Investing in the Spanish real estate market can be a lucrative venture, but non-residents need to be well-informed about the key tax issues associated with property transactions. Whether you’re a buyer or a seller, understanding the intricacies of the Spanish tax system is crucial for a smooth and successful investment journey.
For Buyers:
The first critical decision non-resident investors face is choosing the right legal structure for their investment. Options include purchasing as an individual or through a company, whether a non-resident company or a new one established in Spain.
VAT or Transfer Tax:
When acquiring a new off-plan property, buyers are subject to a 10% Value Added Tax (VAT) and a 1.2% Stamp Duty Land Tax. In Andalucía, a 7% Transfer Tax applies to second-hand property transfers, with a potential reduction to 2% if the property is sold within 5 years. These taxes are based on a minimum taxable value set by the administration known as the “valor de referencia.”
Withholding Taxes:
Buyers of property owned by non-residents must withhold 3% of the sale price and remit it to the Spanish tax authorities on behalf of the seller. This also applies to the municipal capital gains tax (plusvalía municipal), a local tax on the increased value of the land.
Income Imputation:
Non-resident property owners in Spain, who neither rent out their property nor use it as their main residence, are subject to an annual deemed income tax.
Temporary Solidarity Tax on High-Net-Worth Individuals:
Introduced in 2022, this tax was designed to replace the Wealth Tax in regions exempt from it. Non-residents may be obligated to pay the Temporary Solidarity Tax if the value of their net assets in Spain exceeds EUR 3 million. Keep an eye on potential changes, as the Andalucía government is considering the reintroduction of the Wealth Tax.
For Sellers:
Capital Gains Tax:
Non-resident sellers face capital gains tax on property sales, calculated on the difference between the purchase and sale prices, considering associated expenses and improvement costs. The 3% withheld by the buyer is deducted from the resulting capital gains tax.
Municipal Capital Gains Tax:
Buyers pay this tax directly to the Town Hall on behalf of the seller. Given the ever-changing tax landscape, staying informed about legal developments is essential for property owners and investors.
Navigating the Spanish real estate market as a non-resident involves making informed decisions and staying abreast of tax regulations. Whether you’re buying or selling, seeking legal advice is crucial. At Keller Williams, we connect you with the best legal professionals to ensure a seamless experience in your property transactions. Contact me for more information and make your investment journey in Spain a success.