Applicable taxes on the acquisition and sale

To determine the taxation associated with the purchase of a property on the Costa del Sol it is necessary to differentiate:

• Property taxes and owner’s taxes.
• Whether the purchase is a new or second hand property.
• Regarding the costs, it will also influence whether or not the property is purchased with mortgage financing.

1. Real Estate Taxes

Value Added Tax (VAT) on New Developments

• Applicable on the purchase cost of new or first transfer properties.
• The applicable rate is 10% throughout Spain, except in the Canary Islands, where the rate is 6.5%.
• It is important to bear in mind that garages and annexes transferred together with the purchase of a new home can also benefit from this reduced VAT rate of 10%. If you are interested in acquiring a second parking space, it is interesting to buy it simultaneously with the new development and the first parking space, saving you 11% in VAT difference.

Transfer Tax (ITP) on Resale

• ITP is the tax payable on the purchase of second transfer or resale properties. Law 5/2021 of Andalusia reduced the rate applicable to the transfer of real estate to 7% as a flat rate, with no time limit.
• Prior to this reform, there were three progressive brackets of 8%, 9% and 10% for amounts up to €400,000, €700,000 and subsequent amounts.
• Although a temporary reduction to 7% until 31 December 2021 had been approved due to the COVID crisis, it has now been approved as a flat rate with no time limit, i.e. 7% from 20 October 2021.

Documented legal acts (AJD).

AJD levies on notarial documents with an economic value and which can be inscribed in the Register, as is the case of the sale and purchase of new homes and mortgages.

• In the first copies of deeds and notarial deeds, the tax rate will be obtained by applying 1.2% in Andalusia on the taxable base of the value of the property (Law 3/2012) and will be paid by the buyer, although the new Mortgage Law establishes that the bank will pay the AJD in the constitution, subrogation or novation of mortgages.
• The management of this tax is the responsibility of the Autonomous Communities, and it must be settled by means of form 600 Self-settlement.
• The formalization in a public document of the contract of sale (deeds) of new homes is subject to Transfer Tax and Documented Legal Acts, in the Documented Legal Acts modality.

2. Property Owner’s Taxes

In addition to the taxes levied on the property, the owner of a property in Spain must pay in Spain the:

Non-Resident Income Tax (IRNR).

This is an annual tax levied on the owner of the property, and is payable from the year following the purchase. The Spanish State Tax Agency (AEAT) assumes that all non-resident owners derive economic benefits from their property, and therefore assigns to each property an annual imputed income of 1.1% or 2.0% on the cadastral value of their property.

• If the cadastral value of the property has been updated within the last 10 years, the imputed income is 1.0% of the cadastral value, used as the basis for calculating the non-resident tax.
• If the cadastral value was updated more than 10 years ago, the imputed income becomes 2.0% of the cadastral value.
• Owners resident in non-EU countries will pay 24% of the taxable income (either 1.1% or 2.0% of the cadastral value).
• Owners resident in another EU Member State, Iceland and Norway pay 19% of the tax base. This is a reduced rate that has been applied since 2016.
• If you rent your property to a third party, residents of the EU, Iceland and Norway pay tax quarterly on a net income (deducting certain expenses) and at a tax rate of 19%.
• All other non-residents are taxed on gross income (no expenses are deductible) and the tax rate is 24%. In that case, and during the rental period, the imputed income tax rate specified above would not be applicable but on the actual income.

Property Tax in Andalusia.

With effect from 21 September 2022 Property Tax has been eliminated in Andalusia.

Property owned by a non-resident company.

When a property belongs to a corporate structure located in a jurisdiction outside Spain, an annual tax of 3% of the cadastral value is payable.

*Legal Note. The legal, tax and financial legislation and regulations applicable to real estate investment are subject to frequent changes, and their scope and impact vary according to the personal and financial circumstances of each investor and the characteristics of each type of transaction. This document does not constitute an investment recommendation on any asset, nor does it have any contractual effect. Contact Samsara Wealth for a global and detailed analysis of your real estate investment project, adapted to your asset profile and the type of transaction in each case.