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Property Buyer’s Guide (4)

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Payment methods and paperwork

Taxation when buying a property

1. Taxation when purchasing a property to a company

2. Taxation when purchasing a property to a private individual

3. Taxes and costs buried in a mortgage


The purchase of property in Spain is subject the main Spanish indirect taxes: Value Added Tax in Spain (hereinafter, VAT) and Transfer Tax and Stamp Duty in its two variants, Property Transfer Tax and Stamp Duty (hereinafter TPO and AJD respectively).

The tax to be paid upon purchase will vary depending on the nature of the transferor. This means that it will be treated differently if the seller is a company or a private individual. In general terms, if you are buying new property the seller will be a company and if you are buying second-hand property the seller will be a private individual.

1.1 Taxation when purchasing a property to a company;

If you are buying a property to a company, you need to consider which type of good you are buying. The company is liable to VAT and therefore, when not specially exempted, the VAT shall be added to the agreed purchase price.

The purchase of non-constructible plots is VAT exempted and in the case of constructed properties, all second and ulterior transfers of a property are exempted, bearing in mind that the first transfer is considered as the sale of a newly constructed property direct by the developer or the sale following the refurbishment of a property.

Thus, if you are purchasing a newly constructed property (considered by the law as the first transfer) you will be liable to pay VAT to the seller.

However, the law admits remission of exemption under specific circumstances, but in all cases when the purchasing party is acting as a company.

The current VAT rates are as follows:

– Super-reduced rate amounting to 4% for the purchase of subsidised housing.

– Reduced rate amounting to 10% for the purchase of buildings, housing, garages and annexes.

– Standard rate amounting to 21% for all transfers of assets where a different tax rate is not applicable. Eg. Commercial premises.

Besides VAT, which is directly paid to the company which sells the state, the transfer of ownership is also subject to the Stamp Duty Tax (AJD).

In the Valencian Community, in this particular case, the law provides the following rates:

a) 1% in general terms.

b) 0,1% for the first title deed of a property used as principal residence.

c) 2% in the cases where remission of exemption to VAT has been filed.

1.2 Taxation when purchasing a property to a private individual;

In this case the tax to be withheld is the Transfer Tax in its variant of Property Transfer Tax (TPO).

This tax is not to be paired with VAT, which means that under no circumstance you will be liable to both taxes on a single property.

When VAT exempted, all transfers of property between private individuals and the purchase of property to a company will be levied with TPO.

The applicable tax rate is 10%, except for the purchase of subsidized housing, where the applicable tax rate is 4%. Opposite to VAT, the party liable to tax is the lawful acquirer.

If the private individual is a non-resident with no permanent establishment in Spain
, the acquirer is obliged to withhold and remit 3% of the agreed valuable consideration by way of account payment in respect of the tax to be paid by the non-resident and remit such payment to the Treasury Department.

1.3 Taxes and costs buried in a mortgage.

If you apply for a mortgage with your bank for the purchase of the property, besides notary charges, registry fees and other management costs, you will need to settle the Stamp Duty as well as other taxes derived from you relationship with the bank:

  • Stamp Duty (AJD): There are several options:

i. Property other than subsidized housing: In this case, the execution of the mortgage taxes AJD, which is a 1% of the Mortgage Responsibility (quantified by the bank in the Mortgage Deed).

ii. Subsidized housing: In this case the Mortgage Deed is exempt from the AJD as well as ulterior cancellation of the same, which is also exempt.

iii. Principal residence: If the property is to be the principal residence of the taxpayer and it is so stated in the Deed, the AJD amounts to 0.1% of the value of the mortgage responsibility.

  • Surveyor’s Valuation: In general terms, it is a requirement imposed by the bank to perform a valuation on the property to be purchased by a registered valuation company, in order to establish the maximum value of the mortgage and the terms and conditions of the same. Usually, the bank grants a loan based on the valuation (from 80% of the value to 100% in some cases, the latter being only acceptable if there are further guarantees, guarantors, etc.) but under no circumstance the mortgage value can exceed the purchasing price of the property. The cost of such valuation may range from 180-400€.
  • Other costs: The bank may charge an opening commission, which is normally quantified by a percentage on the capital borrowed.Household insurance: In accordance with Law 2/1981, the mortgagor is obliged by the mortgagee to contract a household insurance for the property. Such household insurance is to cover the building/structure, but not the contents (which alternatively can be covered by the insurance by means of an extension of the insurance contract)It is also recommendable, but no compulsory, to contract a loan repayment insurance covering the outstanding capital to be paid in the event of death of the holder.

Chapters: 123 – 4 – 567

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