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 because of sale. Also, under tax law, just owning a property generates a notional income that is taxable. All these incomes must 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 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 should 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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The recognition of notarial documents overseas

Expats with financial or family interests in their home countries often have to go to local notaries to sign powers of attorney and other formal documents to handle legal matters in their home countries. Differences between the legal systems mean that these types of formalities generate more complications than we’d imagine possible.

The main problem arises when the law requires that a particular document be executed as a “public” notarial instrument for it to be valid. In Spain, for instance, legal transactions such as granting powers of attorney and transferring real estate are only valid if they are executed via a notarially-recorded “public document”. But there are countries, e.g., most common-law jurisdictions, where this type of “public document” does not exist.

What makes a document “public” in countries where this type of instrument does exist depends on the law in each country. In Spain, notarial documents are public documents, which guarantees that the facts stated in these documents are true in accordance with what the notary public has personally verified, and that, from a legal point of view, the statements of intent made in these instruments are authentic. Basically, all these characteristics give such documents privileged probative force.

We can only be sure that a notarial instrument will be recognised as such and, therefore, as a public document in the country where it is to be used, if the notary public who authorises it confirms in the document itself that all the legal requirements have been met, both in the jurisdiction it was executed and where it is to be used. In these cases, as a complement and guarantee to the service provided by the local notary, it is advisable to seek the advice of a lawyer who knows both legal systems.

Carlos Prieto Cid – Lawyer

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Avoid causing problems between your heirs over the inheritance you leave them

A common cause of family rifts is the distribution of inheritances. Before we die, it is our responsibility to take one of the many measures available to make sure such conflicts don’t happen.

Joint ownership is by far what creates the most problems we encounter on a daily basis at our law firm. Joint ownership of real estate, bank accounts, vehicles, etc. can tangle the associated financial, administrative and fiscal red tape so much that the property loses just about all profitability and may even lose value.

People rarely enter joint ownership arrangements voluntarily, which shows how undesirable they are. They normally arise out of an unwanted event of legal significance: a divorce, a company winding up or someone passing away. In this post, we look at joint ownership arrangements arising from inheritances.

The most straightforward and economical way of distributing an inheritance is by making a will. To guarantee the effectiveness of the will, first you need to get your lawyer to check its content. Second, you need to execute it as a notarial instrument (done with a notary public).  In a will, an inheritance is usually distributed by means of “legacies”, i.e., the universal heir to the entire estate is required to distribute certain property to certain people. To ensure the heir complies with this obligation, an executor can be appointed.

Another way of sidestepping problems between successors is to make gifts while you are still alive. A similar amount of tax is paid when property is transferred as a gift to when it is inherited. The advantage is that you can finalise everything while you are still alive. The disadvantage is that, unlike with a will, if you change your mind, you can’t change the situation without the help of the beneficiary.

Either way, if we want our memory to live on in a harmonious family, it’s worth distributing our inheritance in the most impartial way possible prior to our death. Our heirs will thank us for it.

Carlos Prieto Cid – Lawyer

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Professional services for pensioners residing abroad

When you stop working, it’s time to enjoy your pension. But what happens to your pension if you decide to retire abroad? To receive a pension in Spain as a foreign resident, you need to take into account a range of matters that can turn out to be quite complex.

Spanish pension laws are extremely complex, although this legislation is not applicable to Spanish residents receiving a foreign pension. In this case, you are covered by bilateral social security agreements. In Spain, the Social Security (“Seguridad Social”) takes care of social welfare matters.

One typical situation is migrating when you’re already receiving a pension in your home country. In this case, you need to know what to do to make sure you keep receiving your pension abroad. To start with, you need to submit a number of documents to the social welfare authority in your home country.

You may also need to demonstrate that you are still alive and entitled to receive the pension. Any hitch regarding this matter can result in a stoppage of the payments and can cause serious problems for you as an overseas pensioner.

Another complex situation entails when you have worked most of your life in your home country but now work abroad and plan to stay and live in this foreign country during your retirement. In this case, you need to calculate the most beneficial option according to the applicable international agreements for the periods worked in the two countries.

This situation can vary greatly and can give rise to very complex scenarios because of differences between the legislations of the different countries regarding the minimum retirement age, the minimum amount of years worked required, requirements regarding non-contributory pensions, etc. Ideally, you need to get professional advice when making decisions about such important matters regarding your working life.

Carlos Prieto Cid – Lawyer

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The red tape involved in letting a holiday home in Catalonia

Renting out a coastal property to holidaymakers in summer has become quite complicated, although most foreigners are unaware of the many obligations involved.

In recent years, the Catalan regulations on letting tourist accommodation has become particularly strict. The main political reason for this toughening up of the legislation is a cracking down on tax evasion as many letters of holiday accommodation do not declare their rental earnings in Spain (which is required by law, regardless of whether the owner of the property is a resident in Spain for tax purposes).

However, there is an even more compelling reason for the Catalan government to want to control access to the holiday accommodation market. On the coast and in the old parts of the larger cities, particularly Barcelona, tourist flats have become a social problem, owing to the not always civil behaviour of the holidaymakers (who change from week to week), and also an economic problem, owing to the unfair competition such accommodation represents to the hotel sector.

Before you can let your property to tourists, you must register it in the local council’s register of tourist accommodation. Not doing so makes you liable for some very stiff fines (even for just advertising the accommodation online without anyone actually coming to stay). To be listed in the register, you need to certify that the dwelling complies with certain conditions of habitability and energy efficiency. You also need to register the property with the tax authorities so the corresponding tourist tax (paid per night by each tourist) and income tax can be collected.

Registering a property as tourist accommodation can result in unexpected complications (which may even make it impossible to let the property). If you have a flat or house you want to let to tourists, we offer services to assist you in registering the property with the local council, drafting the letting agreements and ensuring compliance with all the official and tax obligations for total peace of mind.

Carlos Prieto Cid – Lawyer

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Doing business abroad via a representative

When we have interests in a foreign country we aren’t residing in, we usually manage them by distance. To do this, we normally grant power of attorney to someone we trust. Given the important legal implications in giving someone power of attorney, the process is subject to strict formalities.

These formalities are even stricter if the document empowering our representative is to be used for managing business interests in a country different from where it is issued. At our law firm, we come across cases like these every day. For example, an Englishman wanting to purchase a property in Spain and have a Spanish legal professional represent him in the sale. Or a Russian on holiday in Spain who realises she needs to take care of something at a Swiss bank and wants to give someone in that country power of attorney for representing her at the Swiss bank. Or a German resident in Spain who needs to settle an inheritance in Germany and wants someone he trusts to handle it for him. In situations like these, the document granting the power of attorney to our representative, which will be issued in one country and used in another, must be legalised.

Documents granting powers of attorney that can be used internationally must be officially authorised to be valid. This means that an authenticating official (normally a notary public or a public servant) must certify the document. This authenticating official attests that the person signing the document is who they say they are and is of sound mind (or at least states they are). This certification converts the power of attorney into a notarial instrument. However, for this document to be recognised in other countries, the person who officially certifies it must be recognised by another authority in the same country that is in turn recognised by the authorities of the country in which the document is going to be used. For example, a power of attorney granted before a Spanish notary public to be used in Germany must be recognised as an authentic notarial instrument by the German authorities. In most European countries, this international recognition of the local official is done via an Apostille stamp. In the above example, the power of attorney granted by the Spanish notary must bear an Apostille stamp from the Spanish Association of Notaries Public, which is the body recognised by the German authorities for authorising the signature of a Spanish notary public.

Carlos Prieto Cid – Lawyer

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Tarraco Iuris SL moves to new offices in Tarragona

As of the new year, Tarraco Iuris international law firm is now working out of new offices in Tarragona. The new premises allow incorporating the latest models of customer service tailored to our clients.

Our more than 20 years’ experience in advising foreign investors has taught us that the essence of our service is to be in direct and close contact with our clients. While our clients’ interests are mainly on the Costa Dorada, they themselves are usually located very far away in central and eastern Europe. But regardless of where they are based, we’ve always sought to be readily available and made sure our clients can easily contact us and that there are no technical, cultural or language barriers. We want our clients to be able to write to us, speak to us, visit us and even look over with us their documents without distance being an obstacle. For this reason, we strive to adapt to the latest technological advances in communications. Moving our offices is just one more step in this direction as we have equipped our new premises to make the most of all the opportunities the new technologies have to offer.

In most cases, the advice relationship with foreign investors is virtual. It’s only towards the very end of a process that a client may be required to be physically present, although even in these cases this can usually be avoided through the granting of powers of attorney. Therefore, we have tailored our new offices to the real needs of our clients by improving our online services while maintaining the convenience and dignity we have always offered for those who prefer to visit us in person.

5-B, Macià Mallol i Bosch Street
Tarragona 43005 (Spain)

Phone +34.977.243.021

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When a loved one passes away, how do we know if we are beneficiaries of a life insurance policy taken out by them?

Many people aren’t sure of how many life insurance policies they have. And the beneficiaries of these policies are often even less likely to know about any benefit they may be entiled to. Therefore, there is a risk that a family member may spend years paying for life insurance with us as the beneficiaries for which we don’t receive the payout.

Because over our lifetime, we end up taking out a lot of life insurance. Not just with insurance companies but also banks and financial institutions, which, rather than offering it to us, require it for taking out loans. Sometimes life insurance is included free with other services, usually financial services.

In Spain, to safeguard against this risk, the Ministry of Justice created the Register of Life Insurance Coverage. This register provides information on whether a deceased person had any life insurance taken out and with which company so that possible beneficiaries can contact the insurance company in question to find out if they were designated as beneficiaries and claim any benefits they may be entitled to under the policy from the insurance company.
This public register is accessible to anyone wanting information on whether a deceased person had a life insurance contract and on the insurance company providing the policy. You can access the records of this register only after someone has died, from 15 days after the date of death, by providing proof of the death. The records are accessible for five years.

Carlos Prieto Cid – Lawyer

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The importance of legal advice

If you have to go to court, you obviously need the services of a lawyer. You can’t usually bring any legal action or even defend yourself in court without a lawyer. However, the services of a lawyer are not limited solely to when you’re summoned to go to court. Indeed, in our experience, the main reason clients have to go to court is because they didn’t seek advice from a lawyer beforehand.

If many such clients had sought legal advice before entering into legal transactions, they probably would have avoided the courts altogether. Very worthwhile because a court case is always an unpleasant experience — even when you win!

Many people think they don’t need a lawyer. Perhaps they think they don’t require a doctor, a painter or a mechanic either. But when you’re seriously ill, you go to a doctor. Why, then, don’t you go to a lawyer when entering into an important transaction? How many times in life will you buy a house? How often will you receive an inheritance or make a will? Are such transactions not important enough to consider seeking advice from a lawyer?

Because the most important function of a lawyer in society is not to initiate legal proceedings. To the contrary, our job is to avoid court cases through providing help and legal advice. (In fact the Latin term for lawyer, ‘advocatus’ or ‘advocate’, refers to a person you go to for advice or turn to for assistance when entering into a contract or legal transaction.)

For example, during the sale of a house, both the buyer and the seller come into contact with a number of experts. At the very least when you buy, you come into contact with a real estate agent, perhaps even a developer and an architect if you’re building your own home. You will also need a notary.

Each of these professionals have their own function. The real estate agent finds a buyer for the property, the developer and the architect build the house, and the notary formalises the contract so you can prove ownership of the property and register it with the land registry.

None of these people, though, has an exclusive obligation to give you independent advice. Each has their own interests but none has a duty to look solely after your interests (as the buyer or seller). If the house is not sold, the estate agent receives no commission. If the contract is not notarised, the notary receives no fee.

However, you pay the lawyer to do nothing more than protect your interests. They are, therefore, the only person you can really trust in the whole process. They are the only person who can freely say to you — without it having any effect on his bank account, ‘you shouldn’t sign this contract!’

Many clients come to us after they’ve signed contracts and problems have arisen. At this late stage, all we can do is try to salvage the situation through an agreement or legal proceedings. Often in such circumstances, the client shouldn’t have signed the contract in the first place. But you can only know this — when to sign and when not to — if you have a lawyer, your advocatus, by your side when you sign.

Carlos Prieto Cid – Lawyer

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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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