Buying Real Estates Taxation Inheritance & Inheritance Tax

Transcription

1 SPAIN Buying Real Estates Taxation Inheritance & Inheritance Tax

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3 TABLE OF CONTENTS BUYING REAL ESTATE 1.- DIFFERENCES BETWEEN NORWAY AND SPAIN 2.- QUALITY CONTROL WHEN BUYING REAL ESTATE IN SPAIN 2.-1) INTRODUCTION a) Registration certificate (Nota Simple) / copy of title deed b) IBI receipt property tax c) Basura receipt waste disposal charges d) Community of Owners rules & receipt for payment of communal charges e) Copy of electricity and water receipts f) Plan parcial development plan 2.-2) LEGAL & FINANCIAL TRAPS WHEN BUYING REAL ESTATE IN SPAIN a) Mortgage transfers b) Bank guarantees c) Inventories d) Inspecting the property e) Certificate completion 2.-3) BUYING OFF-PLAN a) Introduction b) Contract requirements c) Bank guarantees d) Developer s obligation to rectify discrepancies and faults 03

4 TABLE OF CONTENTS TAXES AND CHARGES 1.- SALES TAXES AND CHARGES a) New properties VAT IVA Notary costs Land Registry fees Solicitor s fees b) Second-hand properties Transfer tax c) Financing and financing charges Currency Setup fee Interest (fixed/variable) Mortgage bond charges Valuation fee Land Registry fee Stamp duty Insurance 2.- OWNERSHIP TAXES NOT RESIDENT IN SPAIN FOR TAX PURPOSES a) Income tax b) Tax on capital (abolished 2008) c) Property tax-ibi d) Waste disposal charges Basura e) Communal charges 3.- NORWEGIAN TAXES ON PROPERTY OWNERSHIP IN SPAIN 4.- SALES TAXES a) Private ownership - Capital gains tax b) Corporate ownership c) Calculating capital gains d) Retention e) Changes in exemptions from capital gains tax f) What are the tax effects of these changes for persons resident in Norway for tax purposes? 04

5 TABLE OF CONTENTS 5.- RENTING OUT YOUR APARTMENT/HOUSE IN SPAIN 5.-1) CONTENTS OF RENTAL AGREEMENT a) Duration of rental contract e) Payment of costs during the tenancy b) Rent and deposit f) Terminating the tenancy c) Inventory g) Selling the apartment d) Inspecting the property h) Right to conduct viewings 5.-2) MONEY LAUNDERING REGULATION SPANISH WILLS AND INHERITANCE TAX 1.- How to create a will in Spain 2.- Why create a will in Spain? 3.- Inheritance tax 4.- Calculating Spanish inheritance tax 5.- Inheritance planning GENERAL INFORMATION ABOUT VOGT ADVOKATFIRMA ESPAÑA S.L. (see also QUALITY CONTROL BY VOGT ADVOKATFIRMA PROFESSIONAL - ACCESSIBLE - EFFICIENT Preface This brochure is intended to serve as a guide for those considering buying, or who have already bought, real estate in Spain. The brochure contains practical and general advice and does not require any legal knowledge. However, the brochure should not be used in isolation when dealing with the buying process, tax or inheritance issues. We recommend taking professional advice on issues concerning buying, selling, tax and inheritance in Spain. The brochure has been updated to reflect changes in legislation as at

6 BUYING REAL ESTATE 1.- DIFFERENCES BETWEEN NORWAY AND SPAIN The Spanish buying process differs significantly from that in other countries. Firstly, there are no government-authorised estate agents in Spain. Nor is authorization required to act as an estate agent. Estate agents do not provide financial guarantees, and many of them are not insured for the financial commitments that may be undertaken. There are no formal viewings like we are used to in Norway. Properties are advertised online by all or many Spanish estate agents. It is therefore important to ascertain that the estate agent you are dealing with actually has the property on its books and is authorised to sign on behalf of the vendor. Secondly, the actual contract obviously also differs from the one used abroad. An initial reservation contract is usually signed whereby the buyer pays a deposit (between 3,000 and 6,000) to take the property off the market. The next step is to draw up and sign a purchase contract (Contrato de Compraventa).The transaction only becomes final once the title deeds (Escritura Publica) are registered with the notary. Thirdly, all contracts are in Spanish and are normally regulated by Spanish law. Get a solicitor to help you with this process ideally one who speaks both your language and Spanish and a company who employs both Spanish and Norwegian solicitors. Where to buy? The first thing to decide is which country? And then, where in the country? Even when you have chosen a region, you still have to make decisions about which resort/city along with issues such as proximity to the sea, services, transport, schools etc. Your budget will of course limit your freedom of choice. Once you have found a property that meets your criteria, you need to obtain the necessary information to allow you to ascertain the legal and financial status of the property. This is what we refer to, in short and somewhat inaccurately, as quality control. 06

7 2.- QUALITY CONTROL WHEN BUYING REAL ESTATE IN SPAIN 2.1 Introduction First we should like to stress that few foreigners are in a position to assess the risks and potential problems linked to buying real estate in Spain. Investing in real estate often involves large sums of money, and you have to deal with a different legal system and laws and rules that are considerably different from those in other countries. Few people are also fluent in Spanish. The quality control process varies depending on whether you are buying off plan, a new apartment/house or a second-hand property. a) Registration certificate (Nota Simple) / copy of title deed. A Nota Simple is a registration certificate from the Land Registry. The certificate contains information about: 1. Who owns the property, including ownership stakes if there are multiple owners 2. A description of the property and details about its boundaries 3.Encumbrances on the property and their size. However, please note that not all encumbrances are listed on the Nota Simple, e.g. encumbrances such as unpaid property tax and communal charges, ref. below 4. Other ownership limitations, such as any rights of use to the property, servitudes, etc. A registration certificate should be obtained even before signing the reservation contract. That way you will know with certainty that the vendor holds the registered title. Please note that the solicitor carrying out the quality control will not inspect the property. The physical state and actual size of the property are therefore not inspected. We recommend that you instruct a surveyor to inspect the property. The surveyor will produce a report describing the condition of the property. This will also provide the buyer with the estimated floor space of the property. As mentioned, the solicitor will not look at the size of the house/apartment. He will only compare the previously registered title deeds with the details provided on the registration certificate (from the Land Registry). Technical survey costs aprox

8 The Nota Simple should be recent and no older than 10 days. A registration certificate is not a guarantee that further encumbrances have not been placed on the property after the certificate was issued. A new certificate should therefore be obtained just before the final transfer. The certificate obtained by the notary in connection with the transfer of the property is valid for 10 days. The Land Registry issuing the certificate is obliged to inform the notary if there are any changes to the status of the property in this period. The Nota Simple contains simplified information, and a copy of the title deeds should therefore be obtained and thoroughly examined. b) IBI receipt property tax. IBI (Impuesto sobre Bienes Inmuebles) is the Spanish term for property tax. When buying real estate in Spain it is recommended that the vendor is asked to produce a receipt for paid property tax. Property tax is levied on the actual property and will follow the property in the event of a sale. This encumbrance will normally not be described on the registration certificate. The IBI receipt contains a due date, and overdue interest is charged in the event of non-payment. If the Owners/Sellers are in default with payment of the Property Tax this will be attached to the property. The new purchasers will be jointly liable for the payments. c) Basura receipt waste disposal charges. The vendor should also produce a copy of the receipt for payment of municipal waste disposal charges (Basura). Unpaid waste disposal charges are an encumbrance that follows the property, and overdue interest is payable in the event of non-payment. Defaulted invoices do not appear in the Nota Simple. d) Community of owners rules and receipt for payment of communal charges. A community of owners will have been established if the property is part of an urbanisation. The community of owners will have rules that regulate communal issues within the urbanisation. The rules may include clauses that limit your freedom if you are planning to rebuild your terrace, put up awnings, keep animals etc. 08

9 An urbanisation will normally hold a general meeting once every year. The general meeting debates and adopts the accounts and budget, and it raises issues that are important to the owners. Minutes from a general meeting can therefore provide a good indication of which problems may be expected in the future when buying a property. Spanish law does not require minutes to be published in any language other than Spanish. Spanish law also stipulates how the voting is effected and how many votes are required in each case. When purchasing real estate the vendor should produce confirmation from the administration of the community of owners stating that the vendor has no communal costs outstanding. Unpaid communal charges follow the property. The Law provides that the purchaser of a home or business premises within a system of condominium ownership, is liable with the property purchased for any amounts owed to the Community of Owners up to a maximum of the community fees issued for the part of the current year until the moment of purchase and the three previous years. This encumbrance will normally not be revealed by the registration certificate until the joint ownership organisation has taken distraint action against the property, which will only happen if the vendor has not paid the communal charges for a long time. The administrator should also be asked to give a statement to the effect that no major repairs, refurbishments or expansions are being planned that would leave the buyer with higher than expected communal costs. e) Copy of electricity, gas and water receipts. If you wish to continue an existing water, gas and electricity contract, you should investigate whether the vendor has paid these bills up until the date the title deeds are signed. f) Plan parcial development plan. The development plan for the area should be examined. It will reveal any planned roads, preservation areas, new areas of development etc. When buying a property under construction you should check that the developer has planning 09

10 permission (licencia de obra). If the development is within a green zone (an area that should not be developed), you should check whether dispensation from the development plan has been granted. A bank guarantee should be issued for part payments during construction. It is common for developers not to produce a bank guarantee until requested to do so by the buyer or the buyer s solicitor. It is also important to obtain a so-called licencia de primera ocupacion First Occupation Licence before moving in. This licence is necessary in order to enter into permanent water and electricity contracts. This is just a basic checklist of the information you should obtain in order to quality-assure a real estate purchase. However, the quality control must be tailored to each individual purchase. If the owner of the property is a Spanish company, the quality control process will be more extensive. For example, quality control will then include due diligence of the company s financial and legal status. If the owner is a Spanish company owned by a foreign enterprise, you should be very wary of taking over the parent company without conducting a thorough preliminary investigation. In recent years, great efforts have been made in the standardisation of town planning, with the intention of regularising and legalising buildings that are not in line with current planning regulations. The planning regulations of many Town Halls now include the terms and conditions that have to be complied with by developers and owners in order to legalise those buildings: transfer of land for public use, better infrastructure and urban services, monetary compensation to the Town Hall, etc. Apart from the standardisation mentioned, we would highlight two important situations: Buildings with the status of outside of planning regulation, built with planning permission which at the time complied with the regulations then in force, but not with the current ones. This means that the owner may only carry out renovation work for repair and conservation as strictly necessary for conserving living conditions or conditions for the use intended, without in any event making any extensions or improvements. Buildings with the status of equivalent to outside of planning regulation, which is given to works, constructions and buildings that infringe planning regulations, and were carried out without permission, or they contravene the rules and these have now expired, or in other words, the legal 10

11 period established for taking any action, 6 years, has expired without the Administration having opened any proceedings or passed any decision ordering the restoration of legal order in respect of that infringement. Properties in this situation cannot obtain their First Occupation Licence but they can execute a deed of new construction and have it registered in the Land Registry with that status. It is necessary to remark that the Spanish Supreme Court has declared as null and void the 2010 Marbella PGOU (General Plan for Urban Zoning). This means that from now on the town will have to comply with the terms of the 1986 Plan, which had been in force before approval was given for the one which has now been declared invalid. This situation requires a common effort to be made by the Town Hall and the Regional Government in order to set up the proper regulation to guarantee the judicial security for buyers, investors and promoters. It is very unlikely that any of the complexes declared illegal by the courts would be demolished. Therefore most of the affected dwellings will remain in a situation outside of planning regulation or equivalent to outside of planning regulation, until the approval of the new Marbella urban planning, which will be developed looking of the total normalization of Marbella. 2.2 Legal and financial traps when buying real estate in Spain a) Mortgage transfers In the case of new-builds the vendor will normally take out a mortgage loan to finance the construction project (building loan). The buyer will often be offered to take over the loan secured against the property (subrogation). The benefit of doing this is that the subrogation costs are often lower than the set-up fee when taking out a mortgage in Spain. If the buyer shall have the right or obligation to take over the mortgage, this will normally be stipulated in the purchase contract. Before signing the purchase contract you should obtain the terms of the mortgage along with details of the loan currency and then make a final decision as to whether or not you want to take over the mortgage. You can get an unpleasant surprise if you first decide to take over the mortgage but then change your mind at a later date. You will then have to meet the cost of cancelling the loan. 11

12 You can also enquire about the possibility of taking over the mortgage secured against the property when buying second-hand property. b) Bank guarantees. Under Spanish law it is mandatory for the vendor to produce a bank guarantee for any monies paid during the construction period. The law does not stipulate who should meet the cost of issuing the bank guarantee, however. The objective of the law dictates that the vendor shall meet the cost, but it does happen that developers sometimes try to make the buyer cover the cost by including it in the contract. The cost of issuing a bank guarantee varies from bank to bank but is around % of the guaranteed amount. You should therefore ascertain that the vendor will pay the cost of issuing a bank guarantee and include this in the purchase contract. c) Inventory When buying an apartment/house in the second-hand market it is often agreed that fixtures, fittings, furniture, etc. be included in the sale. If so, a detailed inventory should be drawn up. Photographs can also be a useful form of documentation. The inventory should be signed by both vendor and buyer and should be included as an appendix when signing the purchase contract. That way you prevent the vendor from taking with him any of the inventary and claiming that they were personal property. d) Inspecting the property. When buying a new apartment the buyer is given a 1-year warranty for hidden faults in the apartment and a period of up to 10 years for construction faults. When buying a second-hand apartment it may be worth hiring a surveyor to inspect the property. e) Certificate completion. A purchase contract will often stipulate that the buyer can take possession of the property once the apartment has been completed. But at which point can an apartment be deemed to have been 12

13 completed? Many contracts define completion as the point at which the vendor submits an application for a First Occupation Licence a licencia de 1ª occupacion. The First Occupation Licence is the document issued by the Administration accrediting that the work carried out conforms to the permit granted, i.e. it confirms that the building work is in accordance with the project for which the building permit was issued and that it meets the conditions for safety and habitability. On a practical level, this document is essential mainly for new constructions so that utility services can be contracted for the first time. However, the First Occupation Licence application form, provided by the vendor, does not mean that a licence has been granted. It will usually take at least one month (often up to 6 months) from the date, when the application is submitted, until the certificate is issued. The result is that the new owner will have no water, gas or electricity in this period. This problem is often solved by the developer s making electricity and water available from the building site. We still recommend that the certificate be produced before the title deeds are signed. Only once the certificate has been produced, the property can be deemed to have been completed from a legal point of view. One peculiar but not unusual practice, is for the developer to obtain a certificate, by way of passivity on the part of the municipality. Under Spanish law the municipality has 3 months to give a positive or negative response. If no response is forthcoming within the mentioned time limit, relevant Spanish law stipulates that the application shall then be deemed to have been granted. However, you should not automatically assume this to be the case, as the municipality may in certain circumstances investigate a particular case if the developer is guilty of serious misconduct (e.g. if planning permission has been obtained based on corruption and where permission should not have been granted, e.g. in connection with the development of communal gardens). 13

14 2.3 Buying off-plan a) Introduction The developer s obligations towards the buyer are regulated by law. For example, there are requirements for the contents of the contract and for the issuing of guarantees for any monies paid during the construction period. Once ownership of the property has been transferred there are also rules on the developer s obligation to rectify any faults and discrepancies with the property. b) Contract requirements Firstly, there is a general legal requirement that the contract must be clear and concise. It must also be balanced, and the terms and conditions must be reasonable. Examples of unreasonable terms and conditions in a contract: When buying real estate off-plan the buyer is often offered to take over the existing mortgage on the property. The mortgage often accounts for 70% of the total purchase sum. Buyers are not obliged to take over the mortgage, but some contracts stipulate that the buyer must pay cancellation fees for the mortgage if he does not agree to take it over. This clause is frequently abused, as it is in principle the developer s duty to pay cancellation fees for his own mortgage. These costs are often around 0.5 1% of the mortgage. Land registry fees and notary costs of up to some 1,000 are also payable. Contract terms and conditions stipulating that the buyer must pay any costs that under the law should be met by the vendor such as the cost of dividing up the apartments (División Horizontal) are deemed to be unreasonable according to Spanish law. We have often seen contracts specifying that the buyer is obliged to take possession of the apartment once the developer has obtained a so-called Acta fin de obra a certificate issued on completion of the building. According to Spanish law, the property only becomes habitable once the developer has obtained a Licencia de 1ª ocupacion as described above. Legally, the property does not become habitable until this certificate has been produced. 14

15 Under Spanish law the contract must contain the following: Information about the contract parties. The contract should contain the buyer s name and address. Similarly, it should specify who the developer is. If the developer is a company, it must state where the company is registered, which type of company it is, its organisation number/cif number and its address. The contract must also contain a detailed description of who is authorised to sign on behalf of the company. If it refers to a power of attorney from the developer, Spanish law requires this to be a notary power of attorney. The contract should contain a description of where and in the presence of which notary the power of attorney was signed. Buyers often decide to change the name on the contract during the construction period. For example: a buyer has signed in her own name but then decides that she wants her Norwegian/Spanish company, or her children, to be the legal owner of the property. If this buyer has been farsighted enough, the contract would contain a provision stating that the contract can be transferred to a third party without requiring the permission of the vendor. If the contract does not stipulate such an entitlement, the buyer must rely on the vendor s goodwill. Vendors will occasionally refuse such a transfer without giving any reason whatsoever. Nor does Spanish law require the vendor to give a good reason for such a refusal. If it is a case of a genuine sale before completion, the vendor will often demand a certain percentage of the profit that is generated by the buyer. In other cases it may be stipulated that any profit is to be shared equally between the buyer and vendor. A transfer of the purchase contract during the construction period may render the vendor liable for capital gains tax on any profit, and the transfer itself may be subject to transfer charges or VAT. Description of the property The contract should include a detailed description of the property, and it should state where the property is registered. It should also contain plans of the apartment, showing room divisions etc. If the apartment is in an urbanisation (joint ownership), plans should be attached showing the location of the apartment within the urbanisation. The plans should be signed by both the buyer and the vendor. 15

16 Communal areas should also be defined, as should the developer s obligations in terms of building swimming pools, tennis courts, club houses etc. if these are described in the prospectus. Price and delivery date. The contract must contain information about the price and completion date. The completion date should correspond to the date on which the developer receives the so-called licencia de 1ª ocupacion a completion certificate required to enter into water and electricity contracts. Building specifications The contract should also include a list describing materials, colours and standards in detail. For example, the list should specify whether there should be marble floors, which type of marble should be used etc. It should also specify what will be included in terms of white goods, air conditioning, alarms etc. c) Bank guarantees Spanish law requires a bank guarantee or insurance guarantee to be produced for any monies paid in during the construction period. This is a mandatory legal requirement, which means that the developer has a duty to issue an insurance/ bank guarantee for any monies paid in during the construction period. An agreement between the parties stating the no bank guarantee will be issued is not valid under Spanish law. The law also prescribes a duty on the part of the buyer to return the bank guarantee(s) when signing the title deeds and taking possession of the property. Spanish law also stipulates that monies paid in during the construction period shall be placed in a separate account and used only for construction. The bank guarantee shall also guarantee the amount paid in interest per annum. The purchase contract should expressly refer to the bank guarantee, and it should specify that the developer guarantees the return of the monies paid in interest per annum if the developer has not completed the property within the agreed time frame. The purchase contract should also specify 16

17 that the vendor shall meet the cost of obtaining a bank guarantee. It is also important to obtain a licencia de primera ocupacion (completion certificate) before moving in. This certificate is necessary in order to enter into permanent water, gas and electricity contracts, for example. For practical reasons it is common for the buyer to receive the bank guarantee around 14 days after the money has been paid in. d) Developer s obligation to rectify discrepancies and faults When building new homes the developer is obliged to rectify any faults and discrepancies with the property. In Spain there are generally speaking three differentdeadlines for requesting rectification. The various deadlines depend on the nature of the discrepancy. Firstly, the buyer is entitled to demand that the developer rectify any faults and discrepancies with the property provided he makes such a demand within one year of taking possession of the property. This mostly relates to visible faults and discrepancies. The buyer may also demand that the developer rectify hidden faults by making a claim to that effect within three years of taking possession of the property. For construction faults and discrepancies there is also a 10-year deadline for making a claim for rectification. If you buy real estate where the previous owner purchased the property from a developer 6 months ago, the previous owner s rights vis-à-vis the developer will be transferred to you. This means that you must make any demand for rectification of visible faults and discrepancies within 6 months etc. We should also like to add that if the developer fails to meet his statutory obligations, the case must be brought before a Spanish court of law. It should not come as a surprise to anyone that the Spanish legal process is very time-consuming. We are sorry to say that we have seen several examples of developers simply speculating in buyers not going to court, instead agreeing to rectify the discrepancy at their own expense. 17

18 TAXES AND CHARGES 1.- Sales taxes and charges a) New properties Value added tax IVA. IVA (value added tax) is payable when buying property off-plan. IVA, on the purchase of newly constructed properties, is charged at a rate of 10% this also includes garages and storage rooms. If a garage or storage rooms is purchased separately, IVA will make up 21% of the purchase sum. The latter IVA rate also applies when buying land. 1,5% stamp duty on the purchase price is also payable. IVA is calculated on the basis of the title deed value of the property. Notary costs. Notary cost of around 800 is payable by the buyer. Notary costs vary depending on the complexity of the title deeds and on the number of notarial pages used when producing the title deeds. Land Registry fees. The title deeds must be registered in the Land Registry. The registration costs are normally in the region of 700. Solicitor s fee. The solicitor s fee when buying property is normally between 1% and 1.25% of the purchase price, albeit minimum 3,500. Estate agent fees. Estate agent fees have fallen in recent years and are now usually around 5%. 18

19 b) Second-hand properties Transfer tax The rate applicable to the sales price in the case of residential property: Up to 400,000 : 8% From 400,001 to 700,000 : 9% Over 700,001 : 10% The rate applicable to the sales price in the case of garage spaces, except for garages annexed to a house, with a maximum of two: Up to 30,000 : 8% From 30,001 to 50,000 : 9% Over 50,001 : 10% The rate applicable to the sales price in the case of furnishings: 4% The rate applicable to the sales price in the case of boats of more than 8 metres in length: 8%. For calculating Property Transfer Tax or Stamp Duty arising from the purchase or sale of a property, it is important to bear in mind the tax value of the property, which is the value established for the purposes of the Tax Settlement Office, regardless of its market value. If tax is paid based on an amount below that value, the Tax Authorities will claim payment of the full amount of the tax relative to that tax value, plus the corresponding surcharges and interest. However, it is possible to appeal against any supplementary tax claim. At the same time, if these taxes are settled for an amount less than the rateable value of the property, it could involve a penalty equivalent to 50% of the portion of the full amount of the tax that was not paid correctly Other costs. Notary costs, solicitor s fees and Land Registry fees are also payable as mentioned before. Real estate agency commissions. It is recommended to always pay commission against an invoice issued by the agency with its corresponding VAT. 19

20 c) Financing and financing costs. Spain or abroad? Whether to take out a mortgage in Spain or abroad should be considered on a case-by-case basis. We will provide clients with an overview of costs that are incurred when taking out mortgages in Spain. Non-residents will normally be granted a mortgage for up to 70% of the value of the property. The financial crisis has led Spanish banks, in particular, to be more restrictive when issuing mortgages. You should study the terms and conditions of the mortgage carefully. A fee is payable when you take out a mortgage (ref. below), when you change the terms and conditions, and when you cancel the mortgage. Please note that all of the terms and conditions can be negotiated, and it is often possible to slightly reduce the fee that you pay, but it is important that you negotiate more favourable terms before the mortgage is granted. The mortgage is set up with the notary, usually at the same time as when you sign the title deeds for the property. Overview the cost of taking out a mortgage in Spain. Setup fee Varies from bank to bank but is normally between 1% and 2% of the mortgage. Technical survey fee Approx. 600 Interest (fixed/variable) If you think interests rates are likely to rise, you should fix the interest for as long as possible. If you believe the opposite to be a more likely scenario, you should agree a 3-month variable rate. Notarial fee Depends on the complexity of the title deeds and on the number of notarial pages that are used but is in the region of

21 Valuation fee Approx Land Registry fee Normally Stamp duty Stamp duty of 1.5% is payable on the liability of the mortgage, i.e. the total sum of capital, ordinary interest, overdue interest and collection costs. Stamp duty is calculated on the basis of the total liability, which is around 150% of the amount borrowed. Insurance It is a requirement that the property is insured. The bank will retain a local lawyer. The costs approx , will have to be paid by you as borrower. 2.- Ownership taxes and other costs not resident in Spain for tax purposes. a) Impuesto sobre la renta de no residentes income tax for non-residents A non-resident must pay income tax on any earnings generated in Spain, including from renting out property. The income in this respect is the actual rent that you have received or a percentage of the rental value (comparable to Norwegian taxation rules on the imputation of rental income from holiday homes). Income tax for non-residents who have not rented out their property is calculated in the same way as imputed rental income in Norway. The taxable gain is 2% of the Spanish rateable value of your property, the so-called valor catastral. Beyond that, the applicable tax rate is as follow: The rate applicable from 12 July 2015, for citizens resident in the EU, Iceland and Norway is 19.50%. The rate applicable as from 1st January 2016, for citizens resident in the EU, Iceland and Norway will be 19%. 21

22 Let s imagine that the Spanish rateable value of your property is 50,000. The taxable amount is 2% of 50,000, which is 1,000. Income tax is 19,00% of 1.000, which is 190. If the Spanish rateable value has been revised after , the taxable amount is 1.1% of the Spanish rateable value. b) Impuestos sobre el patrimonio tax on capital. Wealth tax was abolished in Spain as from However, it has been reintroduced in The Wealth tax is only effective after the deduction of per person. If a couple co-owns real estate is thus the deduction if permanent recidence per person. Table for Wealth Tax in Andalucia: Taxable amount Up to in euros Payment fee Euros Rest of taxableamount Up to in euros Applicable Precentage type 0,00 0, ,45 0,24% ,45 401, ,43 0,36% , , ,87 0,61% , , ,50 1,09% , , ,02 1,57% , , ,02 2,06% , , ,03 2,54% , ,73 Onwards 3,03% 22

23 c) Property tax IBI impuesto sobre bienes inmuebles IBI is an annual municipal tax payable by both residents and non-residents in Spain. A bill will be sent to your registered Spanish address once a year, usually by July in Marbella and by March in Mijas. The amount of property tax you have to pay will vary depending on where the property is and the value of same. d) Basura / municipal waste disposal charge. The municipal waste disposal charge is payable by both residents and non-residents in Spain. The bill will arrive by mail twice a year and is around per year e) Community charges Community charges vary depending on which services are provided as part of the joint ownership (gardener, security guards etc.). The communal charges are set on the basis of a budget adopted by the annual general meeting. These charges are not distributed equally to each apartment (or house) but according to the number of square metres you own (including terraces and your notional share of the building s communal areas). 3.- Norwegian taxes on property ownership in Spain. According to Article 6 of the tax treaty between Norway and Spain, Spain may collect tax on income from real estate in Spain owned by a person resident in Norway. The same applies to profits from the use of real estate in Spain. However, Spain s right to tax such income and capital under the double taxation treaty does not limit Norway s right to tax the same income and capital. Income from and capital held in real estate in Spain are also taxed in Norway. However, when calculating your tax in Norway, deductions should be made from your Norwegian tax for tax already paid in Spain, based on the so-called credit method. You must give details of any real estate in Spain on your Norwegian tax return. A request for tax credits should be made and you should attach your Spanish tax return. 23

24 How is the Norwegian rateable value of real estate in Spain determined? According to a statement by the Norwegian Ministry of Finance, the setting of the Norwegian rateable value of real estate abroad should be based on approximately the same ratio between the assumed market value and rateable value as for similar property located in the Norwegian municipality where the taxpayer is resident. This can be illustrated by the following example: you buy an apartment in Spain for NOK 2 million, and the rateable value of real estate in your municipality in Norway is 20% of the market value. Your Norwegian tax return stipulates that you should give the value of the apartment as NOK 400,000. However, a number of our clients have given the Spanish valor catastral as the basis for Norwegian tax on capital, and this has been accepted. 4.- Taxes when selling a) Private ownership Capital gain tax. Before the tax reform that came into effect on , vendors were taxed differently with regard to capital gains tax depending on whether or not they were resident in Spain for tax purposes. This difference has now been eliminated, and all vendors are now treated equally. Tax on capital gain is a rate applicable on the total gain. The rate applicable since 12 July 2015, for citizens resident in the EU, Iceland and Norway is 19.50%. The rate applicable as from 1 January 2016, for citizens resident in the EU, Iceland and Norway will be 19%. The capital gain generated by the sale of a property acquired between 12 May 2012 and 31 December 2012 is exempt from paying 50% of the tax. 24

25 b) Corporate ownership. If the property is owned by a Spanish Company, the capital gain is included in their profit and loss account. The general rate is 30%. For PYMES- (Small and Medium Businesses) the rate is 25% for the first profit and after that profit amount, 30%. New companies incorporated are taxed the first 2 years at 15 % for the first profit and profit exceeding this amount is taxed at 20%. Norwegian and other non-resident companies not conducting business in Spain, are charged at 21%. c) Calculating capital gains. The capital gain is the difference between the entry value (title deed value upon purchase) and exit value (title deed value upon sale). The entry value is the official purchase sum with the addition of a given tax index rise for each year that the property has been in the vendor s ownership. The entry value will also increase with any investments made (less depreciation) and with any direct purchase costs. The exit value is reduced by all relevant sales costs. d) Retention A few inequalities still remain between residents and non-residents. If a buyer conducts a transaction with a vendor who is non-resident, the buyer must withhold 3% of the purchase sum which must then be transferred by the buyer to the tax authorities as an on account payment for capital gains tax in a term of 30 days If this on account amount exceeds the amount of capital gains tax due, the buyer must request a refund of the balance. The processing time for such requests is between 6 months and 1 year. Once the refund of the withholding has been applied for, it must be taken into consideration that the Tax Authorities will check the tax status of a non-resident seller, mainly in respect of Non- Resident Personal Income Tax corresponding to the last four years, and if there is any outstanding tax owed for any concept, this will be paid from the withholding, with surcharges and interest included, before making any refund. 25

26 Plusvalia Plusvalia is a tax on the increase in value of the land on which the house/apartments is built and becomes payable each time there is a change in ownership. The extent of the Plusvalia depends on the length of ownership and the size of the plot. Under Spanish law, the vendor is generally speaking liable for paying Plusvalia, but the law does allow for vendors and buyers to make their own arrangements in this respect. When a non-resident individual sells a property, it is the buyer who has the obligation to pay the municipal plusvalia tax to the corresponding Town Hall, replacing the seller as taxpayer; but as the real taxpayer is the seller, the latter has to pay the buyer for the amount of that tax, and this is usually handled by retaining the amount calculated for the tax from the sales price to be paid to the seller. The Land Registry will not register the sale without seeing evidence of having made voluntary settlement of the tax, or presented the tax return for the Plusvalia. Private ownership resident in Spain for tax purposes. A resident who sells his main home and invests the money in a new home (within 2 years) is exempt from capital gains tax when selling. Under Spanish law, a villa is considered your main home if you have lived in it for the last 3 years. Residents aged over 65 and over are exempt from capital gains tax when selling their main home. The person must have lived in the home for 3 years before selling, but persons aged 66 and over are not required to invest the proceeds from a sale in a new home. 26

27 e) Changes in exemptions from capital gains tax Properties purchased before , are granted a reduction of capital gain tax. This means that the benefit obtained between the years is exempt of capital gain tax. If the property is sold now with a profit only a proportion of this is taxable, namely the relative proportion of the capital gain as from f) What are the tax effects of these changes for persons resident in Norway for tax purposes? Capital gains on the sale of real estate abroad are in principle taxable in Norway under Norwegian taxation rules. Losses on the sale of real estate abroad are only deductible in Norway in cases where any capital gain would have been taxable in Norway. Real estate abroad includes own homes and holiday homes. Timeshare apartments may also be considered real estate for tax purposes. According to Article 6 of the tax treaty between Norway and Spain, Spain may impose tax on income from real estate in Spain owned by a person resident in Norway. This also applies to profits from the disposal of real estate in Spain, ref. Articles 13 and 22 of the tax treaty. However, under the tax treaty you may request tax credits for tax paid in Spain when paying Norwegian tax on the profit. In other words, you should not be double-taxed. Norwegian tax legislation does contain a few exceptions from the general rule of 28% tax on profits from the sale of real estate. The legislation stipulates the following criteria in order for any profit to be tax-free: 1. Firstly, the exemption only applies to the sale of holiday homes. Holiday homes are real estate with buildings used for leisure purposes, such as cottages or country homes. 2. Secondly, the owner must have used the property as his own holiday home for at least five of the last eight years (residency period). 3. Thirdly, the property must have been sold or a sale must have been agreed more than five years after it was purchased and more than five years after it was put into use or, according to the completion certificate, after it was completed. Only residency periods during the owner s period of ownership will be taken into account. 27

28 EXAMPLE Selling a holiday home in Spain IN SPAIN IN NORWAY In Spain The taxable profit is calculated according to Spanish rules and is taxed in Spain. Tax liabilities are calculated according to Norwegian rules. If you have owned and used the holiday home for long enough to meet the criteria for a tax-free profit when selling, the profit will be exempt from tax in Norway. In this case you may not request tax credits in Norway for the Spanish tax paid on the profit. If the profit is taxable, the profit is calculated according to Norwegian rules and is taxed in Norway. In this case you may request tax credits for tax paid in Spain from the Norwegian tax on the profit As the taxable profit is calculated according to both Spanish and Norwegian rules, the taxable amounts in Spain and Norway will differ. 5.- Renting out your apartment/house in Spain. Many Norwegians who buy homes in Spain plan to finance their purchase by renting out their property for shorter or longer periods. In order to limit potential problems, home owners should be aware of their rights and obligations as landlords. One basic precautionary measure is to ensure that any rental agreement is put in writing, even though the law also allows for verbal agreements. In this article we will look at what a landlord should be aware of when drawing up a rental agreement. Spain has several laws on property rental. In addition to national tenancy laws, there are various laws on property rental in some of the autonomous regions. We will be looking at the urban tenancy act, recently modified by the Law (Ley medidas Flexibiliación y Fomento del Mercado de Alquiler). We consistently use the term apartment, but the Tenancy Act covers all types of accommodation (with specific exceptions ref. next paragraph, for example). 28

29 The Tenancy Act contains certain mandatory provisions, which means that they cannot be set aside by an agreement between the parties. The law distinguishes between the renting out of holiday homes and more permanent tenancies. A home is classed as a holiday home if the rental period is specified in days or weeks, the property is fully furnished, and the tenant keeps his permanent home elsewhere. In practice, a tenancy less than 12 months is classed as a longterm tenancy, but disputes do arise. 5.1 Contents of rental agreement. a) Duration of rental contract Tenants in a permanent tenancy enjoy protection against termination of the tenancy. The contract should contain a clause describing that the tenant has a permanent residence in Norway, for example, and that the agreement covers a tenancy, not a permanent residence. The agreement should also be limited to less than 12 months. If the tenancy is defined as permanent, Spanish law allows the tenant to automatically extend the tenancy by up to 3 years even if the tenancy agreement stipulates a shorter tenancy. b) Rent and deposit The rent may be agreed by the parties as they wish. It should of course be agreed that a minimum deposit of 1 month to be paid. c) Inventory The landlord should draw up a detailed inventory of furniture and fittings. The inventory should be included as an appendix to the tenancy agreement and signed by both the tenant and the landlord. d) Inspecting the property Before signing a tenancy agreement the tenant and the landlord should inspect the apartment. A survey report should be included in the tenancy agreement, e.g. in the form of a clause stating that the tenant has taken possession of the property in the condition described in the survey 29

30 report. At the end of the tenancy the tenant and landlord should again inspect the apartment. The deposit should be returned only once the landlord has checked that everything is in order. If the tenancy is of a more long-term nature, the landlord should include the right to a mid-tenancy inspection in the tenancy agreement. e) Payment of costs during the tenancy For short-term tenancies it is common for the landlord to pay for water, electricity, communal costs and other costs relating to the tenancy. For permanent tenancies, the cost of water and electricity should be charged to the tenant. Communal charges and property tax are normally paid by the landlord, although other arrangements can be made. f) Terminating the tenancy The tenant may withdraw from a rental agreement after a minimum of six months have passed, providing that he informs the landlord with at least thirty days advance notice. The parties may arrange in the contract that, in the case of withdrawing, the tenant shall compensate the landlord with an amount equivalent to one month s rent at the current rate for each year of the contract still to run. For periods of time less than one year, the proportional part of the indemnity will apply. g) Selling the apartment If the landlord wishes to sell the apartment, the tenant has the right of first refusal. The tenant may then purchase the apartment subject to the same terms as those offered to other interested parties. In any case the apartment may not be sold without also transferring the rental agreement if such his last agreement was registered in the Land Registry. h) Right to conduct viewings It is often practical to include a clause on the landlord s right to show the apartment to potential buyers in the event of a future sale. Please note that no matter how well you try to protect yourself in your tenancy agreement, you will be relying on the Spanish courts if something were to go wrong. In this respect we should stress 30

31 that Spanish legislation offers a great deal of protection to the tenant, and evicting a tenant is a very long-winded process. We should also like to add that rental income is taxable and should be included in your Spanish tax return. Tax treatment for leases of commercial premises: The lease for business premises has a special tax treatment. On the gross amount of rent the tenant has to withhold 19.50% on account of the landlord s Personal Income Tax. And in turn, the landlord has to apply VAT at the rate of 21% on the gross amount of the rent. 5.2 Money Laundering Regulation. Regulations in Spain for the prevention of money laundering require lawyers to obtain from their clients the information necessary for demonstrating the legal origin of the funds to be used in a property transaction, which requires us to draw up an action protocol that involves asking our clients to provide the following documentation: Copy of their last tax return. Copy of bank statements for the accounts from where the funds are transferred corresponding to the last six months. Copy of the last three salary-slips for each person involved in the purchase. Copy of pension slips corresponding to the last three months. Bank recommendation letter. If the funds come from a loan or credit, copy of the document formalizing the loan. If the funds come from an inheritance, copy of the documents evidencing this. If the funds come from the sale of a property, shares, bonds or any other financial assets, copy of the document evidencing the sale. 31