Plusvalia Tax Calculation. And now that?. New regulations and the calculation of this local tax. […]
Selling property commercial and residential (in Spain and the UK)
We must consider that despite all the bad press real estate has been receiving from the media (both Spanish and foreign), the truth is that the Spanish system is very safe and there should not be any problems with the purchase of your property as long as you obtain the appropriate legal advice.
Please find below a short summary of the steps to be followed:
1.-) Once you have found the property you would like to buy you must take into account the following:
1. A) YOU NEED AN NIE: If you are not Spanish and do not have a National Identity Document (DNI) (Documento Nacional de Identidad) you must obtain an NIE Number, (Foreigners Identification Number) required for the payment of taxes in Spain. The Deed (Escritura) of your house will not be granted at the end of the conveyance process without an NIE number. You can apply for your NIE in person at the competent National Police Station.
1.B) YOU WILL NEED A BANK ACCOUNT IN SPAIN: it is important to consider that you may have to pay commissions if you have to send money from your country to Spain, please check all the conditions of the account. This account is needed for household bills, paying taxes, etc.
2.-) It is highly advisable to engage the services of a lawyer in Spain.
It is advisable to use the services of an independent lawyer who speaks your language and is able to explain the process. It is very important that the lawyer is independent from the agent and the developer (promotor) and takes care only of your interests. Do not forget to ask the independent lawyer to provide you with his number in The Spanish Law Society (número de colegiado) and make sure you do not use a “consultant” that is not a licensed lawyer-solicitor and not subject to the rules of The Spanish Law Society and does not hold a professional liability policy. Unfortunately this area has been very much intruded by people who are not really qualified or registered with the risk that this implies.
3.) MAIN LEGAL CHECKS TO BE CARRIED OUT:
3.1) Land Registry: the lawyer must verify that the property you are looking at (built and plot area) is in reality registered correctly and under the vendor’s name, free of any charges, limitations and encumbrances, which will give adequate registrar protection as buyer. In the event that there is a problem your lawyer should verify if it can be corrected through an appropriate expansion of new construction, Acta de Notoriedad , etc.
3.2) Check with the Town Hall (City-Hall): You must verify through the lawyer if there is any penalty proceeding (infracción) against the property and if it complies with building and urban regulations in the area where it is located (if it is an urban, able to be urban, or rustic land, the urban parameters e.g. minimum plot area, distance from the built area to the boundaries, etc).
He should also check whether the property is likely to have a second occupancy license (licencia segunda ocupación) after the sale. The seller must deliver the previous occupancy licence (also known as Habitation Certificate).
Check with the seller and with the Town Hall or agencies managing local taxes (such as SUMA), that the payments for IBI-Council Tax – Local Rates, (Impuesto de Bienes Inmuebles Naturaleza Urbana) and the rate for garbage-rubbish collection (Basura) are updated.
3.3) Verify with Cadastre: The property should be properly registered in Cadastre (Catastro) if not any inaccuracies found should be corrected by submitting form 902 or any other required form.
3.4) Community of Owners: If the property is part of a community you will need to check with the president or the administrator of the community for any outstanding debts or extra charges (derramas) and it is also convenient to check if there are any other problems in the community. It is also interesting even before deciding the purchase of a property to know the amount of the community fees to get an idea of the annual costs of maintaining the property and also to be aware of the wording of the statutes and internal rules of the community.
3.5) Utility companies (electricity, water, etc): You must ensure that housing supplies have definitive contracts and that there are no outstanding debts or any other circumstances that would compromise electrical or water power after the purchase.
4. OTHERS TO BE CONSIDERED:
4.1. – Valuation and / or architect’s report: if you decide to know in depth the structural situation of the property you could require the services of an architect (expert in this field). You could also ask a professional surveyor to render a valuation to know the approximate market value.
4.2.-Non Resident Tax Return: Remember that if you are not resident in Spain just for the fact of owning a property or a share of one you must submit a Non Resident Tax Return.
4.3.-Spanish Will. When you have any kind of asset in Spain (bank account, car and of course a property or share thereof) it is very convenient to make a Spanish Will. Having a Spanish Will has only advantages and it could save you and your family thousands of Euros during the inheritance process.
5.- BUYING A COMMERCIAL PROPERTY.
When buying commercial premises in Spain with a view to developing a professional activity, i.e. restaurant, hotel, professional office, etc. there are other searches that must be done i.e: check the existence of an opening licence and the legal conditions to be transferred to the new owner, etc.
But one of the most important elements to be considered are the taxes payable: VAT or Transfer Tax. In this answer we are not considering other possible taxes to be paid, i.e.: Stamp Duty, etc.
Thus the transmission and acquisition of commercial premises may be subject to Transfer Tax TPO (Transmisiones Patrimoniales Onerosas) of 8% in the Valencia Community; or to the VAT normally at 21%. Although we may think that the 8% TPO is the best option, normally it is not, as VAT could be recovered, so it is not a real cost or expense.
Thus, in most cases it will be more advantageous to buy a property for the development of our activity subject to VAT tax, than to TPO.
If you bought the restaurant directly from the developer (first transmission), this purchase would be subject to VAT.
If you buy a resale (second hand purchase) from the current owner. According to VAT Law (Law 37/1992), these second and subsequent transfers of a property are exempt from the VAT and should be Tax for TPO (ITP-AJD). But the law foresees the possibility that the taxpayer waives the VAT exemption and opts to pay VAT instead of TPO. For this resignation to take effect and be valid, and therefore VAT payable, a number of requirements and formalities must to be met, which basically are:
1.-The buyer and vendor must be VAT payers, acting in the exercise of their activities. In your case, you must be a businessman buying the property (restaurant) for your business. You could not hold the operation to VAT if you were buying a house to live in it, since in that case it would not be as a part of your business activity.
2.-Also you as the buyer should be entitled to the full deduction of the VAT. This does not occur when for example a person has a VAT exempt activity, in this case would not be entitled to deduct the VAT.
3.-The renunciation to the VAT exemption and therefore the subjection to it, must be communicated prior to or simultaneous to the handing over of the property.
We recommend that this waiver and compliance with the above requirements are expressly stated in the Purchase Title Deed itself to avoid problems and comply with the formalities required.
Also be aware that Landlords who let out their properties in a habitual and professional way, may be considered VAT payers, and therefore could take advantage of the possibility to pay VAT rather than TPO in a resale of a property.
For all the above, before buying a property for your business (commercial property) or a property only to the purpose to be let out in a professional way, you should consult your lawyer about the most convenient way to do it, as subject the purchase to a one tax or another, can potentially save you many thousands of euros.
6. TAXES RELATED TO THE SALE AND PURCHASE OF HOUSES.
The purchase of a property generates a number of taxes, some of them are:
1.-In the event of second and subsequent transfers are generally paid by the buyer the Transfer Tax of 7% (in the Valencian community).
2.-In the event of first transmissions, in general, purchases made directly from the developers of a new property, buyers must pay now 10% VAT, plus Stamp Duty at 1.20% in the Community of Valencia ( Alicante, Valencia and Castellón provinces). * All of them without taking into account reductions for residence, etc. The purchaser of plots pays 21% VAT.
3.-Must be paid by the seller/vendor the PLUSVALIA also known as the municipal capital gains tax this is the Tax of the Increase in Value of Urban Land, that is to be paid to the Town Hall where the property sold is located.
4.-The seller must pay CAPITAL GAIN TAX (CGT) which tax the gains produced for a sale, this means when we are selling that the cost of acquisition value (price, taxes, notary fees, Registration fees for the property, and other expenses such as legal fees paid when you acquired the property) is less than the cost / value transmission (sales price, less PLUSVALIA TAX, less agents fees if applies, etc). Keep in mind that the cost / value of the acquisition should be updated according to the coefficients established annually by Law and that special rules also apply for the properties acquired before 31/12/1996.
As per the article 25.2 of the Income Tax Law for Non Residents (RD 5/2004) in the event of a sale of a property in Spain by a person with no permanent establishment (i.e: a Non Tax Resident in Spain), the person that will acquire the property (i.e: buyer-purchaser) is obliged to make a retention of 3% and pay it to the tax authorities, as a payment on account of the CGT to be paid by the vendor.
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