Buying a property in Spain
- Preliminary Contracts
- Pre-sale Steps
- Obtaining the NIE (Tax ID Number)
- Opening a bank account
- Signature of the public deed
- Payment of Transfer Tax
- Registration of the deed into the Property Register
- Post-sale Steps
- Granting a Power of Attorney
- Lease of properties by foreign owners
- Non-Resident Taxation
- Golden Visa
- Estate Agents / Real Estate Brokers
1. Preliminary Contracts
Once the buyer has chosen the property he wishes to buy, the normal procedure begins with preliminary contracts. In cities where there is a fast moving demand of residential properties, like Barcelona, it is common practice to deliver to the seller a small amount of money (i.e. € 5.000), and accordingly the seller undertakes to reserve the property for the buyer during a short period of time (2-7 days), meanwhile a more formal agreement, the so called “Contrato de Arras” is drafted and signed by both parties.
A “Contrato de Arras” (“CA”) implies the payment to the seller of a small percentage of the sale price (usually between 5% and 20%), and the parties commit to respectively sell and buy the property within a certain time period (1-2 months), during which both parties can prepare all the necessary documents for the transaction. If after this period, the buyer does not want to buy, the seller keeps for himself the amount paid, and if the seller does not want to sell, the buyer is entitled to recover twice the amount paid. The CA could contain a clause regarding the assignment of the agreement to a company to be incorporated or to a relative of the undersigned, or a third party. The CA can be signed through different means:
- Personally in a meeting between buyer and seller;
- In a meeting where any of the parties is represented by a duly authorised proxy (it implies having granted a previous Power of Attorney, POA);
- The buyer signs the agreement and sends it to his lawyers by courier, then the lawyers meet the seller and he signs the agreement.
The payment of the reservation amount (called Arras in Spanish) can also be effectuated in different ways:
- Bank transfer to the seller’s account, once the Reservation Agreement has been signed by both parties.
- Delivery of a banker’s cheque to the seller at the moment of signature, issued by the buyer’s bank (however, sellers are reluctant to accept foreign cheques).
- Delivery of a Spanish banker’s cheque, which is the payment method preferred by sellers.
Another possibility is to sign an option-to-purchase agreement (Contrato de Opción de Compra). By paying a fee, the buyer gains the right to purchase a property, during the time frame agreed by the parties, without entering into a formal purchase agreement. In this situation it is much easier to withdraw from the sale simply by forfeiting the fee paid.
2. Pre-sale Steps
Before entering into any private contracts, land/title searches should be carried out to ensure that the person selling the property is the registered legal owner and if the property has any encumbrances, that is, a due diligence report must be carried out, the complexity of which will depend on the type of property (for example), to buy a single apartment is different from buying a building with tenants). Furthermore, planning permission regulations should be consulted since they vary from town to town and it is important that the property complies with local regulations to avoid any problems at a later date. This is especially relevant if the property is on the coastline, as there is a Spanish law which regulates construction in these types of areas. Moreover, if the property is within a building or condominium with several other owners, it is useful to know the rules or statutes that regulate the use of the common areas and the percentage of the common expenses allocated to each property.
To protect buyers acquiring a property under construction, there is a Bank Guarantee and Insurance Contract law (The Aval Bancario), under which a developer must guarantee the return of the deposited amounts plus interest, through an insurance contract or by a bank guarantee, in the event that construction of the property does not commence or that the work does not finish within the agreed timescale. Finally, the seller should deliver the Licence of First Occupation (Licencia de primera ocupación) for the property. While it is possible to complete a sale without the licence, if one has not been issued it may indicate underlying legal problems.
3. Obtaining the NIE (Tax ID Number)
Before signing the public deed of transfer of ownership of property in Spain, it is a requirement that foreigners who are buying property or have an economical relationship with Spain obtain an NIE (Número de Identificación de Extranjero) number. This is required regardless of whether you are an EU citizen or from a non-EU country. The NIE can be obtained at some Spanish Consulates, but it is also possible to appoint a Proxy to obtain it in the name of the buyer, provided the proxy is granted a Power of Attorney (POA) authorising him to do so. A separate number is required for each individual, named buyer, beneficiary or executor of an estate before the public deed can be signed in the presence of a Spanish Notary. Passport size pictures of the applicants and legalised copies of their passports are necessary.
We advise you to apply for the NIE as early on in the process as possible since it is required for more than just purchase of the property.
4. Opening a bank account
Once the foreigner has obtained the NIE, it is possible to open a bank account. This step can be done personally by the buyer or by a proxy duly authorised through a POA.
It is important to negotiate good rates with banks, as in ordinary conditions, the bank’s commission for just receiving the transfer of the property price could be a high amount of money.
Additionally, it is useful to work with banks that have an easy e-banking service for foreigners so that clients can smoothly operate their bank accounts from outwith Spain.
The Spanish bank account will be used not only to pay the purchase price (as mentioned before, this payment can also be made through other means), but also to pay the regular expenses related to the property: water, electricity, “community expenses”, taxes, etc.)
5. Signature of the public deed
This step is done before a Notary Public, who certifies that the appearing parties have the necessary authority to enter into the agreement, checks that all documents in relation to the property that are required by law are correct, and formalises the purchase of the property. Once the deed is signed, the buyer becomes the formal owner of the property, and the keys of the property are delivered to him. At this point, the purchase price must be paid (deducting the amounts paid as “arras”). As with the signature of the CA, the preferred –but not the only- method of payment is to deliver a Spanish banker’s cheque. The buyer may appear personally before the Notary Public or be represented by a proxy. The fees of the Notary Public are usually below 1% of the transaction value.
An official form which reports the acquisition of the property by the foreigner to the Spanish Ministry of Finance is also signed in the presence of the Notary Public. In some special cases (i.e. investments from tax holiday countries) it is necessary to apply for the previous verification of the acquisition before the authorities, but in most cases, it is only necessary to report the acquisition once it has been signed before the Notary Public.
6. Payment of Transfer Tax
The acquisition of properties in Spain is taxed according to Transfer Tax or Value Added Tax. If the property in question is not newly built, i.e. it is being bought from an individual and not directly from a developer, the transaction is taxed by Transfer Tax, at rates that slightly vary from each Spanish region, and are between 6% and 10%. The tax must be paid by the buyer within a period of 30 days which commences when the public deed is signed. Payment may be made by filling out and presenting the corresponding tax form to the appropriate authorities within the time limit. If the property is a new property, the applicable tax is Value Added Tax (VAT) at a rate of 10%. In this instance, the corresponding amount is included in the price and paid by the seller to the tax authorities. There are some special rules that apply to specific cases.
7. Registration of the deed into the Property Register
Once the deed has been signed before the Notary Public, the sale is deemed to have taken place. However, the deed should still be filed in the corresponding Property Register since failure to do so means that the buyer will not have the benefit of protection against potential third party claims. The purpose of registration is to certify who is the owner of each property and the encumbrances. There is one Property Register in each town and in larger cities there will be several. The fees associated with registration are usually below 0.5% of the property’s price. Within 2-3 weeks the deed is registered and the purchase procedure is concluded.
8. Post-sale Steps
As with some of the pre-sale steps, these points are not necessary to successfully purchase a property, but it is advisable to properly deal with them.
- Water and electricity companies should be notified of who is the new owner and the bank account where they can send their invoices.
- If the property forms part of a co-ownership, the property administrator should be notified of at least an e-mail address to which communications regarding the property may be sent, and also of the account to charge the building’s common expenses to.
- The same applies to the local dwelling tax (IBI).
9. Granting a Power of Attorney
If you decide to execute the purchase steps through a Proxy so that you are not required to travel to Spain purely to sign documents, it is necessary that you grant a Power of Attorney, either before a Notary Public in Spain or in the country of residence of the buyer –and in this case, the Power will have to be “apostilled” (this is an official legalization of the POA for international use), and sworn translated, unless it has been granted in bilingual format.
The Power of Attorney document will be explicit as to the authorities and limitations of the proxy to execute the aforementioned steps regarding the property that the buyer wishes to buy, minimising the risk of abuse of the power.
10. Lease of properties by foreign owners
It is possible for foreign owners to lease their properties. In Spain there are several types of lease agreements:
- Ordinary leases: they are those applicable to properties that will be the permanent dwelling of the tenant, offices and commercial premises. In the case of dwellings, the minimum term is 3 years.
- Temporary leases: this type of lease is applicable to properties that will not constitute the permanent dwelling of the tenant.
- Touristic leases: together with the use of the property, some hotel type services are provided. Some regions in Spain establish some requirements to develop this activity, like an activity license.
In any case, it is not mandatory but highly advisable to draft carefully the terms and conditions of the agreement, based on the provisions of the urban leases law (Ley de Arrendamientos Urbanos –LAU). Income obtained from these leases will be subject to Spanish taxation (please see next point).
11. Non-Resident Taxation
Non-residents in Spain owning a property are taxed by the non-resident income tax, at the following rates:
- If the property is used or at the disposal of the owner: 2% (1’1% in some cases) of the official value of the property, which is assessed by the “catastro”, is considered as the income obtained by the owner, and on this amount, the tax rate is 20% for EU (and Norway and Iceland) residents, and 24% for the individuals resident in other countries. If the non-resident taxpayer has owned the property during less than 365 days in a certain year, the tax is reduced proportionally. This tax should be paid annually.
- If the property is leased, the tax rate for EU (and Norway and Iceland) residents would be 20% of the net income (rent paid by the tenant minus directly related expenses). For owners resident in other countries, the tax rate is 24% of the gross income.
Please note that these are the applicable rates for 2015, and they may vary for the following years.
12. Golden Visa
In September 2013, an immigration program came into force in Spain which consists of granting a residence visa (and afterwards a residence permit) to foreigners who invest at least € 500.000 in the acquisition of one or more properties in Spain. The visa is granted to the investor and his/her family within a few weeks after the acquisition has been completed.
13. Estate Agents - Real Estate Brokers
Estate Agents or Real Estate Brokers (Agentes de la Propiedad Inmobiliaria –API’s-, in Spanish) are the professionals whose role it is to put sellers and buyers in contact with each other. Many of them are registered, but it is not legally mandatory to be registered in order to pursue this activity. In the Spanish market, individual estate agents, nationwide networks and prestigious local companies coexist. The size of a company does not necessarily guarantee a smooth and safe transaction. Quality of services –good as well as bad- may be found in any of the companies. In any case, prospective buyers should not forget that the estate agent’s goal is to conclude the transaction, while the lawyers’ obligation towards their clients is to defend their rights, and therefore, inform on all the risks of the transaction and to avoid or minimize them.