With this in mind, before purchasing property in Spain, the buyer must verify in particular the following issues:
a) Make sure the seller owns the property in its totality.
b) Make sure the property is free of debts and charges such as mortgages.
c) Verify the urban classification of the land on which the property is built.
Two of the most common are the following:
1) Acquiring a property registry report (Nota Simple Informativa) from the land registry (Registro de Propiedad), which clarifies ownership and any charges corresponding to the property. (The Land Registers record estates, house, etc., including their transfers, mortgages and other liens and seizures).
2) Checking with the Town Hall the urban classification of the land on which the property is built, and its place in urban development plans.
Sales contracts in Spain must be executed before a notary to have full effect, if they are to be entered in the Land Registers.
It is common practise for both parties to enter into an initial private agreement (which may involve a deposit, or Earnest) and afterwards to complete a public deed of sale before a Public Notary and register the transaction in the land registry.
TAX ISSUES IN SPAIN
Applicable taxes on the acquisition of property in Spain
Sales Tax (VAT) & Stamp Duty
These taxes only apply if the property is being sold for the first time and the seller is a property developer. The Sales Tax (known as IVA in Spain) is 7% on the price of the purchase, and the Stamp Duty is fixed between 0,5% and 1,5% on the price of the purchase, depending on the Spanish Autonomous Region in which the property is located. If any deposit is paid before completing of the sale, this deposit will be subject to VAT (7%) at the moment of its payment.
The buyer always pays VAT and Stamp Duty. VAT is paid directly to the seller, and the Stamp Duty is paid to the tax office. Usually the Stamp Duty is paid by the lawyer representing the buyer through a previous provision of funds.
Transfer Tax (Impuesto Sobre Transmisiones Patrimoniales -ITP)
This tax only applies if the property has been bought and sold before. The amount is 7% (in some places it is 6%) on the price of the purchase, depending on the Spanish Autonomous Region in which the property is located, and the buyer always pays the tax.
In this scenario, if any deposit is paid before completion of the sale it is not subject to the transfer tax. However the full amount of the transfer tax still has to be paid upon completion directly to the tax office.
Usually the buyer pays this tax to the lawyer who deals with the acquisition on behalf of the buyer. The lawyer uses to require the buyer to advance a provision of funds.
Other taxes
Local Capital Gains Tax (Plusvalía)
A local / municipal tax that applies to the increased value of the land upon which urban properties are located, and that is levied at the time of transfer of ownership.
