Taxes

Another important consideration is the taxes applicable in the case of a property purchase, as well as the ongoing taxes. Below we will briefly explain which taxes apply and which party – the seller or buyer – is usually responsible.

Property tax (“Impuesto sobre Bienes Inmuebles” – or “IBI” for short) is comparable with German land tax. The taxable base is the cadastral value. It is paid by the owner once a year.

Property Tax (“Impuesto sobre Bienes Inmuebles” – or “IBI” for short) – is paid on an annual basis. The taxable base is the cadastral value. Property transfer tax (“Impuesto sobre Transmisiones Patrimoniales” – or “ITP” for short).

This regionally varying tax is applicable when a property transfer is not subject to VAT. In Mallorca the tax rate varies between 8% and 10%.The taxable base is the value of the property as stated in the public deed (“Escritura”).

Value-added tax (“Impuesto del Valor Añadido” – or “IVA” for short) is always charged instead of the property transfer tax when the property is purchased by a company liable to VAT, such as a property developer. Plots of land (with a few exceptions), places of business and garages are also liable to this tax at a rate of 21%. A reduced tax rate of 10% is applicable for the purchase of residential properties in first transmission. If a garage is acquired together with a residential property, the tax rate of only 10% will apply.

Document duties and registration fees (abbreviated AJD in Spanish) is classed as a certification before a notary public for the transfer of property subjected to VAT and to subscribe a mortgage. They are to be paid by the purchaser and, in the Balearic Islands they amount to 1.2% of the property’s value stated in the “Deed”.

Capital gains tax on urban land (“Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana” – or “Plusvalía” for short). This tax is levied on the increase in the cadastral value of the land. Buildings are not included in this. The legislator has made it clear who has to pay this tax. The seller, who has owned the property for the past years, is liable for the tax. The level of tax is determined by two factors: the cadastral value and the length of time the property was in the possession of the seller.

Non-resident Income Tax: if a non-resident person sells a property, 21% of the obtained profit shall be paid. Based on this tax, the purchaser shall retain and pay to the Tax Authorities 3% of the agreed price; this shall be stated on the Purchase and Sale Deed. Within 4 months as of the purchase date, the seller shall submit the relevant profit or loss statement for the transfer and shall discount the amounts retained, whereby the differential amount may be payable or receivable.

Overall, a property purchaser should expect to pay around 10 to 12% in additional acquisition costs, depending, for example, on whether financing is required for the property.

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