SPANISH PROPERTY LAW

Escritura Pública (property deeds)
Once a decision has been made to purchase property here in Spain, those people in whose name the property will be registered in, need to apply through their Lawyer to obtain the necessary documents for them.  This is an N.I.E. number.  

Assuming that you, the prospective buyer, has read, or not read the documentation on know your facts and you have now found a property.  The next step is to negotiate the price.  Once the sale/purchase price is verbally agreed (either by your estate agent or directly yourself) an extract from the Escritura Pública known as a Nota Informativa Simple is obtained by your Lawyer. This document is stored in the Spanish property
registry records office and is kept up-to-date, with information regarding the property.   

Once your Lawyer has perused over it and finds no hidden skeletons, he or she will advise you accordingly, i.e. liens on the property due to bad debt's etc.  If there are any debt's on the property.  Your Lawyer will advise you on what can be done. 


Private Contracts
The next step is for your Lawyer to draw up a private contract between you the buyer and the seller.  The private contract will contain all the negotiated agreement's made between you the buyer and seller.  
The advantage of a private contract affords the buyer/seller security.

For example:

The agreed purchase price. 

The description and address of the property.

The agreed date for completion.

You may have agreed that all or some of the furniture, fittings, etc, are in the agreed purchase price.

A complete itemized list must be present within the contract for both parties to see before signing, and a clause within the contract referring to the inventoried list.
  
A lower than the normal deposit of 10% of the agreed purchase price, is sometimes negotiable if the seller has had the property on the market for a while.
 
The deposit payable at the time of signing the contract, payable by a bankers draft, or a bankers guarantee (will be held in a Notaries account.)
  
An agreement commonly used, that should the buyer fail to complete by the agreed date, that the deposited amount or bank guarantee becomes forfeitable.
     
It gives a legal guarantee to the buyer that should the seller accept a higher bid from a new buyer, or decides to pull out of the sale, then not only does he have to pay back the deposited amount, draft or else, but also an additional sum equal to the original deposit.
    
If you are purchasing an apartment, all details regarding the communal associations rules and regulations, all annual fees, relating to the apartment you are buying, a copy of the deed showing the division of your apartment, and the communal association statement showing it to be free from debts.  A good agent would have all the necessary documents on hand for prospective purchasers to see.

 
Completion
On the day of completion all parties concerned meet at the nearest relevant Notaries office for the signing of all documents relating to the sale/purchase of the property.  An appointment with the Notary is made by your Lawyer, normally a few weeks beforehand.  It is at this point that the balance of monies is transferred. Normally the procedure is for the buyer to have previously arranged for the balance of monies to be at hand in the form of a bank cheque made out to the new owner.  Again your Lawyer will let you know before hand the exact amount less the original deposit. 

      
Black Money
Property purchased in Spain attracts 7percent property purchase tax on the declared purchase price.  An amount which a prospective purchaser could very well do without.  Having said that the government realizes that, a tax on property prices starting let's say from Euros 100,000 to Euros 1Million would be a considerable amount for one to pay over and above the price of the property, (and most property prices are within the figures quoted) therefore this amount of tax would undoubtedly stifle the property and land market.  The norm here in Spain for vendors, is to sell their property for the market value, but to declare a lesser sale price to the authorities.  Therefore the tax payable will be significantly lower. The Spanish revenue department is fully aware, and accepts the situation. Profit made from the house or land sale since the original purchase attracts less tax on a declining scale, i.e. the longer you own the property, the less tax is attracts.  After ten years the tax is negligible. The balance over the declared amount is payable to the vendor/seller, as black money, (cash) therefore not attracting a tax liability.  By this method the vendor and the purchaser save a considerable amount of tax.

The key is not to make an under declaration of the property  (The official selling price) to too low a figure, your Lawyer and agent has data from local market trends which they go by, and other relevant data to give you a safe figure to declare should you be "selling or buying".  If your purchase figure were for example to low, the tax authorities could single out your transaction for an investigation to value your purchase or sale, when compared to other transactions completed within a similar time scale and area's, it is found to be well and truly under declared, this could attract a fine of 20 percent on the difference.  Should it be proven, the authorities would declare the difference as a gift, the tax then payable would be at the higher rate of 34 percent.    
Non Resident  
Living in Spain as a non- resident, is subject to a yearly tax payable at 2 percent of the rateable value of the property.  Your Lawyer takes care of the annual tax return for you. He or she will make a small annual charge for this service. 

 
Summary of the above
The above is written to give some idea of house purchase, and sales taxes in Spain.  Should you be considering buying land upon which to build, then further tax laws should be consulted.  For a full description of all current up-to-date laws regarding all the above matters, one should consult a Lawyer/tax advisor. Majorca Realty.com can assist by introducing prospective purchasers to a local well established firm of Spanish Lawyers. They are fluent in English and German languages. We have used them on many occasions for our clients, and have found them to be of the highest integrity, and familiar with all aspects of Laws relating to property/land purchase, sales, and tax liabilities. 

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