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Taxes on real estate purchases
The purchase of real estate by non-residents in Mallorca has a number of significant tax implications. Whether it's property transfer tax, VAT, stamp duty, or wealth tax, the tax authorities in Mallorca are well aware of the island's appeal and the high demand for vacation properties, which is why they levy certain taxes on non-residents.
There is a one-time tax payable upon purchase of the property and annual taxes payable during ownership.
All of the following information is for guidance only and does not replace expert tax and legal advice. Rossitza Hantelmann Estate does not provide legal or tax advice and accepts no liability for the content.
One-time taxes on real estate purchases
When purchasing new-build properties for first-time occupancy, value added tax (VAT) is usually payable. The applicable tax rate depends on the type of property. For residential properties with two garage parking spaces, the tax rate is currently 10% of the purchase price.
The tax rate is different for the purchase of land and commercial real estate—it amounts to 21% of the purchase price.
Unlike in Germany, the percentage rate of real estate transfer tax is based on the notarized purchase price of the property, with the following scale currently applying:
- Real estate with a purchase price of up to €400,000 is taxed at 8%.
- Real estate with a purchase price of more than €400,000 to €600,000 is taxed at 9%.
- Real estate with a purchase price of more than €600,000 and up to €1,000,000 is taxed at 10%.
- Real estate with a purchase price of more than €1,000,000 and up to €2,000,000 is taxed at 12%.
- Real estate with a purchase price of over €2,000,000 is taxed at 13%.
The notarization or stamp duty is an indirect tax levied on the issuance of official documents required for the purchase of real estate.
The name "stamp duty" comes from the stamp used by the official local authority that issues the documents.
The stamp duty is based on the value of the property, which is certified by a notary.
In the Balearic Islands, it will now be 1.5% from January 1, 2023.
For purchase prices above €1,000,000, the tax rate for notarization or stamp duty increases to 2%. The deadline for paying stamp duty is one month after signing the notarized deed.
Ongoing tax after the purchase of real estate
This property tax is a municipal direct tax that applies equally to non-residents, Spanish citizens, and tax residents. Property tax is levied by the relevant municipalities on the basis of the cadastral value of the property and is payable annually.
This income tax applies to both residents and non-residents.
In principle, taxes must be paid on the rental and leasing of Spanish real estate; otherwise, taxes are also payable on the owner-occupied use of the property.
Wealth tax was reintroduced throughout Spain in 2011. For residents and non-residents in Spain, wealth tax is levied on net assets and is progressive, ranging from 0.2% to 3.5%. Non-residents are granted an allowance of €700,000.
TAXES ON REAL ESTATE SALES
The seller of a Spanish property must also pay taxes to the Spanish tax authorities. Unlike in Germany, where properties that have been owned by the seller for at least 10 years can be sold tax-free, in Spain all capital gains are generally taxable. At the state level, capital gains tax is payable as part of the annual tax return (IRPF). At the municipal level, capital gains tax is payable in the form of capital gains tax on land (Plusvalia).
One-time tax
The profit from the sale of a property in Spain owned by a non-resident is taxable in Spain. The profit from the sale of real estate is calculated as the difference between the purchase price, i.e., the notarized value plus incidental acquisition costs (VAT, real estate transfer tax, notary and registration fees), plus value-enhancing expenses (modernization and renovation costs, accumulated depreciation, brokerage fees) and the proceeds from the sale. A tax of 19% is payable on the profit calculated in this way. This tax rate of 19% applies in Spain regardless of the length of time the property has been owned.
With regard to the income tax payable by the seller on the capital gains, Spain has a special regulation whereby the buyer must retain 3% of the notarized purchase price and pay it to the tax office within one month as an advance payment on the seller's capital gains tax. This ensures that the Spanish tax authorities receive part of the expected capital gains tax. Non-resident sellers must submit a tax return for the sale of real estate within four months of the sale, in which they can then deduct the 3% as a payment already made on the final tax liability.
In addition to the 19% capital gains tax, the seller is also liable for capital gains tax (Plusvalia) on the sale. Plusvalia is levied by local municipalities and refers to the (notional) increase in value of land—not buildings. To calculate this, you need the cadastral value of the land, the duration of ownership, and the calculation factor of the respective municipality. The Plusvalia tax liability must be paid to the tax office within 30 days by means of self-assessment.
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