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Spain Real Estate Practices
Buying Process (non resident purchasers)
The property must be secured which can be done through private contracts between the two parties. It is customary that 10% of the purchase price is paid at this time. On completion a deed of conveyance, the "escritura publica", must be signed by both parties at the Spanish Notary Office.
The Notary certifies the deed of conveyance as a registered public document. Notary's fees are paid by the seller, unless agreed otherwise. The fees are fixed by law on the basis of a sliding scale. It is advisable to appoint a local lawyer, who speaks the purchaser's language, to carry out a title search and for advice on the investment. Lawyer's fees are between 1-2% of the purchase price of the property.
It is customary for the commission to be paid by the seller and is usually a percentage of the selling price (although a fixed fee may be agreed between the seller and the agent) and the percentage may vary depending on the price of the property and the region.
On new residential buildings there is VAT (IVA) charged at 7% of the value, plus 1% stamp duty, and these are paid by the purchaser. On re-sales, there is a property transfer tax set at 7%. In all cases there is also a municipal tax, “plusvalia”, which should not be confused with capital gains tax. In theory, this “plusvalia” is paid by the seller but may be subject to negotiation between buyer and seller. It is a tax on the increase in value on the land only.
Registration of the new ownership is done is done by inscribing the deed of conveyance, “escritura publica” at the land register office which is the final step in assuring legal title to the property.
European Union citizens or citizens coming from the Swiss Confederation do not need residence permits. However, non-European Union citizens who want to reside permanently in Spain must first obtain a special residence visa from the Spanish Consulate in their home country in order to apply for a residence permit.
The I.B.I. (Impuesto Bienes Inmuebles) is an annual real estate tax levied by the local town hall and is usually 0.85% (though it may vary depending on the region in the country) of the cadastral value (valor catastral). This value is the assessed value for tax purposes and other taxes are based on it as well. The buyer needs to see the seller's last receipt for the I.B.I. payment which contains the value and the exact amount of the tax.
The Non-Resident Property Owners Imputed Income Tax is yearly and is payable during the following year. The Spanish tax agency attributes 2% of the cadastral value of the property as imaginary income each year. It then charges the non-resident income tax rate of 25% on this imaginary income.
When the owner of the property is a non-resident company, a special annual tax has to be paid of 3% of the cadastral value of the property.
It is customary on the Costa del Sol that the seller of the property pays the real estate agent's commission, which may vary depending on the agency and the price of the property.
Unless agreed otherwise with the buyer, notary fees are for paid by the seller, except for the cost of the first copy which is paid by the purchaser. Notary fees are fixed by the law on the basis of a scale. Another tax to be paid by the seller, although it may be subject of negotiation with the purchaser, is "plusvalia", a municipal tax on the increase in value of the land alone.
A non-resident seller is subject to a 3% tax withholding on account of any possible capital gains. Capital gains tax is 18% of the profit of the sale. This profit is the difference between the selling price and the purchase price plus all purchasing costs and costs on improvements of the property. If the seller's liability is less than the 3% withheld at the time of the sale, the seller can claim it back from the tax office. If higher, the seller will have to pay the difference to the tax office.
There is one exception regarding the 3% retention: when the property has been owned by the vendor, at the date of 31st of December 1996, for more than 10 years and when the vendor is an individual (not a non-resident company). Also there is no retention when the vendor is subject to the normal income tax for residents or to companies' tax.
All property taxes such as I.B.I, garbage collection tax, community fees if any as well as normal running costs such as electricity, telephone, water, etc. should be paid up to the date the property is transferred to the new owner. If these cannot be calculated exactly on that date, it is customary that money be left in deposit to guarantee these payments by the buyer or his/her legal representative.
There are certain technical means by which a property is valued and it is important to follow them and to have the advice of the professionals. Formal property valuations are governed by the Ministerial Order of 30/11/94, in which it is established that sound judgment and factual data are used in all valuations.
These may be based on one of the following:
1) Maximum legal value - the maximum sales price of a property, which is subject to the controls of subsidized housing.
2) Replacement cost - the total required investment to reconstruct the property with the same characteristics. The physical and functional depreciation of the property are variable and must be taken into account in the calculation.
3) Market value - the net value that could be expected to be achieved by a seller for the sale of the property at the time of the valuation, by means of proper marketing and assuming that there is a ready, willing and able purchaser. It also assumes that both the seller and purchaser are acting of their own free will.
The legislation also defines the distinctive methods that can be used to calculate the market value:
a) Comparative market analysis based on the principle of substitution, in which the value is calculated from the recent sales of six properties with similar characteristics; b) Fixed residual yield based on the principle of greatest and best use, taking into account that the property will have to adapt to changing conditions to obtain the optimum use possible in its specific sector of the market in accordance with the location; c) Capitalization of the current income yield is the price that an average investor would pay for the acquisition of a property in function of the expectations of the yield derived from its exploitation.
The life span is determined by the type of property and residential property has an estimated life span of 100 years. The valuations are normally made on the constructed area of the properties which is why it is important to have the right measurements. Frequently, the built area indicated in the title deed does not reflect the actual area, either because it originally failed to include all the construction, or because there have been extensions made at a later date.
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