Tax obligations for owners of real estate in Spain

Owners of real estate in Spain must pay tax on their properties regardless of their place of residence. In practice, resident and non-resident property owners pay the same taxes in Spain, although the names and collection mechanisms of these taxes differ.

A real estate property can generate earnings, either through renting or as a result of sale. Also, under tax law, just owning a property generates a notional income that is taxable. All these incomes have to be declared in Spain, and Spain is the competent state for collecting any tax due. This is according to all the double taxation treaties signed by Spain. These treaties follow the general OECD model under which income from real estate property can be collected in the country it is located in, regardless of the country of tax residence of the taxpayer.

In addition to paying any income tax due to the national Spanish tax agency, the property owner must also pay all other taxes due to other agencies. This includes, for instance, the municipal property tax collected each year by the local council. And, when you sell your property, the capital gains tax you also have to pay to the council.

Lastly, in Catalonia and some other autonomous communities, there is a further tax on an activity widespread among foreign investors in coastal properties: the short term leasing to tourists. The tax is a small amount due per night for every person staying in the property, which must be registered for tourist use with the local council.

Carlos Prieto Cid – Lawyer

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Inheriting abroad (2)

In our last post, we spoke about the first steps you need to take when you accept an inheritance as a foreigner in Spain. Today we’re going to look at a very topical matter: which authorities determine who the heirs are. Because, as of summer this year, the authorities of the country of usual residence will be responsible for this, which marks a change from the law in force until now in most European countries.

Around a year ago, we spoke about the important legal changes coming into effect in August 2015 regarding foreign inheritance in all EU countries with a few exceptions in the cases of inheritances of United Kingdom and Denmark nationals ( https://tarracoiuris-advocats.com/blog/en/?p=212 ). After this change, the authorities in the country of residence will usually determine the heirs. And, where no will exists stating otherwise, these authorities will apply the law in force in that country. For instance, for a German national residing in Spain at the time of their death, it will be Spain, in accordance with Spanish law, that will determine who the heirs are by applying Spanish regulations. Until now, the German authorities did this by issuing a certificate of inheritance (applying German law) in such cases. So, from when the new EU regulations on the European certificate of succession come into force, the situation will be the complete opposite.

In Spain, once you have established via the competent authorities that you are the legitimate heir, you need to — especially in the case of property inheritance — sign an Acceptance of Inheritance before a notary public. This is an official notarial document that you can use as proof of title for the banks, the Land Registry, the cadastral register, the vehicle register, etc. But before you can use this document to transfer the deceased’s property to your name, you have to pay any tax due on it, either to the regional tax authorities, if you’re a resident, or the national ones, if you’re not.

As all these procedures are very complex, you really do need the help of an expert for the entire process.

Carlos Prieto Cid – Lawyer

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Inheriting abroad (1)

The death of a loved one is always traumatic. Even more so if, as well as having to deal with the loss, you are the heir and have to go through a lot of complicated administrative procedures. Such red tape, a challenge everywhere, becomes an even bigger one when you live in a different country to where the estate of the deceased is located, or when their countries of residence and nationality are different.

In Europe, to initiate the transfer of ownership of the deceased’s property to your name, the first thing you need is a death certificate officially certifying the death. You get this certificate from the civil registry. For this certificate to be recognised in another country (e.g., for when a foreign national dies outside of Spain while owning property in Spain), it needs to be valid internationally, which can be attained with an official Apostille stamp.

In Spain, as well as certifying the death, you also have to certify the existence or absence of any wills executed in Spain. To do this, when you have the death certificate, you need to request a certificate from the Ministry of Justice’s General Register of Wills. If a will was executed in Spain before a Spanish notary public, the General Register will inform you before which notary public and on what date the deceased signed the will in Spain. As it is easy to be unaware of the existence of a will, the General Register of Wills is a great help and a way of protecting our rights. It also serves to certify when no wills have been executed in Spain.

Carlos Prieto Cid – Lawyer

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New Comprehensive Advisory Service for Property Owners

Owning a real estate property is a big responsibility. To protect your rights as an owner, your property must meet all current legal and technical requirements. To give you the peace of mind that your real estate property does meet these requirements and is fully protected legally — both now and in the event of any change in the law — Tarraco Iuris law firm would like to offer you its comprehensive advisory service for property owners.

Based in Tarragona, our specialist team of lawyers and technical experts are ready to handle all your properly-related legal and administrative needs, including the handling of any mediation process and other procedures and the drafting and lodging of documents for the Spanish authorities (local councils, provincial and regional governments, the cadastral register, the Land Registry, notaries public, the courts, etc.) or any third parties (adjoining property owners, neighbour associations, the community of owners, entities involved in expropriation processes, etc.).

To legally protect your property in Spain, we offer a complete range of technical and legal services that includes:

1. Helping you obtain a NIE (foreigner ID number required for tax purposes in Spain)
2. Drafting all property-related contracts, including preliminary, option-to-buy, purchase and sale, and lease agreements
3. Verifying property charges with the Land Registry
4. Verifying property zoning with the local council
5. Verifying any debts owed by the seller to the Community of Owners
6. Verifying that all tax due on a property has been paid (municipal property tax, tax on income from real estate property, etc.) and drafting and presenting any corresponding tax declarations
7. Providing an estimate of taxes and expenses so you can budget for the cost of transferring a real estate property
8. Verifying the applicable marital or inheritance law and advising you on the legal conditions for purchasing or transferring a property
9. Drafting title deeds for executing property transactions
10. Accompanying you to sign title deeds and any other notarial instruments, acting as advisers and/or translators
11. Assisting your negotiations with the bank for using the property as loan security
12. Registering title deeds with the Land Registry
13. Informing the local council of a change of ownership for the purposes of local taxes and fees
14. For sales by non-residents, preparing and presenting declarations on tax withheld for Spanish income tax and handling the collection of any refund
15. Preparing/lodging applications for:

a. Certificate of occupancy and energy efficiency certificate
b. Building technical assessment report
c. Certificate of structural soundness and certification of construction age

16. Plans and topographical surveys
17. Undertaking boundary demarcation and mediating in conflicts with neighbours
18. Undertaking historical investigations on properties and updating the cadastral record for divided or joined plots
19. Advising you on:

a. Utility connection and the possible use of wells and springs
b. New construction, reform or landscaping projects
c. Business projects
d. Road and path refurbishment
e. Land and building assessment

Are you sure your property is fully protected legally?

Do not hesitate to contact us for further information. Please contact us for any service you require that is not listed

Tarraco Iuris global management

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Tax Amnesty for Pensioners

Reminder from the Spanish Tax Agency on the tax rules for foreign pensioners living in Spain.

In recent weeks, many recipients of foreign pensions residing in Spain have received letters from the Spanish tax authorities reminding them of the obligation to pay tax on their foreign pensions, which are no longer exempt following recent changes to the “Treaties for the Avoidance of Double Taxation”. The letter is as follows:

On becoming aware of the existence of taxpayers liable to pay income tax on undeclared overseas pensions, the Spanish Tax Agency has had to take control actions.

Given the socially vulnerable nature of the group affected, i.e., pensioners, the Sole Additional Provision to Spanish Law 26/2014 of 27 November (published in the BOE Official Gazette on 28 November) introduces two exceptional measures of which you, the pensioner, are informed so you may determine whether you can take advantage of them.

The first measure entails the waiver of all penalties, surcharges or interest arising from a regularisation, regardless of whether the regularisation results from action taken by the Tax Agency or on the taxpayer’s initiative.

The second measure, aimed at encouraging the voluntary regularisation of these cases, entails granting a special deadline of 30 June 2015, before which income tax declarations that correctly declare all the pensions received for all non-expired periods up until 1 January 2015 may be presented.

Presenting declarations before the deadline requires paying all tax due but not the payment of any penalties, interest or surcharges.

After this special deadline, all regularisation procedures will be subject to general tax rules without exception.

Carlos Prieto Cid – Lawyer

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The time has come to buy again real estate in Spain

After several years of continued declines in prices and sales volume, statistics finally start reporting positive results. Very small, but that break the downtrend. The international situation could perhaps encourage investment decisions in real estate in Spain.

A significant reduction in the number of Russian tourists is expected this year on the Spanish coast. The reasons for that are instability due to the crisis between Russia and Ukraine and especially the collapse of the ruble. But also the euro is undergoing a gradual devaluation, and it seems that this trend will continue in the future. However this news, apparently negative, may have another reading: every time it came to the devaluation of a currency, conscious citizens sought to invest their savings in goods, a kind of “safe haven”, and throughout history, the most common safe haven for money savings has always been investing in real estate.

In addition, the mentality of the Spaniards in this area is rather conservative and therefore the opinion prevails that every ordinary citizen should be owner of his living room in his life. This approach has a significant impact on the real estate market, as this has always led to a higher demand than expected at every economic stage. And, moreover, hundreds of thousands of foreigners dream of a quiet retirement or at the Spanish coast or a summer residence to come to it every year, and they do not hesitate to purchase a property where safely enjoy Spain in their own home. All of these factors bring us back to the beginning: it has always been assumed that investing in real estate in Spain is a reliable investment.

Despite the severe crisis of recent years, we must not forget that real estate has always been the best and safest way to invest our savings in Spain. And just because of the crisis, prices at back at a rational level and , according to the monthly statistics, gradually begin to rise.

Carlos Prieto Cid – Lawyer

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Holiday homes: Practical problems through urban bureaucracy

Everyone agrees that one of the main problems of Spain is the bureaucracy. In 2012 we reported expectantly on the regulation of the market of holiday rentals in Catalonia (https://tarracoiuris-advocats.com/blog/en/?p=66) but we were already afraid of the risks caused by the proposed intervention of the municipalities.

Unfortunately, our worst predictions have now come true, as expected. Bored officials of municipalities have begun to abuse their statutorily granted powers of control, not only to charge fees that increase the cost of renting holiday villas and appartments, but also and even worse to block rentals with unnecessary  requirements which have nothing to do with the legally foreseen inspections.

According to the Decree 159/2012 of 20 November on vacation rentals and holiday homes, the holiday home rental of individuals should be encouraged through quality controls. The communities were empowered to establish a register of these accommodations and the only formal and statutory requirement to register a property in such a register was, logically, to certify its habitability in the moment when the owner wanted to offer the apartment or the house for renting.

The city officials have tried to exploit the information obtained from these communications relating to the rental activity, to examine the urban situation of the holiday homes, and now begin to threaten with penalties for possible violations of urban development. Although these violations probably existed for years without the officers had endeavored to do something about it and they have nothing to do with the activities of tourists, which the law was intended to normalize. Once again, the behavior of officials is actually stimulating the shadow economy, as has always happened in this country: they are active only when the work is easy because all the information is already on their table, but are unlikely to pursue infringement on their own initiative.

Carlos Prieto Cid – Lawyer

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The difference between purchase price and fiscal value when buying or selling real estate

Anyone who wants to invest in property in Spain could imagine that the price at which he acquires the property must coincide with the value declared in the official document the acquisition is drawn up with. However, throughout history, we have been faced with a variety of situations, depending on the economic environment and the changing behavior of the tax authorities.

Those who bought property before the explosion of the housing bubble in 2008 have surely heard at some point in the process of acquisition a proposal about the possibility to declare in the official title deed of sale (in the „Escritura“) a value for the property lower than the price actually paid for it. This practice was very common in order to reduce the tax for both seller and buyer: the buyer pays less for the property transfer tax (Impuesto de Transmisiones Patrimoniales), he has to pay as the purchaser, as the basis for calculating this tax is the declared price of the transmission; the seller also pays less, since the gain on the sale becomes less, and the lower the profit, the lower the income tax (Impuesto de la Renta de las Personas Físicas), he has to pay as the transferor.

Today, times have changed and, surprisingly, we find ourselves in the reverse situation. The current catastrophic situation of the property market may lead to buyers and sellers to specify a higher value than the value actually paid in order to avoid undesirable inspections by state tax authorities. Regardless of the price we pay for real estate, the reference value for the State Tax Agency is a fixed a priori value, the so-called “taxable value”. This value can be calculated for each case, based on the value assigned by the Cadastre, depending on numerous objective factors. In the Golden Years prior to 2008, some municipalities have updated the cadastral value of the property in its territory, raising it under the spectacular rise in prices in the housing market. Once the cadastral values of a community are changed, a new modification is not so simple, and, in addition, legal deadlines must be respected, which can delay the update for many years. For this reason, now we meet occasionally with cadastral values updated before the bubble burst in the housing market, and therefore, the minimum taxable values obtained from them are higher than the average market price.

If these taxable values are not considered at the moment of the formalization of the purchase contract in a public document with tax transcendence, the risk to face a tax audit is very high and it will be difficult to prove that in fact we did not have to pay more for the property which we have acquired, although the price we have indicated in the title deed was really the one we paid for.

Carlos Prieto Cid – Lawyer

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The Spanish Tax Office has declared a tax amnesty for pensioners

The Spanish government is granting a special deadline for income tax declarations to all foreign nationals who are resident in Spain, as well as to any Spanish pensioners who have returned to the country after emigrating. These persons can now pay the whole amount of tax owed to the tax authorities with any penalties or fines for late payment waived.

If you reside in Spain for more than 183 days in a year, you are automatically classed as a resident for tax purposes, and as a consequence your worldwide income must be taxed in Spain. This also includes your pension. If you are retired and you do not have presented a tax declaration in Spain yet, you have until the middle of next year to submit a declaration and pay the tax, free from any penalties or interest.

There are now minimum amounts below which no income tax needs to be declared. For 2013, this minimum annual income for foreign pensions stood normally at €11,200. This amount is irrespective of whether you want to be assessed on your own or together with your spouse. However, this does not apply to government pensions (for civil servants), as these must always be taxed in your country of origin.

The increasingly closer exchange of information and data between the various Eropean tax authorities had made the Spanish Treasury aware of how many foreign pensioners, and emigrants who have returned from abroad, do not pay tax at all on their foreign pensions here or at least do not do it according to the rules. Pensioners are often elder and have greater difficulties understanding the legal situation in Spain, as they have been living abroad for many years. On the other hand they generally do not have many assets. That is why the Spanish government has set a special deadline of 6 months, beginning on 01.01.2015 to give such persons an opportunity to clear their debts with the tax office by paying 100% of their tax spar­ing themselves any interest and penalties for late pay­ment.

Carlos Prieto Cid – Lawyer

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Spain condemned to end the tax discrimination in the inheritance of non-residents

On November 16, 2011 we published an article on this blog about the accusation presented by the European Commission to the European Court against the Kingdom of Spain of discrimination against non-resident at the time of inheritance. After a long process, the judges in Luxembourg finally gave the reason to the Commission.

On September 3, 2014 the Court of the European Union ruled in the case C127/12, concerning an appeal of the European Commission against the Kingdom of Spain for not complying with the founding treaties of the European Union. In its statement, the Commission requested the Court to declare the breach of obligations of the Kingdom of Spain as European partner because of the introduction of differences in the tax on inheritance and in the gift tax, depending on the place of residence of the participants, that is, whether or not they are resident in Spain. In practice, upon the acceptance of the inheritance or donation in Spain, non-residents generally pay much higher taxes than residents.

This requirement of the European Commission was the end result of a process initiated in 2007, in which the European government had already asked Spain to change its laws concerning the taxation of the gift or inheritance. A little change was made, but it did not satisfy the Commission of the European Union, who filed a lawsuit in the Court of the European Union against Spain. The state attempted to defend itself, but the court concluded that the state law in the application of inheritance and gift tax discriminates against non-residents, and this discrimination is an affront to the freedom of movement of capital, one of the fundamental freedoms, which should save the Union.

Carlos Prieto Cid – Lawyer

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