Buying Property in Spain: Guide for Foreigners
Taxation Researcher | August 11, 2022
Standing proud among its European neighbours, Spain has long been a prevalent choice for foreign real estate investors. Between its easy-going lifestyle, world-renowned gastronomy and favourable climate, this historic kingdom remains an attractive option for those seeking to grab their own slice of Mediterranean life.
Purchasing Real Estate as a non-resident
There are no explicit restrictions on purchasing property in Spain as a non-resident. However, it’s worth noting that foreign investors can expect to pay more in overall fees and taxes than resident investors purchasing a primary residence.
Non-residents seeking to purchase real estate in Spain will need to acquire a TAX ID Number or NIE (Número de Identificación de Extranjero) ahead of the transaction in order to be able to pay any associated taxes.
There are two independent value measurements associated with real estate in Spain, upon which various taxes and costs are calculated.
The Cadastral Value (valor catastral) of a property refers to the estimated capital value of a property officially recorded in the land registry (Catastro). This value is determined by the local council based on various factors, such as the property’s location and surroundings, surface area and construction quality. This value can be found on the property’s IBI receipt and via a local land registry branch.
The Purchase Price refers to the sum agreed upon for the sale of the property. This value tends to be significantly higher than the cadastral value and typically forms the basis on which most sales taxes are calculated.
The fees and taxes associated with purchasing real estate in Spain fall into two main categories - sales taxes and maintenance taxes. As the names suggest, sales taxes are the one-time fees charged on the purchase and transfer of a property, while maintenance taxes are the regular fees associated with property ownership.
Sales Taxes & Fees
- Brand new properties incur different sales fees than second-hand real estate, with VAT or IVA (Impuestos sobre Valor Añadido) charged at 10% of the purchase price for residential properties and 21% for commercial real estate and plots of land. This is different in the Canary Islands, where IGIC (Impuesto General Indirecto Canario) is charged instead of VAT at 7% of the purchase price.
- Stamp Duty or AJD (Actos Juridicos Documentados) is also charged on new properties at a rate somewhere between 0.5% and 1.5% of the purchase price depending on the region.
- The principal tax charged on resale properties in Spain is ITP (Impuesto sobre Transmisiones Patrimoniales) and varies according to the property’s cadastral value. ITP is charged at 8% on properties worth up to €400,000, 9% on properties worth between €400,000 and €700,000, and 10% on those worth anything beyond this value.
- Capital Gains Tax (Plusvalia) is a tax paid based on a property’s cadastral value and the appreciation of the land value while owned by the seller. This tax is therefore charged at higher rates the longer a property has been owned. Tax coefficients vary significantly between regions. Plusvalia is typically paid by the seller but can also be paid by the buyer if so agreed by both parties.
- Purchasing property in Spain will also involve a number of additional fees related to the overall transaction and associated services. First among these is the Notary Fee, which covers the cost of preparing and witnessing the signing of the title deed and ranges from 0.1% of the purchase price for properties worth over €400,000 to 0.4% for properties valued under €100,000.
- The Land Registry Fee (Registro de la Propiedad) is the charge incurred to register a property under the buyer’s name with the local land registry. Rates can vary between 0.4% and 1% of the purchase price depending on the region, location and property type. In the case that a property is mortgaged, the bank issuing the mortgage is instead liable for this payment.
- Those purchasing Spanish real estate will also require the services of a Gestoría to ensure all fees and taxes are correctly paid to the relevant bodies and transfer any local council taxes, community charges and utility bills to your name. A Gestoría will typically charge a set fee starting around €100.
- Though not an explicit requirement, it’s highly recommended to hire a lawyer to aid in the legal transfer of the property. Legal Fees vary from firm to firm, but they typically fall around 1% of the purchase price.
- When selling through an estate agency, sellers are also liable to pay Agency Fees somewhere in the range of 2% to 10%. The fees charged to the buyer are typically included in the final transaction value of the property.
- Those looking to take out a mortgage on a property should also expect to pay additional Mortgage Fees. These include an initial property valuation conducted by the issuing authority, charges at a set fee of around €500, plus roughly 1% of the agreed mortgage value.
Maintenance Taxes & Fees
- The primary tax charged on the ownership of property in Spain is known as IBI (Impuesto sobre Bienes Inmuebles). This is a tax paid directly to the local council, charged at varying rates between 0.4% and 1.3% of the cadastral value depending on the region. IBI can be paid monthly or quarterly upon prior agreement and typically costs €200 to €800 per month.
- Waste Collection Tax (Exacciones municipales) is a much smaller fee charged annually for the regular collection of household waste. Fees are calculated based on the type and size of a property, typically costing between €90 and €170 per year.
- Communal Fees may be invoiced to co-owners of apartment-style properties to cover the maintenance of communal amenities and services. Typically, those who own a larger proportion of a property will be expected to pay a larger fee accordingly.
- Rental Income Tax or IRNR (Impuesto de la renta de no residentes) is charged on all residential properties not used as a primary dwelling, whether or not they’re actually rented out. In the case that a property is rented out, this income is taxed at 19% for EU/EEA citizens and 24% for foreign residents.
- In the event that a property remains empty, the same rates apply to the estimated potential rental earnings of the property, evaluated at 1.1 - 2% of the cadastral value. In both cases, payments are made quarterly in January, April, July and October.
- In place of IRNR, Corporation Tax is charged to resident companies on the net income generated by commercial properties. The rental income of any residential lettings is incorporated into this net total. In most cases, Corporation Tax is charged at 25% of net income, raised to 30% for select organisations such as banks.
- Wealth Tax (Patrimonio) is an additional annual charge on properties worth over €700,000, or over €500,000 in Catalonia. Individual regions are at liberty to assign their own rates, but the National Default sets out the basic rates to be charged on values exceeding the €700,000 exemption as follows:
- Up to €167,129 - 0.2%
- €167,129 - 334,253 - 0.3%
- €334,253 - 668,500 - 0.5%
- €668,500 - 1,337,000 - 0.9%
- €1,337,000 - 2,673,999 - 1.3%
- €2,673,999 - 5,347,998 - 1.7%
- €5,347,998 - 10,695,996 - 2.1%
- €10,695,996+ - 2.5%
- In the event that an investment property generates interest or dividends, these may be subject to an additional Withholding Tax of 19% of the profit value. This is the amount to be withheld by the issuing authority of the interest or dividend to be paid directly to the relevant tax authority.