| Purchasing property
in Spain
In spite of increasing European harmonisation, UK and
Spanish property law have differing requirements for property transfer.
Perhaps because of ignorance of Spanish property law, the opinion is widespread
in UK that property purchase is surrounded by high levels of risk. In
fact however, Spain has properly legally regulated and secure system property
law and registration, which means that the risk is no greater than in
UK. However, precisely because of the legal differences and the fact that
various documents are drawn up in Spanish, and contracts are basically
made in Spanish, the buyer really should make use of professional assistance.
So the following observations can only give an initial view of the legal
and taxation questions that arise in property purchase in Spain. The interested
buyer is thus put in the position of being able to ask the right questions
from the very start of viewing. When the choice is narrowed down to one
object, the advice of local lawyers, tax consultants, and estate agents
with legal knowledge should be sought.
Before contract completion
If at last you have found your dream home and entered into specific contract
negotiations, you should arrange for the vendor to provide the deeds and
documents that are relevant to the property. If the vendor is not ready
or in a position to do so, it is recommended to distance oneself from
the purchase of the object, since in such properties unwelcome surprises
will probably be included in the price. The following check-list will
be dealt with either by the estate agent:
Checking the original or complete copy of the deed of sale (escritura
pública) in the property register. Extract from the property register
showing the situation of the property, charges and encumbrances (Nota
Informativa Simple). The statement should bear a recent date. The vendor
should present the contracts with the water, electricity, and other utility
companies, as well as receipts for payment of these charges. Presentation
of receipts for payment of land tax (IBI) for the last five years as the
property is responsible for this payment. Application for calculation
of capital gain tax (Impuesto Municipal sobre el Incremento del Valor
de los Terrenos Urbanos de Naturaleza Urbana) at the local authority offices.
Information concerning the property investment to the General Directorate
for Foreign Transactions (Dirección General de Transacciones Exteriores)
on form MC3A as well as a foreigner's tax number and a non-residence certificate.
Completion of this formality will sometimes be offered by the notary.
In the case of purchase of property in a communally owned building, the
Chairman of the owners' association should make available:
Statutes of the owners' association, Establishing
deed / statement of division
Statement of the payment of common costs and proportional payments of
the present owner A written statement that the owners' association has
no debts to third parties h. Presentation of an accurate inventory, signed
by the vendor, of the furniture, equipment, fittings etc.
Private contract
Whereas in UK, contracts for the sale of property need notarial confirmation,
there is no such obligation in Spain. Ownership of real property can be
transferred by means of actual occupation and through a verbal or private
written contract. The same applies to pre-contracts. Thus, in the event
of failure to comply with private contracts vendor and buyer can make
legal application for compliance or for damages in respect of non-compliance.Because
of this freedom of form it is especially common in Spain to agree a private
contract immediately that sets out in binding terms all current rights
and obligations of the parties, and in particular the actual purchase
price. These are generally known as purchase-option or reservation contracts.
The buyer generally pays 10% of the purchase price to the vendor, who
in turn undertakes not to sell the object to a third party before a certain
date, and if the buyer so requires, to sign a notarised contract of sale.
If the agreed period elapses without the buyer paying the remaining purchase
price, he loses the 10% payment to the vendor. Such private written contracts
are especially advantageous for people who need some time to arrange the
financing and want to have their long-sought dream house reserved by the
vendor for this period of time. When such a contract is made, it may be
sensible to declare the reservation or option price as a pledge/extra
payment in accordance with the provisions of article 1454 of the German
Civil Code, since this legal regulation provides for withdrawal from certain
contracts on payment of a sum by a person who wishes not to abide by the
contract. So if, for example, the buyer cannot realise the financing,
and thus the final purchase, he loses the payment made to the vendor.
If, on the other hand, the vendor does not abide by the agreement that
has been made because, for example, he has found another buyer who is
ready to pay a higher price, he must pay to his contract partner twice
the sum that has been received, in this case 20% of the purchase price,
as flat-rate damages. The agreement of a pledge consequently gives the
buyer greater confidence that the vendor really will keep the object for
him until the agreed date.Payments made in respect of private contracts
absolutely must be backed by a bank guarantee or by payment into a blocked
or notarial account until the completion of the relevant notarised deed
of purchase and, in the case of option contracts, also until the definitive
non-purchase.
Public deed
Popularly known as the escritura this is a notarised contract of sale,
that is not in fact a condition for transfer of ownership but is necessary
for entry into the Spanish property register. A Spanish notary does not
have such wide-ranging duties of checking and instruction as in Germany.
Rather, a Spanish notary merely confirms what the parties present. In
addition he finds out by fax from the property register whether the vendor
of the property is inscribed there as owner. Then he sends again by fax
the current data on the escritura to the property register, whereby a
registration bar is immediately issued, which means that any other notarised
deeds in respect of this property cannot be entered in the property register.
At the certification there is often in Spain the question that the vendor
only wants a sum to be recorded as the sale price that is significantly
below the actual sum paid. It is often falsely reported in the German
media that this is done at the insistence of German investors who want
to bring 'black money' into Spain. In fact this an 'old Spanish custom'
that the Spanish tax authorities live happily with, since in Spain the
land purchase tax is twice as high as in Germany and so the income for
the Spanish treasury is far better. Often, Spanish and German vendors
are unwilling to recognise the full worth of a property, since in Spain
the profit from sale of a property must be taxed and this is calculated
on the difference between the difference between the old and new escrituras.
If the vendor had made a 'black sale' when he purchased it, in giving
a real price he has to pay tax on a profit that he has not in fact realised.
The buyer also gains by this procedure, which is without doubt a tax evasion,
7% of the undeclared amount, which he would normally have to pay to the
tax authorities as land purchase tax, as well as notarial fees, which
are calculated in proportion to the declared value. In the event of under-declaration,
care must be taken that this is not excessive since the tax authorities
sometimes carry out rigid checks and with unrealistic sums they can perform
an evaluation, the difference being categorised as a gift and the buyer
is taxed at the correspondingly high rate of 34%. The vendor is liable
for a tax demand and an additional penalty fine of 20% of the difference.
The property register and the inscription of
the escritura
Briefly, it is possible to buy property in Spain without being inscribed
in the property register. However, the register does have one very important
role. It provides the supposition, which is very difficult to disprove,
that the person who is inscribed in the register is also the true owner.
Thus a purchase in good faith from the vendor inscribed in the property
register who is not the owner is protected just as in Germany. So a notarised
contract of sale and subsequent inscription can be taken as practically
essential for the purchaser since a secure ownership position with regard
to third parties only exists for the person inscribed as the owner. The
notarised deed of purchase must be delivered to the property register
for inscription by the buyer, together with the receipt from the notary
and from the tax office for payment of value added or land purchase tax.
The definitive inscription of the change of ownership can be a matter
of weeks. Because of the necessary bureaucratic procedures, the fact that
all documents are drawn up in Spanish, and some deadlines all have it
be taken into account, the buyer really should seek expert advice. Occasionally
this service is offered by the notaries themselves. When an estate agent
has been engaged in the purchase of property, it should be obvious for
him to free the buyer of this task even after receipt of his commission,
and make this inscription for the buyer either in co-operation with the
notary or with a gestoría. If you use an estate agent in the search for
your property, you should find out at the very beginning what after-sale
service he offers. Good agents stand out by being helpful to their clients
even after the sale.
5. Various Holiday letting
The problems surrounding letting private dwellings for
tourist purposes has become a controversial matter recently, since there
has been new legislation in the Balearics in this matter. This is Royal
Decree 8/1998 of 23rd January, and executive order No. 12344 of 11.6.99,
which are explicitly applicable only to detached single-family houses.
Flats have been regulated similarly since 1984. According to these regulations,
tourist lets must be approved and registered by the Tourism Council (C/.
Monte Negro 5, Palma), which has a special register for them. Dwellings
must have a very high standard of preparation, which means that the kitchen
must have at least a storage area, fridge, freezer, dishwasher, washing
machine, tumble dryer, oven, microwave, and hob, though exceptions can
be made in individual cases. At least one accommodation unit must compulsorily
be fitted out for disabled people in accordance with the provisions of
Law 2/1993 of 4.5.1993. Comprehensive documentation must be submitted
with the application for approval. Also, the lessor must prove possession
of a fire and theft insurance on behalf of the tenants. In addition, deposit
must be paid covering any possible civil liability; the extent of this
is determined by the number of dwelling units and ranges from 5 to 50
million Pts. The deposit can be replaced by proof of an insurance policy
for the same amount. For the individual home owner especially the filling
out of forms and the provision of the insurance is practically impossible
or at least highly unprofitable. On top of all that, a non-resident lessor
will have his rental income taxed at a flat rate of 25%. Anyone that rents
out holiday accommodation without registering this commercially is threatened
with a fine of up to 5 million pesetas. These legal hurdles show that
the Spanish hotel lobby obviously has great influence on legislation and
a private holiday letting is politically undesirable.
Residence
The question of residence or non-residence arises for many Germans who
either want to buy a property in Spain or perhaps also want also to be
active in business. In this regard, especially residence and taxation
law aspects must be separated. Anyone who spends a period of more than
90 days in Spain is legally obligated to apply for a residence permit
(tarjeta de residencia) in the Office of Foreigners' Affairs in Palma.
This requires presentation of a valid personal ID document, 3 passport
photos, proof of income of at least 60,000 Pts per month and proof of
valid health insurance with simple translation. Possession of a tarjeta
de residencia implies rights and obligations. In the Balearics for example
one can enjoy concessions on Spanish domestic flights and sea voyages
of up to 33%. If for example a resident in Spain sells his property, the
obligation on the buyer to withhold 5% of the purchase price and pass
it on to the Spanish tax office does not apply. On the other hand, a resident
is subject more widely to Spanish regulations. This applies for example
to a driving licence, which must be presented to the Jefatura de Tráfico
in Palma and converted. This conversion is done either by means of a stamp
on the driving licence or the issue of a new one. From the taxation point
of view, residence and thus unlimited tax liability applies to anyone
who spends more than 183 days a year in Spain. The consequence is that
all income is basically taxed here, and however, a person with unlimited
tax liability also enjoys the right to extensive tax relief. A number
of taxes are avoided by the German-Spanish double taxation agreement.
However, problems with the Spanish tax office can arise for someone who
is in possession of a residence permit but really has his basic residence
in Germany and makes a non-resident income tax declaration for his property
in Spain. The tax office often assumes in such cases that the person in
question has unlimited tax liability. Proving the opposite involves considerable
expenditure.
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Purchasing property in Spain 