Real Estate Investment FAQ
Is it mandatory to travel to Spain to complete the purchase?
If you decide which property you would like to buy and don´t have the time to travel to Spain, you can assign a third party to complete the whole process for you by issuing a Power of Attorney from your country of residence.
What is the NIE and why is it necessary?
Every foreigner who owns a property or resides in Spain (or pays taxes due to some other reason) has to acquire a Spanish NIE (Numero de Identidad de Extranjero) number, which is a foreigner identity number assigned by the Spanish government. Without your NIE number, you cannot legally buy real estate, car, boat, or any other piece of property. Similarly, your NIE number is also essential for acquiring the supply of electricity, water, or a telephone line etc.
HispaLux Consulting will assist you applying and obtaining the NIE on your behalf.
Is it mandatory to open a bank account in Spain?
Yes, as you will need a local bank account in Spain in order to make many of the usual payments (electricity, water, internet, taxes, etc) that are part and parcel of owing property in Spain.
HispaLux Consulting will assist you with this procedure.
What are the added costs when buying a house in Spain?
Administrative fees and taxes could vary significantly depending on the type of property and the geographical region. HispaLux Consulting will provide you with clear information in this regard before you sign any binding agreement as well as a complete briefing about other property taxes to be paid annually by property owners.
Notary fees, usually not more than 0.2% of the registered value
Property registry fees, Allow 0.2 – 0.3%
Transfer tax on a NEW Property (VAT) – 10% of the registered value
Transfer tax on a RESALE Property (ITP) – On second and subsequent transmission of a property (resale) the buyer has to pay a transfer tax known as ITP: [Impuesto de Transmisiones Patrimoniales] or Transfer tax. This tax is paid to the autonomous region where you make your purchase and it varies from 6-10% depending on the region.
What is the process once you have found the right property?
The reservation contract
Known as “contrato de reserva”, it is a non-refundable deposit used to “reserve” or hold a property for a certain amount of days until a formal contract can be signed. The amount paid at this point varies depending on the value of the property but it is typically between 500 and 2000 Euros.
The private contract
Known as “contrato de arras”, it is signed between the seller and the buyer once the final price is agreed. Although it is not always signed, it specifies:
– Description of the property being sold
– Final purchase price
– Completion date
– Deposit amount paid (usually 10%)
– Other special conditions that were negotiated
The deposit amount paid is not refundable to the buyer if he decides not to proceed with the purchase. If the seller pulls out or is not able to meet the written conditions as described in the written contract, he/she would be obliged to refund the buyer with twice the deposit amount.
It is always signed in front of a Spanish Public Notary who ensures the validity of the purchase transaction according to the Spanish law. The Notary is a neutral third party that doesn´t represent neither the seller nor the buyer.
At this stage, the Notary will verify that the property is properly registered at the Land Registry and if there are unpaid mortgages, taxes or other charges that should be paid before transferring the property to the buyer´s name.
Registering the Transfer Deed
After the payment, and before registering the property at the Land Registry, the buyer must pay the taxes related with the transfer purchase. This step and the registration process are usually done by the Notary.
Lastly, in order to record the property in the buyer´s name, the Transfer Deed should be then taken to the Land Registry.
HispaLux Consulting can represent you in order to do these steps on your behalf.
Should investors who reside in Spain be tax residents?
The way in which a physical person or an entity should pay taxes in Spain is determined as a function of whether they are a resident or not in this country. It is understood that a physical person has his tax residence in Spain when any of the following circumstances hold:
- He remains more than 183 days, during a calendar year, in Spanish territory. To determine this period, the sporadic absences will be taken into account, unless the taxpayer establishes his tax residence in another country.
- The taxpayer has the principal centre or base of his economic activities or interests, directly or indirectly, in Spain.
Certification of tax residence
Tax residence is proven by a certificate issued by the Tax Authority of the country in question. The period of validity of these certificates is one year. A person can have a residence permit or administrative residence in a State and not be considered a tax resident in it.
In all the agreements signed by Spain, in order to define a person who is resident in a State, reference is made to the internal legislation of each State. Keeping in mind that each State can establish different criteria, two states con coincide in considering a person a resident. In these cases, the Agreements establish, on a general basis, the following criteria in order to avoid that a person be consider a resident in the two States:
1. He will be a resident of the State where he has a permanent home at his disposal.
2. If he were to have a permanent home at his disposal in both States, he will be considered a resident of the State with which he maintains the closest economic and personal relations (centre of vital interests).
3. If it cannot be determined in this way, he will be considered a resident of the State where he habitually resides.
4. If here were to live habitually in both States or in neither of them, he will be considered a resident of the State of which he is a national.
5. Lastly, if he were a national of both States, the competent authorities will resolve the case by common agreement.
If the taxpayer is a resident of a country with which Spain has signed an Agreement to avoid double taxation, the taxpayer should justify his residence in the other country that has signed the Agreement, by means of a certificate of residence issued by the Tax Authorities of his country.
What are the taxes on rental income?
24% income tax generated by the rental of the property.
Do I need to make a Spanish will (testamento)?
Non-Spanish clients who own property in Spain should definitely consider making a Spanish will. Should you fail to do so, the consequences for your descendants can be costly in terms of both time and money. Moreover, the Spanish tax authorities can actually decide who inherits your property in Spain.