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

Read this article in Russian
Read this article in German

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

Read this article in Russian
Read this article in German

Further increase in the final costs of the transfer of property in Spain

The costs associated with the transfer of ownership may affect the decisions of both parties, buyer and seller, as the net price that the seller receives after deducting expenses and taxes may be much less than expected in the beginning, and the final price to the buyer by adding costs and taxes may be much higher than previously thought.

The parties of a contract for the transfer of property (usually a purchase contract) can decide freely about these matters. However, we are going to analyze now what the laws say when the parties do not achieve an agreement among themselves:

  • The municipality tax on the added value of the property sold, in the case of urban land, is one of the costs to be paid by the sellers. This is a percentage of the difference between the declared value at the time of purchase and the estimated value of the property at the time of acquiring it by the seller.
  • The income tax on the increase in value is also an expense of sellers. If the seller is non-resident, the buyer must submit a deposit (3% of the price) as an insurance tax directly to the tax office. For this reason, this amount is usually subtracted from the purchase price. Subsequently, we have to calculate the payable tax, which also consists of a percentage of the difference between the declared value at the time of acquisition and declared value of the property at the time of sale.
  • The tax on the transfer of property is the buyer’s responsibility. The tax has been raised again in Catalonia and other regions of Spain, and now the buyer has to pay 10 % of the selling price for this concept.
  • The account of the notary (exclusively for the purchase contract) is according to the law at the expense of buyers, unless the parties agree otherwise. The role of the notary in Spain (unlike other countries) is only a formalization, converting the final contract in a public document. This contract has been issued in advance by the parties with the assistance of a lawyer. The notarization of the contract of sale in accordance with Spanish law is not absolutely necessary, but it is very appropriate, because a contract that is not contained in a public document cannot be registered in the registry of property. And such recordation of the change in ownership is not only a guarantee for the buyer, but also a prerequisite when the buyer has to finance the price with a mortgage.
  • What we have just commented justifies as well that the cost of recording the change in ownership in the registry of property has to be paid by the buyer.
  • The costs of preparing the documents to be submitted along with the case, is to be paid by the seller (these documents are normally processed or checked by lawyers). The cost of a lawyer could be common to both parties, as well as the lawyer provides the following services:
    • To provide consulting and legal assistance during the whole process of transfer of ownership.
    • To translate the will of the parties to the legal and technical language.
    • To make a final agreement of sale and prepare it to be notarized by a notary.
    • To foresee the tax consequences of the transaction for both parties and to prepare and submit formally and in time the tax returns in the most convenient manner.

But it is always better for the parties to agree in advance (even in an oral form) the main terms and conditions of the contract, so that the lawyer is able to represent the interests of both parties without any kind of conflict, simply because he develops the sales agreement already adopted by the parties.

Carlos Prieto Cid – Lawyer

Read this article in Russian
Read this article in German

Incoherent land information systems in Spain

In Spain, it is often the case that entries recorded in the cadastre and the land register (register of deeds) are not identical and the two registries can often contradict the actual plots on the ground.

The reason for this is that the sources of the information differ: in the land register, only information contained in official documents is recorded (e.g. notary certified contracts or judicial decisions); however, the information in the cadastre is submitted and recorded by municipality officials or the tax office.

The function of the information also varies: in the land register, a private individual enters the information which he wishes to defend with the guarantee of the official register; in the cadastre, the administration prepares the information necessary for the calculation of taxes and the enforcement of its own demands.

This potential contradiction is not the only difference between the Spanish and other foreign land registers: another and very important difference in the Spanish land register is the mandatory recording of a building’s description, including details of the construction areas, with a notary certificate, while in other foreign land registers (like in Germany, for example), only the explicit size of the plot (without any description of the buildings) is recorded.  Significantly, this means that if alterations are made to the building, its altered condition must also be updated in the land register with a retrospective notary “New Works Declaration”. However, this is often not done, either through ignorance, a reluctance to pay the notary, tax and registry costs, or more usually because (new) building has not been granted.

Nearly all contracts of sale for property are dependent on the funding of the buyer.  This funding is usually granted by a bank, but always with the guarantee that it is recorded in the land register as a mortgage on the purchased property.  It is therefore very important that the information recorded in the land register does not conflict with reality because any information missing from the land register can mean that the financing bank will not cover the purchase price agreed for the property (this price is agreed irrespective of what is actually stated in the land register). Therefore, if you are intending to put a property on the market as a seller, it is advisable to find out all entries in the land register and cadastre and compare them with the actual plots.

Providing that the correct measurements are recorded in the cadastre, it is relatively simple to amend the land register.  With existing (or older) valid building permission and construction final approval documented by the municipality, things can move forward quickly.  It becomes difficult however when a building or part of a building exists which has not been recorded and for which there is no official approval.  Then only the lengthy and expensive route of gaining planning and building permission through an architect remains.

The situation is different when not only the factual information, but also the legal information recorded is incorrect: this often occurs in the case of inheritances which have not been formalised or when the buyer has not notarized the signed contract of sale.  Because only information contained in official documentation can be recorded in the land register, private contracts of sale cannot be registered.

Carlos Prieto Cid – Lawyer

Read this article in Russian
Read this article in German

The European tax authorities strengthen their cooperation

Over the years, we have seen from our office how the Spanish tax office has improved its channels of cooperation with other European tax agencies to the extent that they now share all kinds of information about their respective taxpayers.

This cooperation was limited so far to the prosecution of real estate registered in public inventories in Spain under the name of taxpayers of other countries who had debts in the stage of execution owed to their corresponding state treasury. The Spanish tax office acted as a debt collector to recover the foreign debt, which remained unpaid by the taxpayer, being resident or not, through an action against his property in Spain.

Now, cooperation between tax agencies is going ahead and is being developed in the framework of management or control processes initiated on the basis of data and indicators provided by foreign tax authorities.

The most common case is the experience of foreign retirees living in Spain, with rents, which are in principle tax free, but who are obligated to declare them due to the progressivity of taxes on personal income. Double taxation agreements between Spain and other countries declare as exempted from payment of tax on personal income in the State of residence the pensions paid from public funds of the other State. Starting from this premise, many foreign pensioners living in Spain considered unnecessary to comply with the obligation to provide an annual declaration of personal income. However, many of these retirees receive income from the rental of real estate or bank interests, which must be declared to the Spanish tax authorities. In addition, most of these retirees supplement their income paid out of funds created by the state with other pensions paid from private funds, which are generally much higher than the amount that is considered exempt. Due to the progressivity of the tax on personal income, the percentage that would correspond to the total income earned by a resident in Spain is the one to be applied to calculate the tax on these other private rents which are not exempted. As a result, the final amount of tax paid to the fiscal authorities may be much higher.

In these difficult times, the Spanish state has resorted to claiming the difference between the amount really paid and the ones that should have been paid. It also requires the respondents to perform their official duties. And all this thanks to the valuable cooperation it receives from foreign fiscal authorities, who once benefited from the pursuit of real estate in Spain to their countrymen.

Carlos Prieto Cid – Lawyer

Read this article in Russian
Read this article in German

Residents in Spain are required to declare their assets abroad

Spanish Royal Decree 1558/ 2012, published on 15 November 2012 introduces new reporting requirements for taxpayers residing in Spain: they should declare to the Spanish State tax authority rights and property, such as real estate, bank accounts, stocks, bonds and insurances, held or managed abroad.

This statement should be made exclusively by means of telematics through the Internet, transmitting it with an electronic signature produced when selecting a personal certificate installed in advance in the browser for this purpose. Application deadline is from 1st January to 31st March of the year following that to which the information relates, although the declaration for 2012 will take place during March and April 2013.

The information to be reported to the tax authorities on accounts in financial institutions located abroad includes the following items:
1. Company name or full name of the bank or savings bank and location
2. Full identification of accounts
3. Date of opening or cancellation, or, where appropriate, date of issuance and withdrawal of the permit leading to the liability of the concerned reporter.
4. And, logically, the balance of the accounts at 31 December, and the average balance for the last quarter of the year.

Anyway, no one is obliged to report on the status of the account, if the final balance on 31st December does not exceed, in total, EUR 50.000. The submission of this declaration in the following years will be only required when either of the joint balances of the accounts (the one at 31st December or the average one of the last quarter of the year) experiences an increase exceeding 20.000 euros.

A similar provision is established when the foreign assets are such as securities, stocks, mutual funds, life insurances or disability insurances and temporary or lifelong rents.

For real property located abroad, the information statement will contain the following data:
a. Identification of the property with a brief specification of its typology, as  will be defined by a future order of the competent Ministry.
b. Location of the real estate: country or territory in which it is situated, city, street and number.
c. Date of acquisition.
d. Cost of acquisition.

In the case of timesharing contracts or similar arrangements and in case of usufruct rights the reporter should also indicate the value of the property on the 31st December. The applicable quantitative liability limits are the same as in the previous cases.
This obligation to declare assets is accompanied by a closer cooperation and a increased mutual assistance between tax authorities. We are going to discuss about that in a future article.

Carlos Prieto Cid, Lawyer

Read this article in Russian
Read this article in German

Legalization of buildings outside the law

Traditionally it has been possible in our country to legalize buildings outside the law through the mere passage of time. However, the Law 8/2011 has added new requirements when recording new buildings in the register of deeds, giving more legal security to the system.

When selling a property, the buyer usually requires financing. To obtain financing is not only very difficult nowadays, due to the current banking situation, but also virtually impossible if the buyer can not offer a mortgage to the bank that lends him the money. To make it possible for the bank to register the necessary property mortgage, the real value of the estate to be charged should be reflected in the register of deeds. This is only achieved when the elements that provide greater value to the property, that is, the existing buildings on it, are properly registered. To register these edifications, a notarial declaration of the new building is always been necessary and this document must be submitted to the register in order to be recorded, accompanied by many documents to control its urbanistic legality.

Despite this, there was always a back door to buildings that violated the law, which could end up sneaking in urban registration of the property, with the economic and financial consequences discussed above. The mere passage of time with no reaction of the relevant planning authorities, the municipalities, leads to the possibility of regularization of these illegal edifications. As the deadlines for the sanctioning procedures passed and the planning authorities could no longer prosecute these buildings, they could end regularized, if certain conditions were met. But in the present days, the last reform of the Land Act we mentioned above, has added a key requirement, prior to the possibility of recording the irregular building in the register of deeds: we should show a municipal certification defining the content of the situation outside the law of the building we intend to record.

Article 20.4 of the Act indicates that
“4 …. in the case of constructions, buildings and facilities for which no appropriate measures to restore legality involving urban demolition can be taken, because the relevant limitation period has passed, the registration record of the completion of the work shall be controlled by the following procedure:

  • a) the notary deeds with the statement of a new building can be recorded in the Land Registry if they are accompanied by a certificate issued by the City Council or by a competent technician, or a descriptive notarized certification of the property or a cadastral descriptive and graphic certification of the property, when these documents confirm the completion of the work in a specified date and the description coincides with the title. For this purpose, the Registrar shall verify if there is a notation in the Register of Deeds because of the initiation of an urban discipline procedure for the property subject of the construction, building and installation in question and that the site is non demanial or affected by easements for public use.
  • b) The registration entry will record the outside-the-law position of all or part of the construction, building and installation, in accordance with applicable urban management. It will be necessary to provide the administrative act by which the situation is declared outside management, with the proper delimitation of its contents.
  • c) The Registrar shall report to the City the respective entries in the cases included in previous issues, and such notification will be recorded in the inscription”

This new regulation, in force throughout the state, which requires prior to registration the provision of a municipal certificate on the content of urban illegality is coherent with the goal to be reached with the law of passing “registration measures designed to ensure and strengthen certainty in the real estate contracts and business, through the Land Registry” and “emphasizing on register protection measures which aim to prevent and prosecute in the future situations that occur today and that are impacting very negatively on investment in real estate, both domestically and internationally“.

Let us hope that eventually these legal measures have the desired effect and strengthen the security image as necessary to encourage property investment, especially by foreigners.

Carlos Prieto Cid, Lawyer

This article in German

The reintroduction of Spanish Wealth Tax

A few months ago, US President Barack Obama announced to Congress: ”This is not class warfare, it’s math.” If the crisis leads to a fall in revenue for public authorities, spending must either be cut or taxes increased.

If we assume that governments cannot cut back on social services because the social rights they have achieved should not be touched due to the crisis, then new tax increases become necessary. Instead of raising existing taxes, the former Spanish government had preferred to try to maintain the level of revenue it needs by reintroducing a recently-abolished tax: the IMPUESTO DE PATRIMONIO, or Wealth Tax.  This tax was never actually abolished, although the full rate was indeed scrapped in 2009 with a 100% rebate. The government has therefore simply done away with this rebate in order to reintroduce Wealth Tax.

The tax applies from 18 September 2011, although the concession is scheduled to increase once more in 2013. This means that Wealth Tax declarations need only be submitted for the years 2011 and 2012 (due on 31 December each year). It is important to remember that non-residents are also obliged to pay this tax. Declarations must be submitted to the tax office each year together with the income tax declaration.

The most important changes to the rules on Wealth Tax introduced in the Real Decreto-ley 13/2011 are the following:

1. Tax allowance on residences: the maximum rate for tax exemptions on the value of the own residence (for residents) has been raised to €300,000 (previously €150,253.03).

2. General tax allowance: unless the autonomous communities rule otherwise, the general tax threshold is €700,000.-

Whether these new rules and the reintroduction of the tax will have any real impact or affect public authorities’ revenues is debatable. It appears that the Socialist Party intended to make political capital through the reintroduction of a ‘tax on the rich’ (elections took place in a short time after de tax reform and they were a spectacular failure for the Socialist Party anyway ), but the real impact of the tax’s reintroduction will not be able to solve the difficult situation surrounding the public finances.

Carlos Prieto Cid, Lawyer

This article in German

The role of the lawyer in the sale of property

In the glorious years of the housing bubble, when everything was easily bought, lawyers played an essential role in advising buyers to purchase property with all guarantees. Now that everything is being sold, our role is still essential to prevent a sale from being frustrated by legal reasons.

An ordinary person takes only very few times during his life the decision to buy or sell a property. However, there seems to be no awareness in the society that, before making this fundamental decision is wise to consult with an attorney. All the contrary, the general idea is that one should only go to a lawyer to solve legal problems and not, as it should be, to try to avoid them. That is why we lawyers often find customers that come to our office once they have already signed a contract, thinking that with a magic wand we can resolve a problematic situation, which would never have happened if they had consulted us on time.

Among the professionals involved in the decision making of a real estate purchase contract, the lawyer is the only one who can give advice with the warranty that this is only his role and that is why he gets paid, with the absolute independence of the one who knows that is going to collect his fees whether the operation is performed or not. In short, the lawyer is the only professional who can calmly tell his customer: do not sign! That’s why taking advice from a lawyer before signing a contract for purchase and sale of real estate is essential and the sooner you come to him, the better.

In real estate market intermediaries tend to avoid the intervention of lawyers, because they think it increases the costs of the transaction and therefore it reduces their room for maneuver. But the reality is quite the opposite: the costs of our intervention are very profitable. We can actually give many examples of real estate transactions that would have failed if there had not been an immediate intervention of lawyers. The most common problems that we solve are:

• problems with the matrimonial regime applicable
• a necessary formalization of an acceptance of inheritance,
• buildings awaiting a declaration of new construction (even if they have been legal built, but not registered)
• fiscal and money laundering control problems specific to non-resident sellers or non-resident buyers,
• special powers necessary to formalize the operation, when the contract parties cannot be present at the formalization of the purchase contract…

But the range of possibilities is enormous and each of these issues can cripple sales management until making it impossible, especially at the present time, because of the lack of buyers and the oversupply of housing available to the market. Furthermore, experience in international operations with nonresident buyers or nonresident sellers is at the moment crucial, as the housing market mainly offers its stock to potential foreign buyers from countries increasing their capacity and interest in purchasing property in Spain (Russians, Swiss, Indian, Chinese, etc.)…

The failure of a real estate transaction means for the real estate brokers involved an effective cost in time, dedication, displacements and risk analysis, and these costs have no compensation if the operation is not actually performed. The causes of such a failure are often legal issues that only an attorney skilled in the art would have foreseen early enough to provide possible solutions and avoid the loss of the buyer. Or, if not feasible any of the proposed solutions, the lawyer could advise to abandon the operation on time, before incurring further unnecessary costs. Working with real estate agents or other intermediaries in the housing market is an important opportunity for business and the synergies it generates are very helpful both for lawyers and for the agencies involved, providing their common customer the benefit to be able to buy or to sell with guarantees and to mature his decision with all the necessary information.

Carlos Prieto Cid, Lawyer

Read this article in Russian
Read this article in German

Buying property without risk

Before buying a property in Spain or signing a contract agreeing the sale of a property, it is important to be aware that, without the necessary guarantees, this signature can represent a major risk. The cost of consulting a lawyer is very small compared with the substantial costs arising from any possible legal proceedings resulting from a legal dispute. However, legal disputes are very easy to avoid if you receive the correct advice beforehand.

The services of a lawyer during a transfer of ownership can cover the following:

Prior inspection of the property:
– Register details: ownership, description, liabilities and tax liabilities
– Cadastre details: description, cadastral value
– Tax details of the property: outstanding tax
– Urban planning details of the property: valuation, planning, liabilities, legality of new building
– Horizontal ownership details: debts, special taxes and duties
– Condition of the building: implementation and monitoring during the preparation of a survey report
– Property value: implementation and monitoring during the preparation of a valuation report

Regulation of register, cadastre, tax and planning details

Financing and tax analysis of the project

Foundation and registration of a company with the tax office

Registration of natural persons with the tax office

Supervision of mortgage financing

Preparation and legalisation of documents
– Arrangement of power of attorney
– Application for apostilles
– Request for simple and certified translations

Drafting and verification of the private contract of sale, option contract, service contract etc.
– Drafting and negotiation
– Verification
– Guidance when signing the contract or signing in the name of the client by means of the power of attorney

Drafting and verification of certificates (for purchase, mortgage, acceptance of inheritance, building project etc.) together with the notary.
– Preparation and verification of documents necessary for issuing the certificate
– Drafting of the proposal and verification of the certificate text drawn up by the notary, based on the project
– Guidance when signing the contract or signing in the name of the client by means of the power of attorney

Processing of tax declarations and payment of tax

Entry into land register

Contracting party’s change of contracts with energy/water suppliers and phone companies etc.

Guidance in negotiating with the following persons/organisations:
– Seller/buyer
– Estate agent
– Builders
– Chief architect and technical architect
– Notary
– Registry officials
– Valuer
– Surveyor
– Bank
– Insurance company
– Property management
– Tax office
– Local council and other public authorities

Carlos Prieto Cid, Lawyer

Read this article in German