Property Purchase & Tax Implications

Whether you are buying a property as your residence to live in, or as an investment, or even if you are buying a commercial property in Spain, as with everything in Spain it pays to plan ahead and take into account how the property will be legally held once you have purchased it.

Ownership

Will the property be owned by an individual, individuals, Spanish or foreign company or some tax efficient corporate structure.

Type Of Property

Residential or commercial? Industrial, plot of land (with or without permission to build). Apartment, house, villa, garden or no garden, agricultural land, shop.

Use Of Property

Are you going to live in it, all year round, holidays, rent it out, lease it for commercial use, operate a business or sit on it as an investment.

What Taxes

• Taxes on purchase will be a 7% transfer tax, or
• 7% VAT if residential property, or
• 16% VAT if commercial property or urban land

IF the property is subject to VAT then it will also incur stamp duty of 1 or 2%

It could be better to use a Spanish company to purchase a business property to offset or reclain IVA

Other Considerations

• The buyer should withhold 3% of the purchase price if seller is a non resident. This 3% is paid to the tax man as it is paymemt on account of the sellers capital gains tax. The liabilityfor this tax sits with the property so buyer beware as they say!
• While the annual wealth tax is a thing of the past, an annual tax on the deemed income is liable, at the rate of 24% of 2% of the cadastral value. This rises to 3% if the property owned by a company incorporated outside the EU.
• Where a company owns the proerty in Spain the actual annula rent is immaterial! It is the market value rent that must be declared, and includes properties owned by individuals of the company as well! The tax rate is 24% of this market value rent for non Spanish companies with no deduction of expenses (Spanish companies declare the income, deduct the expenses and pay tak on the profit)
• Individuals and non Spanish comapnies pay Capital gains tax at 18% (25% for a Spanish company, BUT they get to deduct losses, rising to 30% over 125.000€) CGT is also due on the transfer of shares in offshore companies owning Spanish properties.

As ever PLEASE take advice from a professional before buying any property. This article is purely intended as a guide to help you think through the implications!

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