The acquisition of Spanish real estate implies the accrual of taxes for the foreign investor individual upon transmission, during the holding period and upon disinvestment, which may differ from one area to another across the Spanish territory.
Although it is difficult to anticipate which is the best location for a non-resident investor, in terms of taxes, we have detailed below some of the rules that are worth taking into account when looking into Spanish real estate, all subject to further analysis of each concrete case.
Now that the housing market starts recovering, we hope the information below prove useful.
✔Upon acquisition, the buyer has to pay indirect taxes. If we invest in a newly-constructed first hand property, a 10% VAT applies (for home dwellings). If the property is second-hand, Transfer tax applies and it might range between 7 to 10%, depending of the region of location.
Generally speaking, none of these taxes can be recovered and increase the acquisition price. Consequently, anticipating the level of taxation is highly recommendable given the variations in tax rates.
✔Although Spain has a strong network of international tax treaties, they attribute the capacity to tax any income or capital gain deriving from Spanish real estate properties to the country where they are located.
During the holding period:
- If the property is at the non-resident’s individual disposal, generally 1.1% of the property’s cadastral value is assigned as deemed income and subject to a 24% tax rate*. Although, in practice, this tax does not imply any material amounts, the Spanish tax authorities have recently intensified their focus in this area, especially in touristic locations with strong foreign property investment.
- If the property is leased, the rental income is also subject to tax, at the 24% flat rate* for non-residents.
*A reduced rate of 20% is foreseen in 2015 for residents in the EU, Iceland and Norway.
In this case, the capital gain deriving from the transfer is also taxable in Spain, as the property is located here. Although there is no change in rates throughout the territory in terms of direct taxes (20% in fiscal year 2015), there is a local tax on the increase of value of urban land that must be paid by the seller, which changes significantly from one municipality to another.
✔Local, Regional or State taxes that impact throughout the whole investment period and that are worth knowing to maximise our investment’s profitability.