law firm profile law and tax information contact

Home Imprint

law and tax

What you should know when buying or selling property:

Land ownership and
taxes for non-residents

Land ownership on Ibiza means having to pay tax. The following article is designed to provide you with an overview of the different kinds of taxes that non-residents who own land here on the islands will come across. And if you’re selling a property, you could benefit from postponing the sale until next year, when the tax is set to decrease by almost 50 percent.

Non-residents are generally foreigners who spend no more that 183 days a year on the island. They only have to pay tax on the goods and rights that they hold in Spain.

1. Taxes payable on acquisitions: you will always have to pay tax if you buy property. As for the type of tax, this will depend on whether the acquisition was paid for (usually by means of a contract of sale) or not (if the item was a gift or inheritance).
If the acquisition is paid for and the seller is a company or freelancer, the sale is usually subject to Spanish VAT, as well as stamp duty. VAT can vary (either 4, 7 or 16 percent). The VAT that will apply depends, on the one hand, on whether the purchase involves parcels of land or buildings and, on the other, whether it is the first purchase or a subsequent one.
If the seller is a private individual, basic purchase tax will apply, which currently stands at 7 percent of the purchase price on the Balearic islands. The property value must be validated by a notary and is subject to verification by the tax office. If the tax office decides that the property is worth more than this amount, the basic purchase tax will be recalculated by means of an additional estimation known as a “complementaria”, plus interest on arrears and fines for delayed payment.
How high the Spanish inheritance tax is depends on the value of the inheritance (in particular the current market value of the property), how closely related the heir is to the deceased party and the age of the inheritance, and is calculated using tables that are constantly updated and vary from one case to another.

2. Ongoing taxation after property has been purchased: in Spain, the system of self-assessment is generally used. This means that people who are liable to pay tax are automatically expected to complete their tax declaration forms and pay their taxes on time.
- Land tax in Spain, referred to by the abbreviation “IBI” (Impuesto sobre Bienes Inmuebles), applies to all landowners, regardless of whether they reside in Spain or are non-residents. This is a yearly community tax that is paid directly to the tax office of the community in which the property is located. The land tax is calculated according to the value of the property as laid down in the land register, which in turn enables the annual land tax receipt to be generated. As the property owner is responsible for paying this tax, anyone buying property should ask the seller to provide proof that the land tax has been paid, to avoid being faced with a community tax bill later on.
- Non-residents who own property in Spain are required by law to fill out an income and asset tax form every year. The tax on assets taxes the highest of the following three property values: the land register value, the purchase price or one of the values calculated by the administrative office for other purposes.

3. Taxes payable on profits made on a property sale
If a non-resident decides to sell his or her Spanish property, this may involve a profit on the sale that is subject to income tax under Spanish law. The profit on the sale is the difference between the sale price (minus the costs and transfer taxes that the seller must pay) and the purchase costs (what the property cost originally, minus any costs and sales taxes paid by the buyer) of the property in question.
The final amount of tax on the profit made on the sale is calculated according to the law that currently decrees that 3 percent of the registered original purchase price of the property is payable to the tax office. The tax on the profit made by non-residents on the sale of a property stands since the 1st January, 2007 at 18 percent. There is an additional community tax on land that increases in value over time, also known as the Plusvalia Municipal. How high this tax is depends on the value of the land and how long the property has belonged to the owner.