Mallorca Immobilien

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Property legislation and tax in Spain / Mallorca:

The private Contract
There is no obligation for a notarial confirmation to sell/buy a property in Spain. This means that property can also be transferred through a verbal or written private contract.

Thus, in the event of failure to comply with private contracts vendor and buyer can make legal application for compliance or for damages in respect of non-compliance. Therefore,is quite common in Spain to agree a private contract immediately that sets out in binding terms all current rights and obligations of the parties, and in particular the actual purchase price.

The option contract
Is a reservation contract. The buyer pays a reservation/optionfee of 10%. In return, the seller is obliged to refrain from any sale of the property to a third person within the period of time agreed in the option contract. If the agreed period elapses without the buyer paying the remaining purchase price and signing a notarised contract of sale, he loses the 10% payment to the vendor.

If, on the other hand, the vendor does not fullfill the agreement that has been made because, for example, he has found another buyer who is ready to pay a higher price, he must pay to his contract partner twice the sum that has been received, in this case 20% of the purchase price, as flat-rate damages.

The public deed "Escritura"
The "Escritura" is purchasing contract signed at a notary which is necessary for the entry into the Spanish property register.

The property register / Entry of the Escritura
Once the purchasing contract was signed at a notary the entry of the Escritura into the Spanish property register is vital to have a secured position against third parties. To enter the property you need the original deed of purchase, signed by the notary and the confirmation that all taxes related to the property transfere have been paid.

The period of time from application to final entry lasts usually 4 weeks butdepends on the individual property registration office.


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Property taxation:
Single tax for purchase/sale
VAT: Impuesto sobre Valor Añadido, IVA (if the property is sold the first time!)

For building land, businesses or plots 18%, newly built apartment complexes or apartments 8%. For all other property purchases the land tax is applicable.

Capital/land purchase tax
"Impuesto sobre Transmisiones Patrimoniales" This one-off tax specifically covers any remunerated transfer of land when there is no sales tax.

As of 01.01.2000 in the Balearic Islands there is a 7% tax of the notarially
declared purchase price on property purchase, which the buyer has to pay. The tax is payable within one month from signing the notarised deed. Declarations of new work, which need notarial recognition and are to be inscribed in the property register, are taxed at 0.5% of the building value.


Capital gain tax: "Plusvalia"
Also known as plusvalía this tax is collected by the local district and taxes the increase in value of land and property since the last change of ownership of the property, which is set on the basis of the local authority’s own valuation tables. Legally, the vendor is liable for the tax.


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Income tax: property sale
The income tax also includes the sale of a property and distinguishes between limited or unlimited tax liability of the seller.

From the tax law point of view, a resident is a person who spends more than 183 calendar days in Spain, whose economic activity is mostly in Spain, or whose spouse and/or dependent children live in Spain.

Limited and unlimited tax liability affect property purchase in different ways, since private sale of property is taxable in Spain.

If the vendor of Spanish real property has limited tax liability in Spain because he has his place of residence in another country, the profit on the sale is taxable at the flat rate of 19%. The profit on the sale is calculated as the difference between purchase price and sale price.

In respect of the vendor’s tax liability, the buyer is liable to the Spanish tax
authorities for up to 3% of the declared sale price. For this reason, the buyer usually keeps this sum back and pays it himself to the tax office. This rule allows the Spanish tax authorities to ensure that foreigners do not purchase their property in Spain and then leave the country without paying due taxes.

The tax has to be paid within 30 day of signature of the contract.


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Annual taxes:

Income tax: annually
Every owner of a property in Spain is obliged to make his annual income tax declaration. In the framework of income tax (Impuestos sobre la Renta de las Personas Físicas), even owner-occupied property is taxed.

Owner-occupation is seen from the tax point of view as fictitious rental income. In the case of non-residents a fictitious usage value of 2% of the rateable value or, as appropriate, of 1.1% of a rateable value set by a law of 01.01.94 is established. If there is no known rateable value, half of the purchase price is used as the basis. Income tax at 25% is to be deducted from this value.

When property is rented gross income is taxed at a flat rate of 25%, with the tenant being liable alongside the non-resident owner for his/her tax bill, and even being obliged to retain the tax payment every month from the rent and pay it directly to the tax authorities.

Tax on assets
In the case of physical persons, ownership of all kinds of assets and rights with economic value is the basis of tax on assets.

The qualifying date for the tax on assets declaration is 31.12. The tax on assets declaration is made at the same time as the income tax declaration

Taxpayers are not called on by the tax authorities to make the appropriate payments form income tax and tax on assets. It is recommended to employ a tax adviser for filling in the tax declaration.

Land tax:
The local land tax, known as IBI, is calculated on the basis of the rateable value and has to be paid at the municipal administrative offices (Ayuntamiento) before 31.06 every year. The IBI tax form also shows the rateable value of the property as established by the local authority. It is recommended to make the payment by standing order from a bank. The relevant forms are available from the local town hall (Ayuntamiento).

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Property tax:
Single tax for Purchase/Sale

Capital /land purchase tax
Capital gain tax
Income tax