Taxes for buyers

In our aim to always offer you a comprehensive service and make the purchasing process easier, please find enclosed a few lines about the tax implications that could arise from a real estate transaction in the Balearic Islands.

Taxes when purchasing

Are you a purchaser?

The purchase of a real estate located in Balearic Islands would be levied with indirect taxes, no matter if you are resident in Spain or not. Which ones?

In case of a house, taxes would depend on whether it is a new or a second-hand house:

1. New Housing: VAT at 10% plus AJD at 1,5% except:
   1. 1.2% in the first copies of deeds and notarial deeds if their purpose is the encumbering transfer or the establishment of real estate rights to real estate intended to establish the primary residence of the acquirer, with the character of the habitual residence, if the real estate or declared value (if the latter is higher than the real one) of the property is equal to or lower than 270,151.20 euros.
   2. 2% for encumbering transfer or the creation of real rights over immovable property if the actual or declared value (if the latter is higher than the actual value) of the property is equal to or greater than 1,000,000 euros.
2. Second-Hand Housing: TPO (Progressive rate of the property Transfer Tax)

Bealaric TPO progressive rate, General Rule

In the case of parking spaces ((excluding garages annexed to houses with a maximum of two, in which case it follows the general rule described in the above table), the table below is to be considered: 

Balearic TPO progressive rate, Parking Spaces

(TPO) passed by the Balearic government QFL 2012/281277 Ley Baleares 15/2012 de 27 diciembre 2012. 

In case of plots, taxation would depend only whether the purchaser and/or the vendor are enterpreneurs/professionals or individuals.

1. VENDOR, COMPANY/PROFESSIONAL: VAT at 21%
2. VENDOR INDIVIDUAL: TPO (Chart above)

According to the criteria of Spanish Tax Authorities, in order to be considered as housing and not as a land, the construction must be finished and the corresponding certificate of occupancy has been provided. For that reason:

BUILDINGS UNDER CONSTRUCTION, not finished, VAT at 21%
OLD BUILDINGS in need of DEMOLITION, would be considered as PLOTS .

The vendor is responsible of paying VAT to the TAX Authorities.
The purchaser is responsible of paying the TPO to the TAX Authorities.

Other important issues for the purchaser

In case the vendor is a non-tax-resident, according to the Non-resident Income Tax Spanish Law, the purchaser must withold a % of the price (currently, 3%) and pay it to the Tax Authorities on the vendor’s behalf.

On the other hand, in case of individuals other tax implications could arise once the investment has been carried out:

Annual taxes to take into account:

I) Property ownership tax (Impuesto sobre Bienes Inmuebles - IBI)

IBI is a tax that the authorities charge on the value of the property. It is calculated using the cadastral value (valor catastral), which is the rateable value of the property. IBI is paid annually. IBI varies from one region to another. 

Generally, minimum statutory rates and any applicable supplementary charges fluctuate between 0.4% and 1.1% of the cadastral value.

II) Waste disposal tax: Tax for waste collection and treatment.

III) The Wealth Tax, recently restored by the government, temporarily for the years 2011, 2012 and 2013. The regions also have jurisdiction over this tax and some set rebates on them.

We will focus on Non-resident wealth tax (Impuesto de Patrimonio de No residentes - IP)

EU or EEA residents may choose to:

- Pay the tax in compliance with government regulations, or

- Pay an amount approved by an autonomous region. This region must be where the highest value of the taxpayer’s assets and rights, which may be exercised or fulfilled in Spanish territory, on which the taxpayer is required to pay tax are situated.

This tax rate ranges between 0.2% and 2.5% of the state scale, and between 0.28% and 3.45% of the Balearic Islands’ regional scale. There is a tax-free allowance in both cases of €700,000.

Applying the government regulations is therefore more favourable at the moment.

IV) Income Tax, 

        IV. 1 Residentes in Spain,will pay for their income obtained according to the estate.

Progressive Income Rate:

         IV. 2. Non-resident personal income tax (Impuesto sobre la Renta de no Residentes - IRNR)

       a) Attributed income from urban real estate for personal use. Non-residents who do not rent out their property in Spain must pay the Impuesto sobre la Renta de las Personas Físicas No residentes (IRNR) on the declared value of use of the property. This tax is calculated as follows: 

The tax base is 2% of the cadastral value, (or 1.1% if the cadastral value has been revised). 

The tax rate is then 19% of this amount for residents in the EU or EEA, or 24% for residents elsewhere.

 For properties that do not have a cadastral value, or if the taxpayer has not been notified of said value by the date on which the tax is due, an income tax base of 1.1% is applied to 50% of the purchase price.

Example:

Cadastral value of € 450,000 x 1.1% = € 4,950. 19% of this value = annual IRPF of € 940.50

      b) Income from rented properties. If the non-resident taxpayer rents out the property, the income to be declared is the full amount received from said property. Expenses, as provided by law, may be deduced from this amount for EU and EEA residents.

A tax rate of 19% for EU and EEA residents, and 24% for all other residents is then applied to this amount.

V) Finally, we can not forget mentioning Gift and Inheritance Tax.

The lucrative acquisition of a real estate located in Spain would be taxed on GIT at a progressive rate.

GIT liability could be almost zero in case Balearic legislation applies. Therefore, both parties, donor/deceased and donee/heir should be Spanish tax resident. Some other location requirements, should be met, for example, in case of inheritance, deceased should be tax resident in Balearic Islands for several years.

However, in case any of the parties were non-tax-resident in Spain at that moment, State legislation would apply, so any important reductions would be applied in this case.