Note: The following article is for informational purposes only and does not constitute legal or tax advice.
The introduction and structure of the wealth tax in Mallorca is a topic of significant importance in the real estate sector, particularly for international investors. While the tax aims to promote economic fairness and address social challenges, it can pose a challenge when acquiring property without proper tax advice and optimization. Below, we outline what you need to know about the wealth tax in Mallorca. We particularly recommend seeking tax advice at the beginning of your property search. Feel free to contact us, and we can connect you with a tax advisor who can provide guidance in German on Mallorca.
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Legal Foundations and National Context
The wealth tax in Spain, known as “Impuesto sobre el Patrimonio,” is a direct tax levied on the net wealth of individuals. It was introduced in 1977, coinciding with the transition from dictatorship to democracy and the adoption of the Spanish Constitution in 1978, originally as a temporary measure to strengthen state revenues. The tax aimed to increase economic transparency and ensure a fairer distribution of the tax burden among different income groups.
In 2008, the wealth tax was abolished due to improved economic conditions. The decision at the time reflected the hope that reduced tax burdens would stimulate economic dynamism and investment activity. However, the global financial crisis of 2011 forced the Spanish government to reintroduce the tax as a measure for fiscal consolidation. Since then, despite recurring debates about its necessity and effectiveness, the tax has remained part of the Spanish tax system. The current legal basis is provided by State Law 19/1991.
Since 1980, the autonomous communities have had the authority to manage and collect the wealth tax, leading to regional variations. For example, the tax-free allowance varies significantly depending on the political orientation of the regions. In Catalonia, the allowance is €500,000, while in regions like the Balearic Islands, Andalusia, and Madrid, it reaches €3 million, up from €700,000 in the Balearic Islands when the Socialists were in power.
The wealth tax in the Balearic Islands, including Mallorca, follows the overall Spanish laws but with regional adjustments to account for the specific economic conditions and social circumstances of the region. However, this also results in significant differences in the implementation of the tax between the regions of Spain.
It is also worth mentioning the ruling of the European Court of Justice (ECJ) on September 3, 2014, in case C-127/12. The court ruled that Spanish tax authorities must not discriminate against citizens of the European Union. This means that individuals residing in another EU member state can claim the same tax regulations and benefits as those residing in Spain.
Although the ruling initially concerned inheritance and gift taxes, the underlying reasoning was also applied to the wealth tax. This led to an adjustment of the Spanish wealth tax law to avoid potential discrimination, which is prohibited under Article 65 of the Treaty on the Functioning of the European Union.
Since the introduction of Law 11/2021, the prohibition of discrimination has been extended to individuals without residence within the European Union. As a result, regardless of tax residence in Spain, one enjoys the same tax rights as domestic taxpayers, particularly in the autonomous community of the Balearic Islands.
2. Tax Liability and Calculation
The wealth tax is levied on the worldwide net wealth of individuals who are tax residents in Spain. Net wealth refers to the total of economically assessable assets and rights of an individual (e.g., real estate, bank balances, business interests, vehicles, and artworks), minus debts and liabilities.
For the valuation of real estate under Article 10 of the Wealth Tax Law, three methods are generally available, with the highest determined value being used: First, the cadastral value, which is usually significantly below the actual market value. Second, the reference value, assigned to many Spanish properties, which approximates the market value but is often still lower. Third, the acquisition value, which includes the actual purchase price plus all associated costs and taxes, and in most cases represents the highest value.
In the Balearic Islands, the tax-free allowance for residents and non-residents is currently €3,000,000 per person. If the net wealth exceeds this threshold, it is taxed progressively, with rates ranging from 0.28% to 3.45%. The following official table of wealth tax rates according to Balearic law is as follows:
| Taxable Base (in €) | Tax Amount (in €) | Tax Rate (in %) |
| 0.00 | 0.00 | 0.28 |
| 170,472.04 | 477.32 | 0.41 |
| 340,937.04 | 1,176.23 | 0.69 |
| 681,869.75 | 3,528.67 | 1.24 |
| 1,336,739.51 | 11,649.06 | 1.79 |
| 2,727,479.00 | 36,543.30 | 2.35 |
| 5,454,958.00 | 100,639.06 | 2.90 |
| 10,909,915.99 | 258,832.84 | 3.45 |
Example of Tax Calculation
Assume the acquisition value of the property is €12,500,000. Additional purchase costs such as VAT, notary fees, and registration are also considered in the wealth tax assessment. Thus, the tax is levied on a base of €12,500,000 instead of an estimated market value of €11,000,000. This calculation method is based on binding rulings from the General Directorate of Taxes (V0891-24 and V2120-21).
The calculation for a property with an acquisition value of €12,500,000 is as follows:
Allowance: A €3,000,000 allowance is deducted from €12,500,000, leaving a taxable base of €9,500,000.
Up to €5,454,958.00: According to the official table, the tax liability for this amount is €100,639.06.
Excess: The remaining excess of €4,045,042 is taxed at a rate of 2.9%. The tax on this excess is €117,306.22.
Total Tax Liability: The wealth tax for the taxable base of €9,500,000 is therefore €217,945.28 in total.
3. Optimization Opportunities
Strategic planning to reduce wealth tax liability is crucial for affluent taxpayers. One option is the acquisition of a property by multiple individuals, allowing each buyer to utilize individual allowances. However, this solution requires trust and dependence on other owners. Alternatively, acquisition through financing offers tax advantages, as liabilities are deductible if the mortgage exists at the time of purchase. For wealthy non-residents, acquiring property through a company can be attractive, as assets of legal entities are generally not subject to wealth tax. However, potential risks, such as compliance with the 50% real estate ownership rule, must be considered to avoid tax disadvantages. Additionally, choosing a partnership can provide tax transparency and favorable tax treatment of sale proceeds. The appropriate strategy requires careful analysis of individual circumstances and tax regulations. We are happy to connect you with a tax advisor who can assist in optimizing wealth tax when acquiring property.
4. Impact on the Real Estate Market
The real estate market in Mallorca is a central element of the local economy and simultaneously one of the main factors influencing the island’s tax environment. Through the wealth tax, property owners, who often have a significant portion of their wealth invested in land and buildings, are subjected to additional financial burdens. This is particularly true for luxury residences and holiday homes, which, due to their high market value, contribute significantly to taxable wealth.
International investors, who have increasingly acquired properties in Mallorca in recent years, view the tax as an additional cost factor that can influence their decision to invest on the island. Rising tax revenues could potentially lead some investors to seek alternative locations with lower tax burdens. This would not only affect real estate demand in Mallorca but could theoretically lead to a decline in prices. However, in practice, interest in Mallorca’s real estate continues to grow steadily. Despite the wealth tax, the real estate market in Mallorca remains stable, and demand for properties is increasing rather than decreasing. This can be attributed to the limited supply and exclusivity of the island.
5. Social and Economic Impacts
In addition to its impact on the real estate market, the wealth tax also has social implications. Proponents argue that it is an important tool for promoting social justice by taxing high wealth more heavily and thus contributing to the financing of public services. Particularly in times of economic uncertainty, the tax can help stabilize state revenues and mitigate social inequalities.
Opponents of the wealth tax, however, argue that it represents double taxation, as wealth is already taxed through income and capital gains taxes. Additionally, they claim that it reduces citizens’ willingness to save and invest, ultimately hindering economic growth.
6. Potential Reform Approaches
Given the controversial discussions surrounding the wealth tax in Mallorca, reform proposals are frequently suggested. One option is to increase the tax-free allowance to better protect medium wealth and concentrate the tax burden on very high wealth. Another possibility is to exempt certain assets, such as businesses contributing to local economic development, from the tax.
Another approach could involve greater harmonization of regional regulations to reduce tax disparities between Spain’s autonomous communities. This could help mitigate competitive disadvantages for Mallorca and other regions and improve the overall investment climate.
For further optimization of the wealth tax, innovative concepts for dynamic tax assessment could be introduced, responding to macroeconomic indicators such as inflation, income levels, and regional economic data. This would allow for a more flexible adjustment of the tax burden to current economic conditions while maintaining Mallorca’s attractiveness as an investment destination. Additionally, implementing incentives for environmentally friendly construction projects and sustainable investments could make the tax more socially and ecologically positive. Closer cooperation between regional and national tax authorities would also increase the efficiency of tax collection and avoid potential double taxation.
7. International Perspective
In an international comparison, the practice of wealth taxation varies significantly. While some countries, such as France and Switzerland, levy wealth taxes, others, including Germany, have abolished this tax or rely on alternative forms of wealth taxation. The differences in tax systems can influence the decisions of international investors and therefore require careful consideration by Spanish and regional legislators.
It is clear that the wealth tax in Mallorca is a controversial topic with far-reaching economic, social, and political implications. While it serves as a tool to promote social justice and stabilize state revenues, it also poses challenges for the real estate market and investment climate. A balanced tax policy that considers both social and economic goals will be crucial to securing Mallorca’s long-term attractiveness as a residential and investment destination. With proper tax advice, one thing is certain: the wealth tax is not an obstacle to acquiring your dream property but requires (only) tax advice and optimization.
