When a person of foreign nationality decides to acquire a property in Spain, he/she must face a legal system that surely works in a completely different way from his native country, especially if he comes from a country of Anglo-Saxon or Asian tradition.
What must be taken into account when buying a property/house in Spain?
Any foreigner can buy a flat/apartment/house or land in Spain.
- It is required to have a Foreigner Identification Number (NIE) which can be personally obtained or by an authorized representative (a lawyer, for example) in the immigration offices of Spain or from abroad through the Spanish Consulate, proving the reason for requesting the NIE. Without NIE it won’t be possible to open a bank account for the payment of the prize or formalize the sell-purchase deed before the notary.
- Contracts and deeds:
Usually the first step of the future sale of a property is the Deposit Agreement, named “arras” in Spanish, it is a private document that reflects the mutual commitment of buyer and seller and should clearly specify what are the basic conditions of that future sale. Arras contract is a private document to book for the prospective buyer a right to buy the property providing for it a sum of money to the seller, and penalizing the buyer or seller if they break that agreement.
Fundamental data that must contain the earnest money contract is all the data that will appear in the future contract of sale:
(a) Exact identification of the Property: including its physical description and Property Register details; attachments (garage, storage, terraces, garden …); including the exclusive use of a community element (if it is the case), “cédula de habitabilidad” number in case of a dwelling (a copy must be surrendered);
(b) Must be expressed if the property is free of occupant or tenants and if there are any liens or encumbrances (mortgages, liens, …), and established the way to release such charges before the final purchase and who will pay the expenses of such cancelation.
(c) Final prize and means of payment.
- Deadline to formalize the purchase before a Notary.
- Covenants on distribution of expenses in the sale, for example, IBI (local tax) of the current year, ordinary community dues, extraordinary expenses agreed or pending approval by the community.
- Amount paid as deposit or “arras”, specifically mentioning that all amounts delivered will be deducted to the final price.
- And what happens if the contract is broken and the deed of sale is not formalized? It is necessary to reflect in the contract that the “arras” is configured as penitential, contemplating the possibility of withdrawing from the commitment by losing the buyer the quantity delivered or returning the seller in duplicate, depending on who is responsible for the withdrawal. This latter question has given and gives rise to numerous lawsuits and jurisprudence of the Courts, so it is always advisable to have good legal advice before proceeding to the signing of a contract.
- Once the deadline for the final payment is arrived, both parties will appear before a Public Notary to formalize the signature of the sell-purchase deed and pay the rest of the prize.
This deed will have entry and will be inscribed in the Land/Property Register
Taxes to pay in Spain when buying a property
Finally, buyer must pay all taxes (and expenses) arising from the purchase of the house, which are VAT (Value Added Tax) if new housing and amounting 10% of the purchase price or Property Transfer Tax (ITP) in case of successive transmissions (second hand) and varies in each Community, in the case of Cataluña amounts 10% of the purchase price.
Other taxes to be paid are the Property Tax (IBI), local tax on annual basis, fixed by each municipality, or the rate of garbage collection.
The Income Tax for Non Resident is a state tax levied on income earned in Spanish territory by individuals not resident in Spain regularly. It is considered that a person has its habitual residence in Spain for fiscal purposes when he remains in Spanish territory more than 183 days a year. As for the amount to pay for this concept, if the property is empty and at the disposal of its owner should be calculated on the cadastral value of the property. If the flat has been rented, 24% of the annual rent will be paid.