The TPO of the Tax on Patrimonial Transfers and Documented Juridical Acts (ITP and AJD) is on operations which do not constitute the usual business of the companies, that is to say, their area of application is operations between private individuals. Therefore this tax is incompatible with VAT.
Operations which are subject to VAT are not subject to TPO as the taxable fact is different. Nevertheless, it is supposed that there is double taxation of VAT and TPO in the following cases:
1. Transfers of property which are declared to be subject to and exempt from VAT, except for the renunciation of exemption.
Therefore transfers of property are considered to be subject to TPO when carried out by:
• Persons who do not have the condition of passive subjects of VAT.
• Passive subjects of VAT, as long as the transfers are considered to be exempt from the payment of VAT because they are due to a second transfer of the property and the exemption has not been renounced.
The Taxation rate of the TPO is 7% and the tax is paid to the corresponding autonomous community.
TAX ON THE RISE IN VALUE OF LAND OF AN URBAN CHARACTER
IIVTNU, commonly called Impuesto sobre Plusvalía (Tax on rise in value), is on the rise in value of urban land and is calculated when a property is transferred, taking into consideration the period the property has been in the ownership of the transferor.
The seller must pay this tax to the Town Council.
TAX OBLIGATIONS
The purchaser of the property must have a Tax Identification Number in Spain.
Should you need any further information, please contact:
Legal issues
Mr. Juan Antonio de Rueda
e-mail address: jrueda@icab.es
Tax issues
Mr. Borja de Abadal
e-mail address: b.abadal@abdc-abogados.com
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