Gabriel Buades Castellá and Daniel Olabarría are lawyers that form part of Bufete Buades’ International Desk in Palma. Experts in the areas of Real Estate Law and Tax Law they already have published numerous professional articles and books on these topics, including “Practical analysis of the tax liabilities to be borne by a German resident out of the direct and indirect acquisition, ownership and transmission of real estate located in Spain” and “Attention, all somewhat different: A new rent act has entered into force in Spain.”
Daniel Olabarria Vaquero, Francisca Buchner, Gabriel Buades Castella (from left to right)
1. Am I required to pay capital gains tax on profits from the sale of real estate in Majorca? If so, where?
According to Article 13 of the double taxation agreement between Germany and Spain, any capital gains from the purchase of a property located in Spain are taxable in Spain. In order to avoid double taxation, the tax paid in Spain will be credited against your tax in Germany.
If the vendor is resident in Spain with limited tax liability, the buyer must retain 3% of the purchase price. If this 3% exceeds the taxable amount, an application for reimbursement of the difference may be made to the tax office.
A declaration of capital gains out of the sale of a property located in Spain must be made within three months of conveyancing. The declaration should be submitted using Form 210.
2. Is it true that, as a German with my first home in Germany, I am required to pay tax in Spain on my holiday home in Majorca that I only use privately?
Yes, the private use of property in Spain is considered to be a notional source of rental income, so the owner of a property in Spain is required to pay tax not only because of potential earnings, but also purely because of mere ownership. This however only applies to second homes and the amount payable is relatively low.
3. What steps should I take before deciding to buy?
The first step is to apply for a “NIE” (a Spanish foreigner identity number), which will be required for each document signed in the presence of the notary public, such as the deed of sale, or for the payment of the associated taxes.
Normally the vendor will ask for payment in the form of a bank cheque from a Spanish bank. To this end, you will need to open a bank account and transfer the necessary sum.
4. Advantages of an option agreement (penalty clause in the event of failure and reservation in preparation for purchase)
The benefit of an option agreement prior to the actual signing of the deed of sale is that the buyer has a defined period in which he may unilaterally decide for or against the purchase.
During this period, the vendor may not sell the property to a third party.
The drawback is that if the buyer withdraws from the purchase, the beneficiary loses the security deposit he paid for the option, and this sum goes to the receiver.
5. Does the new double taxation agreement between Germany and Spain have a bearing if I only use my property privately for holidays?
Yes. The new double taxation agreement between Germany and Spain applies to all taxable entities, in other words, both natural and legal persons, businesses and tradespeople.
6. How high are the incidental costs when buying a property in Majorca?
Apart from the purchase price itself, the buyer must also factor in the following incidental costs:
(i) VAT (IVA), stamp duty (AJD) or property transfer tax (TPO). It depends here on whether the property is being bought for the first, second or further time, and whether the vendor is a business or not. These taxes range between 8% and 10% of the purchase price (21% for construction land).
(ii) Costs for the notary public and entry in the land register. These depend on the purchase price and the length of the public certificate.
(iii) Solicitor’s fees. These amount to between 0.5% and 1% of the purchase prise.
7. Can I write off tradesmen’s invoices for my privately-used property in Majorca against my German tax?
One must differentiate here:
(i) On the one hand, you can write off the value against income tax during the time that you own the property.
a. Until 31st December 2012 it was possible to write off a certain percentage of the payments for structural refurbishments undertaken at a first home.
b. It was also possible until 31st December 2012 to write off 20% of payments for improvements to a property, provided that such improvements were made after 7th May 2011.
(ii) On the other hand, there is the value of the acquisition for the purchase or sale of a property:
a. The natural person must pay capital gains tax on profits from the sale of the property. The capital gain is the difference between the value at the time of conveyancing and the value when the property was acquired.
b. The value of the acquisition is calculated based on the purchase price paid, capital transfer, and the expenditure and costs of extending or improving the immovable property.
You must bear in mind that the requirements for write-offs for this kind of construction work are very restrictive.
8. What do I need to be aware of when buying a plot?
A check needs to be carried out to establish if the plot is designated as urban or rural, and what protective conditions apply.
One must also check a number of other issues including: the smallest parcel, development potential, occupation, height, usage, the smallest building line, and other urban and registration restrictions.
Owing to the complexity of these checks, we would advise you to engage a solicitor to do this checking for you, particularly with regard to the development potential and the relevant conditions.
9. I am thinking about letting my finca in Majorca as a holiday property. What do I need to bear in mind?
To do this, you will need a licence from the provincial government.
The main requirements are that the property is a detached house, finca or terrace house, with 6 bedrooms and 12 beds at most, and one bathroom for every three guests.
10. Do I have to carry out the measures recommended in the energy certificate? And what happens if, as a vendor, I cannot produce such a certificate?
The energy certificate is exclusively a description of the given property’s energy efficiency. You are not required to implement the recommended measures. Naturally, if the property’s energy certificate has a poor score it may have a negative impact on the sale price or rent.
The law states that if one does not present the buyer or lenant with an energy certificate, one may be liable to a fine ranging from 601 euros to 1,000 euros. Apart from that, as of 1st September 2013, estate agents may only advertise properties for which an energy certificate has been issued. Such advertising includes presenting the house or finca in Majorca on a real estate website.
contact: www.bufetebuades.com
Fon: +34 971 228 141
Daniel Olabarría dov(at)bufetebuades.com
Gabriel Buades Castella gbc(at)bufetebuades.com
Mª Francisca Tinschert ftb(at)bufetebuades.com