PROPERTY TAXES IN SPAIN

Impuesto sobre Transmisiones Patrimoniales (I.T.P.)

Whenever a house, apartment, building plot, or agricultural land is purchased from a private owner, tax is payable. It is generally 7% of the declared value of the property, and 16% for urban or rustic lands as expressed on the Title Deed or “Escritura Publica”, and is commonly known as transfer tax (I.T.P).

For properties which purchase price is higher than 400,000 euros the tax has risen to be 8%. This property transfer tax is paid by the buyer

This has led people to be tempted to under-declare the value of the property, in order to pay less transfer tax. Although this practice used to be widespread and still occurs, it is not legal.

Abuse may lead to penalties being paid and also leads to a Capital Gains Tax headache at a later date, since the declared value on your purchase will be the base line used by authorities when assessing the Capital Gain when you sell the property.

Impuesto sobre el valor añadido (I.V.A.)

This is the Spanish equivalent of VAT.

When purchasing from a promoter rather than a private individual, transfer tax is no longer applicable. Instead the taxes payable are IVA (VAT), and IAJD (stamp duty), the latter being levied at 1% of the purchase price.

At present, the tax is charged at the following rates:

16% on building plots and on additions carried out subsequent to the construction of a property.
7% on the construction of a house, and any associated buildings, excluding commercial premises.
7% on both the plot and the house, if they are purchased at the same time.

Notary Fees

These are not strictly taxes but rather administrative fees.

Land Registry Fees

These are not strictly taxes but rather administrative fees, and vary according to the locality, type and value of the property.

ANNUAL PROPERTY TAXES

Impuesto Sobre Bienes lnmuebles

This is the main local property tax paid by all owners of property in Spain.

The amount of the tax is calculated by reference to the “valor catastral” (official value of the property), registered in respect of all properties in Spain.

The percentage of the “valor catastral” changes as tax varies from area to area.

The official values were until recently very low. They are now rapidly rising, pursuant to a policy of the Spanish Government, which will result in the official values approaching the real value of the property.

Tasas

Some Municipalities raise additional taxation in relation to the services that they supply to people in the area. These may include rubbish collection, cleaning of the streets and beaches etc.

Municipalities also have the right to raise a charge for the use of a vehicle in their area.

The amounts of these “tasas” y “cargas” are generally not very high.

NON RESIDENT CAPITAL GAINS TAX ON THE SALE OF A PROPERTY

If a capital gain is made as a result of the sale of a Spanish property, then this will be subject to taxation in Spain. As of January 2007, the capital gains tax for non residents was reduced from 35% to 18%, and the withholding tax reduced from 5% to 3%.

Calculation of the Capital Gains Tax in Spain

In principle, a capital gain is determined by first calculating the “purchase value” of the property (original purchase price to which are added the directly related taxes and costs), and the “sales value” (sales price from which are deducted the directly related taxes and costs, including legal fees and estate agent’s fees).

Then, the amount of the “purchase value” is deducted from the “sales value” to give you the capital gain. This resulting capital gain, which is then subject to taxation, can then be reduced even further by the following:

Adjusting the amount by applying an inflationary co-efficient which is updated on an annual basis by the General Budget. The coefficient depends on the year of purchase. It is important to note that an inflationary co-efficient can only be applied if the property was purchased at least one year prior to the sales date.
If the property has been rented, the purchase value could be reduced by the amortization corresponding to the rental period. The amortization is also adjusted by relevant coefficients.

The final adjusted capital gains tax amount is then taxed at the flat rate of 18%.

It is important to note that the purchaser, resident or not, is obliged to withhold from the vendor 3% of the sales price, this amount to be deposited with the Tax Authorities on behalf of the vendor’s capital gains tax liability. This amount must be paid within 30 days of the sale taking place. The Tax Authorities will deduct this amount automatically from the vendor’s actual capital gains tax liability. However should the amount deposited be more than the tax due, then the seller may apply for a refund of the difference.

Update for 2010:

We are still getting used to the tax changes for 2007 with regards to Capital Gain Tax. In this year, both residents and non-residents paid 18%. Previously non residents paid at 35% and residents paid at 15%. Now have to get used to some more changes

On January 1, 2010, Spain raised its capital gains tax from 18% to 19% on profits up to 6.000 Euros made in one year. The rate now jumps to 21% on profits over 6.000 euros.

However, as of June, 2010, the tax increase is frozen at 19% for non-resident property sellers, meaning they pay only 1% extra tax instead of 3%. Most observers feel that this is an error on the part of the lawmakers which will be corrected in the near future.

Useful Information on Capital Gains procedures for non residents

The capital gains tax form: Model 212 to be presented by the vendor (the filing period is three months after the end of deadline of the period for payment of the withholding tax).
The withholding tax form: Model 211 to be presented by the buyer (the filing period is within 30 days of the sale taking place.)
Filing place: At the District or Local Office corresponding to the location of the property
Capital gains tax rate: 18% of the net gain.
Withholding tax rate: 3% of the sales price.

Tax-refunds

In the case of a capital loss or should the withholding tax exceed the capital gains tax payable, then the vendor may apply for a refund of the excess. Once the capital gains tax declaration (212) has been filed, the Tax Authorities are obliged to carry out a provisional settlement within six months following the deadline established for the filing period of the form 212. If the provisional settlement has not been performed within this period, the Tax Authorities will refund the excess of the self-assessed tax due. If six months have passed without a refund due to reasons attributable to the Tax Authorities, then interest on the amount payable would be due.

EUROPEAN COURT EXTENDS CGT REFUND TO 1997

It was manifestly unfair that residents paid only 15% capital gains tax while non residents paid 35% up to 2007, especially when the non-resident sellers were EU citizens.
European Court of Justice has ruled that non-resident sellers all the way back to 1997 can claim a refund. The ECJ over-ruled Spain's claim to a four-year statute of limitation of the claims