PRACTICAL GUIDE JANUARY 2014 THE PROCESS OF PURCHASE OF A PROPERTY IN SPAIN The acquisitin f prperties in Spain implies a number f legal bligatins. If yu decide t purchase a prperty in Spain, which is the legal prcessing t be fllwed? 1.- PRIOR QUESTIONS TO THE PURCHASE: OBTAINING A N.I.E. NUMBER (tax identificatin number fr freigners) The N.I.E. is an identificatin number fr freigners fr fiscal purpses, necessary t carry ut any ecnmic activity in Spain. It has t be handed ver t the Ntary and is necessary fr any tax payment. The N.I.E. number has t be requested in the Natinal Plice with a cpy f yur passprt, legalized by a Ntary and is issued tw r three weeks later. GRANTING OF A POWER OF ATTORNEY If yu want t simplify the legal prcessing f purchase, r yu may nt be present t sign all the dcuments related t purchase yurself, it is recmmendable t grant a pwer f attrney t yur legal representative, cntaining a list f capabilities, which s/he is enabled t carry ut frm the beginning f the purchase/sale. Yu can grant the pwer f attrney in frnt f a public ntary in Spain, in frnt f a ntary in yur cuntry f rigin, r in the Spanish Cnsulate (it is necessary t fix an appintment). If the pwer is granted in frnt f a Ntary in the cuntry f rigin, it has t be translated int Spanish and the signature f the ntary has t be legalized with the Apstil f the Hague. If it is granted by a Spanish Cnsul, neither translatin, nr legalizatin is necessary.
EXAMINATION OF THE LEGAL STATE OF THE PROPERTY: Once yu have chsen the prperty yu wish t purchase, ILLESLEX carries ut a due diligence cntaining the main details f the prperty and especially a study abut its legality. Cnsidering that the purchase f a prperty n rural plts in many cases pses the prblem f husings built withut municipal license, a study f the legality and if the legalizatin is pssible is carried ut. In additin we carry ut a study f the dcumentatin t be required frm the vendr fr the cmpletin f the purchase granting the public deed f purchase. As well we study the existence f liens r encumbrances that may burden n the prperty. We advise ur custmers t cmmissin this survey t Illeslex Abgads befre the signature f any private cntract and especially befre the handver f any amunt, because the cnclusin may be, that the purchase is nt advisable. 2.- PRIVATE CONTRACT: T acquire the wnership f a prperty in Spain it is nt necessary t sign a public deed (ntary frmalizatin), althugh it is necessary fr its registratin in the Prperty Registry. As we will explain later the registratin in the Registry is very imprtant, althugh ptinal. Once the vendr and the buyer have agreed the price, cnditins f payment and ther agreements they cnsider apprpriate an ptin cntract r a private purchase cntract with deferred payment is signed. In case bth parties are in agreement and the buyer is already in pssessin f the necessary financing f the purchase, the public deed can be directly granted in frnt f a Ntary, chsen by the buyer. Nevertheless in the majrity f cases an ptin cntract t purchase is signed and in rarer cases a private purchase cntract with deferred payment f the price. 2
Optin cntract f purchase: The ptin cntract is a private cntract and binding fr the vendr. In cnsequence he bliges himself with it t sell the prperty t the purchaser. Usually with signature f this cntract is paid a 10% f the purchase price as ptin rate, althugh the percentage r amunt f the ptin rate may be freely agreed between the parties, based n the temprary reservatin established in the cntract. This ptin rate can be paid either directly t the vendr r depsited in the bank accunt f a third party, which usually is the lawyer invlved in the purchase, r f the estate agent, wh carried ut the peratin. T the buyer is granted a time limit between ne and three mnths t exercise the ptin. Exercising the ptin means in practice, that the purchaser ntifies t the vendr that he wishes t buy and grant the public deed f purchase, cmmunicating a day and time f appintment at the ntary t sign the public deed f purchase. In the ptin cntract are agreed the cnsequences f failure t fulfill the cntract, in case the vendr r the buyer finally d nt appear t grant the public deed f purchase in the ntary. In case the purchaser fails t appear nrmally the parties agree that the ptin rate will be withhld by the vendr and the cntract is cancelled. If it is the vendr wh fails, the buyer is enabled t chse between requiring frm the vendr t grant the public deed f purchase, r that he refunds the received and depsited ptin rate plus anther amunt f the same quantity. This purchase ptin cntract des nt assign the prperty in terms f a purchase, it nly grants a right t purchase and fr the vendr an bligatin t sell. Private Purchase Cntract The private purchase cntract, less cmmn, is signed, when the buyer wants t purchase the prperty frm the mment f signature f this private cntract. In this type f cntract is agreed the deferred price, the frm f payment, the date f the granting f the public deed and the circumstances f default and cancellatin f the cntract. 3
3.- PUBLIC DEED OF SALE: The granting f the public deed f sale is indispensable fr the registratin f the acquired prperty in the name f the buyer in the Prperty Registry. Once registered n liens f debts n behalf f the vendr, registratin f charges n the prperty, r the sale f the prperty can be implemented, because the prperty des n lnger appear in the name f the vendr in the Prperty Registry. The public deed is granted in frnt f a ntary, including the legally required dcumentatin, such as prfs f carried ut payments and the last receipt f the Municipal Prperty Tax (IBI). In additin, the vendr is required t hand ver the certificate f ccupancy, the energy efficiency certificate and in case f rural, urban r pint wnership varius ther dcuments. Befre the granting f the public deed a detailed estimate f csts fr all cncepts until the registry f the title deed f sale in the Prperty Registry will be sent t the clients, rates which are different fr the vendr and the purchaser. These csts cnsist in: Ntary, Prperty Registry, lawyer fees and purchase taxes. 4.- COSTS ASSOCIATED WITH THE PURCHASE: NOTARY AND PROPERTY REGISTRY FEES After the granting f the public deed have t be paid the fees f the ntary, whereby the riginal f the deed is prvided fr its registratin in the Prperty Registry. Befre this the taxes related t the peratin and the municipal tax has t be paid. It is recmmended t change the bearer f all the bank direct debits regarding the supplies related t the prperty, in rder t avid default f payments and the related trubles. Due t this, the vendr has t prvide the last bills f the utility cmpanies (water, gas, electricity, telephne, etc.) t the purchaser. Our ffice prvides this service f change f wner. 4
TAXES Once frmalized the deed f sale in frnt f the Ntary, the fllwing taxes must be paid: 1.- LOCAL TAXES: MUNICIPAL TAX Tax f increase f value n urban prperties. As result f the transfer f wnership f a prperty, r the prvisin, r transfer f prperty rights, the tax f increase f value n urban land has t be paid. In the case f sale f a prperty the payment f the tax crrespnds t the persn, cmpany r entity, wh sells, due t the increase f value the plt has experienced during the wnership. If the vendr is a nn-resident natural persn, cmpany r entity in Spain, the purchaser is in charge f the payment f the municipal tax as substitute n behalf f the vendr, wh is the persn bliged t pay this tax. Therefre, the vendr must hand ver the amunt f the tax t the buyer. Terms: The payment must be cmpleted within 30 wrking days t cunt frm the date the transfer has been frmalized (public deed). Lcatin: In the crrespndent twn hall, prviding a cpy f the deed. Qute: The amunt varies depending n the cadastral value (listed n the receipt f grund tax - IBI) and the number f years the prperty has been in the assets f the vendr, meaning between the purchase and the sale. *Since January 2013 it is mandatry t prvide the prf f payment f the municipal tax as cnditin t register the purchase in the Prperty Registry. Hwever, if fr any reasn the payment cannt be prved, the Registry is enabled t carry ut the registratin f the prperty, always if it gets an authrizatin t cmmunicate the legal act t the twn hall, s that it is infrmed abut the peratin. 5
2.- GOVERNMENTAL TAXES: REAL ESTATE TRANSFER TAX. This tax is levied n the sale f secnd-hand prperties r successive transmissins. Taxpayer: It has t be paid by the purchaser. Term: The deadline fr the settlement and payment f taxes is ne mnth frm the date f the act r cntract, that means, the date f the granting f the public deed r the private cntract. The tax rate varies accrding t the Autnmic Cmmunity and the base f calculatin is the purchase price that appears in the deed. On the Balearic Islands the payable amunt is btained by applying n the taxable base (value f the prperty fixed in the deed) the rate resulting frm the fllwing schedule: Frm January 1 st, 2013 Base f the tax Applicable rate 0,00 a 400.000,00 8% 400.000,01 a 600.000,00 9% 600.000,01 and mre 10% *Garage places nt attached t the husing, maximum tw per prperty are taxed with 8% n a value f 30.000 and 9% exceeding that amunt. 6
VALUE ADDED TAX (VAT): The VAT is levied n the first transfer f real estate bjects, meaning the tax nly is applied n prperties f new cnstructin and first transmissin. The current applicable rate is 10% n the purchase price. Fr the rest f transfers f real estate bjects subject t VAT (lcals, warehuses, garages, which are nt transferred tgether with the dwelling, plts, etc..) is charged the general VAT f 21%. The buyer must pay it t the vendr at the time f the transmissin f the prperty. STAMP DUTY TAX In the mment f the transmissin f a prperty, subject t VAT by public deed, the buyer is bliged t pay as well the STAMP DUTY TAX t the Balearic Tax Agency, which since January 2013 in general is a qute f 1.2 % f the purchase price f the prperty. This tax must be paid within ne mnth t cunt frm the date f the signature f the public deed f sale. PERSONAL INCOME TAX The resident vendr must declare the transmissin f a prperty in his persnal incme declaratin f capital gains befre June 30 th f the fllwing year f the transfer. Gains r lsses are calculated n the difference between the purchase price (cmpsed by the real price the prperty had been acquired, plus the amunt f expenses and taxes inherent t the acquisitin, exclusive interests and adjusted by applying the annually cefficients published in the Law f General Public Estimates) and the value f the transfer (which is the real amunt, fr which the transmissin has been prsecuted, less the amunt f expenses and inherent taxes f the transmissin charged t the vendr). 7
The valid rate is 21% n the gains up t 6.000 Eurs, 25% n gains between 6.001 and 24.000 Eurs and 27% frm 24.000.01 Eurs. As new in 2013 has t be cnsidered that the patrimnial gains btained by transmissins f assets f resident natural persns in less than ne year, frm January 1st, 2013 have t be declared in the general part f the incme declaratin with rates up t 52 %, instead f being taxed as savings incme f 21 t 27 %. INCOME TAX FOR NON-RESIDENTS In case the vendr is a nn-resident, in the transmissin f a prperty, he as well has t pay the persnal incme tax regarding the capital gains. The tax rate is 21 % n the capital gain ut f the sale f the prperty. Being the vendr a nn-resident, the buyer (whether r nt resident) is required t withhld and pay t the Public Treasury 3% f the agreed price in a time limit f ne mnth frm the date f sale. This retentin has fr the vendr the character f a payment n accunt f the taxes regarding the gains derived ut f the transmissin. Therefre, the buyer has t hand ver t the nn-resident vendr the tax frm 211 (with this frm the retentin has been paid), s that the vendr may subtract the amunt f the retentin frm the rate which results frm the prfit statement. If the withhld amunt exceeds the amunt t be paid, a refund f the exceeded amunt can be requested. In the case this retentin is nt paid, the prperty will be burdened with the payment f the amunt, which results the minr ne between the retentin and the crrespnding tax. The vendr is bliged t present the tax frm 210 within a time limit f three mnths, t cunt frm the end f the term f payment f the purchaser (ne mnth). 8
5.- TAXES ASSOCIATED WITH THE POSSESSION OF A PROPERTY: PROPERTY TAX (IBI): All prperty wners in Spain (residents and nn-residents) are bliged t pay the annual prperty tax t the Twn Hall crrespnding t the lcatin f the prperty. The amunt f prperty tax is calculated by each municipality in base f the cadastral value f the prperty, applying a tax rate prvided by the same Twn Hall. In the receipt appears the cadastral reference f the prperty, which is necessary t check the registratin status f the prperty in the Cadastre and the cadastre value f the prperty, which is the base f calculatin f ther taxes n the prperty. The deadline f payment varies depending f the municipality, althugh usually it is in September, Octber r Nvember every year. WEALTH TAX: The wealth tax has temprarily been reestablished fr the years 2011, 2012, 2013 and 2014, accruing n December 31st f each f these years. A reductin f the taxable base regarding the exempt minimum f 700.000 Eurs has been adapted fr residents and nn-residents residents. Therefre, all persns are required t declare, whse declaratin results in a payment f the taxes and in any case, thse whse prperties and rights, which are valued in mre than 2.000.000 Eurs, althugh the qute results negative. Only natural persns are taxed. The tax rate ranges frm 0.2% t 2.5%, depending n the scale f the tax. 9
INCOME TAX FOR NON-RESIDENTS If the prperty is purchased directly by a nn-resident, an annual tax declaratin has t be presented, accruing n December 31 st every year. The incme t declare depends n the destinatin given t the prperty: 1º.- Imputed rents n urban real estate bjects f prper use. If the prperty is f prper use, the rate t be declared is the amunt applying a 2% n the cadastral value f the prperty (in general) r 1.1 % (fr prperties with a cadastral value revised after January, 1 st 1994). On tp f this rate a 24.75% is charged (accrual years 2012-2013) and the deadline fr settlement will be the cmplete year fllwing the date f accrual. 2º.- Incme frm leased prperties. If the prperty is rented, the rate t be declared is the full amunt btained frm the tenant, withut deductin f any expenses. Hwever, if the taxpayer is resident in anther cuntry f the Eurpean Unin, the csts freseen by the Law f Incme Tax f natural persns may be subtracted in the established cnditins. The incme is understd as received, when they can be required by the landlrd r n the day f the payment (if this is earlier). On tp f this amunt is charged a 24.75% (accrual years 2012-2013). The deadline fr settlement depends n the result: - If the result is a payment: During the first twenty days f the mnths f April, July, Octber and January regarding the incme btained in the previus calendar quarter. - If the result is a qute zer: Frm 1 st t 20 th f January f the year, fllwing t the accrual f incme. - If the result is a return: As f February, 1 st f the year, fllwing t the accrual f incme. 10
This is a generic guide develped t prvide general infrmatin f the legal prcedures in the acquisitin f prperties in Spain by nn-residents, please take int accunt that every individual case is different, reasn why it is advisable t cntact a qualified prfessinal. In ILLESLEX lawyers we understand the cmplexities f any real estate transactin and therefre we are able t give supprt ur custmers thrughut the prcess, prviding an integral and persnalized service. Palma de Mallrca Carrer dels Oms, 50 Esc.A. 1º 07003 Palma de Mallrca- Illes Balears T+34 971 728 008 F +34 971 720 570 inf@illeslex.cm www.illeslex.cm Pllença Vía Pllentia, 39 bjs. 07460 Pllença-IllesBalears T + 34 871 590 600 F +34 971 720 570 pllensa@illeslex.cm 11