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Taxes for non-resident on purchasing and owning a property on Mallorca (as of 1.6.2016)

Due mainly to the Spanish economic crisis, both the Spanish central government and autonomous regions have enforced numerous tax increases within their jurisdiction. Below is the legal position as of January 1st 2015.

A distinction can be made between one-time and yearly taxes.

One-time taxes

When purchasing a property the buyer must pay value added tax (VAT) or real estate transfer tax (ITP).

Value added tax (VAT)

VAT is paid only in the case when the property is being sold by a company or a business person. This is 21% on the sale of building plots and commercial property. On first time sale of newly built properties such as houses, townhouses or newly built flats, then the tax stands at 10%. In all cases where VAT is paid, then 1,2% stamp duty tax is paid. All subsequent sales are not subject to VAT but to real estate transfer tax (ITP).

Real Estate Transfer Tax (ITP)

On all sales that are not subject to VAT then the real estate transfer tax (ITP) is applicable. The real estate transfer tax is a regional tax which varies according to each autonomous region. Presently the Balearic Government has established the real estate transfer tax as follows:

Example of invoice:

Purchase price 800.000 €

Up to € 400.000 tax to pay is € 32.000 (8% on €400,000) for the amount between € 400.000,01 and € 600.000 tax incurred is € 18.000 (9% on € 200.000), for amounts above € 600.000, tax incurred is € 20.000 (10% on € 200.000).Total amount of real estate transfer tax payable: 70,000 €

II ongoing annual taxes

Ongoing taxes for the purchaser are land and income tax.

Property Tax

Property tax (Impuesto sobre Bienes Inmuebles, IBI) is paid annually and is levied on the value of land and urban land according to the assessment of the local council. The cost of property tax varies from municipality to municipality and is in the region of 0,4% and 1,1% of the cadastral value for developed land and between 0.3% and 0.9% for undeveloped land. Due to the present crisis many municipalities have increased said tax by between 6% and 10%.

As of 1st January 2015, some municipalities in the Balearics ( e.g Calvia,Andratx and Marratxi) will be reduce the cadastral value by 22%, which as a consequence will result in a corresponding reduction in the annual property tax.

income tax for non residents

Non residents whose Spanish property is for owner occupancy, must declare this property for income tax purposes . The tax is calculated as follows: 1,1% of the cadastral value which will be taxed at 19%:

Example of invoice:

Cadastral value € 380,000 x1,1% = €4.180 at 19% = yearly income tax € 794,20

Wealth Tax

In accordance with the law passed on 23rd Dec 2008, the wealth tax in Spain was suspended with retroactive effect as of 1st Jan 2008, which meant that as of 2008 it was no longer necessary to pay wealth tax. For the period 2011 to 2016 the wealth tax was reinstated. The amount of tax to be paid is between 0,2% and 2,5% for all assets located in Spain. There is an allowance of €700,000. For example if a property has two owners (50% each) then each has an allowance of €700,000.

If a Spanish property belongs to a Spanish S.L. with German partners, then as of the 1st January 2013 the value of the business share will according to the new German-Spanish double taxation agreement, be subject to Spanish wealth tax.

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