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Fuerteventura - Spain Investor Guide
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Investment Guide for Spain
The Real Estate Property Purchase Procedure
Preceding procedures
Once you have chosen the best property for your needs, it is advisable that you do
some advance checking up regarding its legal situation, verifying the legal status of
deeds by means of a query at the Property Registry, by taking a look at the records
to ascertain that the Seller is entitled to transfer the property and make sure there
are no liens or other types of claims on it. Meanwhile, and in order to ensure that
the Owner does not sell the property you want to someone else, it is advisable to
reserve it.
FIRST.- Reserving the property
As a first step, you should formalise your offer to purchase the property, and once
the basic conditions (price and property) have been negotiated with the Seller,
generally a Commitment or an Option Contract is drafted, and then ratified by the
payment of a deposit by the Buyer. A deposit (of generally between 3,000 and
10,000 Euros) is normally requested if you are purchasing from a Promoter and up
to approximately 10% of the sales price if the property is not being sold for the first
time, to have the property taken off the market and be formally reserved. At this
time a Commitment Contract is signed between Seller and Buyer and the deposit
made. The contract commits and ensures both parties that the property will be
available until the purchase deed has been granted. Said contract reciprocally
obligates both Parties to sell and purchase and the Buyer risks losing their deposit if
they do not fulfil the contract and the Seller risks having to return double the
amount of the deposit if they are the party to breach the contract. The time lapsing
between the payment of the deposit and the delivery of the property can vary by
one or two months, in the case of a resale. When we are dealing with an as yet un-
built property, so-called Off Plan Development, the Public Deed of the property
must be granted and signed within a maximum period of 18 to 24 months from the
original date of purchase.
SECOND.- Private Sales Contract.
Once the property has been confirmed to be properly registered and free of liens
and encumbrances, the private sales contract can be signed. Different from the
Commitment Contract, the private sales contract must include details of the
agreement such as the payment method, date of delivery of the property, penalties
in the event of breach by any of the parties, etc. Normally, upon signature of the
private sales contract, the Buyer delivers an amount of money towards the
purchase, which is not considered a part of the deposit but a down-payment to be
deducted from the total price. This amount shall not be reimbursed if the Buyer
were to want to withdraw from the contract.
THIRD.- Granting of the Public Purchase Deed
As has been stipulated in the private sales contract, a date shall be set for the
delivery of the property on which both parties, the Buyer and the Seller (or their
legal representatives) - shall meet before the Notary Public for the purpose of
granting and signing the public purchase deed, which should mention the fact that
the property is free of all encumbrances and liens, mortgages, tenants or
occupants; as well as the price. Notaries are civil servant legal professionals, who
guarantee compliance with the Law of contracts signed before them, as well as
ensuring that the consent of contracting parties is fully informed and freely granted.
Furthermore, the Notary must advise the parties of the tax aspects which affect the
agreement that has been made. Granting a Public Sales Deed implies the delivery
of the property by the Seller and the payment of the complete price by the Buyer,
the total of which shall have been reduced by the amounts already paid previous to
the signature of the Deed and the difference shall be paid directly to the Notary.
FOURTH.- Final Title Deed and Land Registry.
Once the Public Purchase Deed has been formalised, and acting for the Owners of
the property, the Notary shall present the ownership deeds to the corresponding
Land or Property Registry, where the record shall be inserted in the Property
Record Book, although the new Owner must present an application for recording
the purchase, including proof of payment of the corresponding taxes. Once this has
been done, Ownership of the property acquired will be recorded and become
official. Normally, registration takes less than a month to be completed.
FIFTH.- Utilities contracts.
The Owner of the property is who should apply for supply of utilities such as water,
electricity, telephone, etc. For this purpose, an account must be opened in a bank
that operates in Spain, so that standing orders may be set up to cover the invoices
of the utilities.
SIXTH.- Taxation.
There are several taxes applicable to the purchase of a home. The following is a
summary of the main taxable matters related to the purchase and ownership of
real estate property.
Value Added Tax (Impuesto sobre el Valor Añadido IVA)
With regards to the purchase of real estate property, the applicable IVA is 7% when
dealing with a new property or one to be occupied for the first time. Exceptionally,
an IVA of 16% is applied when dealing with a plot, commercial premises, a garage
or a swimming-pool, in other words, when it is not a dwelling, if the above are not
being sold together with the property. On the Canary Islands IVA does not exist
and IGIC (Canarian Indirect General Tax) is the tax applied, at a rate of 5%. If
instalments are paid, then each payment will carry the proportional tax for the
amount paid. This tax is covered by the Buyer in each payment made to the
Promoter and in the final payment when she/he completes payment of the full
price. The Buyer must then settle payment of the tax with the Tax Authorities.
Property Transfer Tax (Impuesto de Transmisiones Patrimoniales - ITP)
The taxation rate is 6% of the price stated on the Purchase Deed and is only paid
where IVA is not applicable or when the Seller is exempted from paying IVA for any
reason. The purchase of Real Estate is always taxed by either IVA or ITP and are
mutually incompatible. The application of IVA or in its case, of ITP, will in the end
depend on the Seller and the type of property transferred.
Municipal Value Added Tax (Impuesto Municipal sobre el incremento de
valor de los terrenos de naturaleza urbana - Plusvalías)
This is a local tax that is placed on the increase in value of a plot of land between
two ownership transfers. The increase on the value of the land is not calculated
yearly, only when a transfer of ownership takes place. By Law, the payment of this
tax corresponds to the Seller in any transfer of property where there is
compensation. Should the transfer have been made with no monetary value, for
example a donation, the Buyer shall cover the amount due in tax. The increase in
value of the land is determined by each Town Council and as a general rule varies
between 2% and 3.7% of the value of the land per year since the last change of
ownership. Rural land is exempted from this rule if their Cadastral or Rateable
Value is very low.
Property Rates (Impuesto sobre Bienes Inmuebles - IBI).
IBI is paid yearly by all Owners of real estate. It increases annually according to
each Town Council, by 0.4 and 1.1% of the Cadastral or Rateable Value of the
property. Each Town Council sets the exact percentage every year.
Stamp Duty (Actos Jurídicos Documentados).
This tax is applied only to Deeds subject to payment of the IVA and comes to 0.5%
of the price stated in the Deed. The tax applicable to mortgages is also a Stamp
Tax and comes to 1% of the value of the mortgage.
Income Tax (Impuesto sobre las Rentas)
Should the Seller be a non-resident of Spain, the Tax Authorities will withhold 5%
of the deeded purchase price as a down-payment against the tax on income
obtained in the sale of a property and the Buyer will deposit that amount directly
into the Public Treasury. This amount may be used by the Public Treasury to offset
possible tax debts that the Seller might have with the Tax Authorities. To recover
said amount, the Seller must file his corresponding income tax report. The capital
increase is calculated as follows:
From the purchase price, the previous purchase price, the expenses connected with
the purchase, improvement or extension costs as well as brokerage fees, get
deducted. A 35% wealth tax is paid on the net profit,
Financing
You can finance the purchase of a property by applying for a mortgage at a Spanish
banking institution. Spanish banks generally finance up to 100% depending on the
guarantees that are offered to them, at interest rates based on the Euribor. The
expenses associated with a mortgage are generally set at 1% of the amount of the
loan.
Fees and expenses to keep in mind when purchasing property.
In most cases, your bank or financial institution will take care of all expenses
related with the purchase, through an agency called a Gestoría. The Seller pays
their own Value Added Tax (Plusvalía), as is regulated by the appropriate Laws:
Notary Public:
Stipulated by Law at between 400 € - 900€
Property Registry:
Approx. 200 € - 450€
Property Transfer Tax:
7% of the purchase price
CANARIAN INVESTMENT RESERVE FUND (RESERVA PARA INVERSIONES EN
CANARIAS or RIC).
Article 27 of Law 19/1994, of July 6, for the Modification of the Canary Islands
Economic and Fiscal Regime (Régimen Económico Fiscal de Canarias), establishes
the so-called Investment Reserve Fund in the Canary Islands (Reserva para
Inversiones en Canarias). According to said article, the taxable party liable for
Corporate Tax shall be entitled to a reduction in their taxable base for the amounts
that, with regards to their operations on the Canary Islands, they devote from their
profits to the Investment Reserve Fund, and in no event can the tax base be
negative.
The contributions to the RIC must be made against undistributed profits limited to
up to 90%.
The amounts devoted to the RIC must be materialised within a three-year period,
starting from the accrual date of the corresponding tax in the tax year that the
money was provided. Materialization shall be in one of the following investments:
- Initial investments consisting of the acquisition of new property elements for
fixed, tangible or intangible assets as a consequence of:
The creation or enlargement of business premises.
Diversification of activities on the premises to manufacture new
products.
A substantial transformation to the production process of the premises.
Investments in land, whether built-upon or not, as long as no previous
benefits have been obtained from the RIC Tax Regime.
Investments in commercial areas and tourism activities regulated by Law
7/1995, of April 6, regarding the Organization of Tourism on the Canary
Islands, when these are devoted to the renovation of a tourist
establishment located in a declining tourist enclave.
The elements of fixed intangible assets when these mean the use of
intellectual or industrial property.
- The creation of jobs directly related to the investments mentioned in the
previous section, when they are produced during the first six months of
operation of the investment.
- The acquisition of tangible or intangible fixed assets that cannot be
considered initial investment, the acquisition of assets that contribute to the
improvement and protection of the environment on the Canary Islands, as
well as certain Research and Development expenses that are regulated by
Law.
- The subscription of:
Stock or shares in capital issued by companies that carry out their
activities on the Canary Islands, as a consequence of their incorporation
or share capital increase.
Stock or shares in capital issued by companies operating within the
Canarian Special Economic Zone (Zona Especial Canaria) as a
consequence of their incorporation or share capital increase, as long as
said issue or increase is more than 750,000€.
Stock or shares in capital or in the assets issued by the corporations and
risk capital funds regulated in Law 25/2005, of November 24, regulating
venture capital entities and their managing companies, and in
investment funds regulated by Law 35/2003, of November 4, regarding
collective investment institutions, as a consequence of their incorporation
or share capital increase, as long as the venture capital entities and co-
owned investment funds invest an equal amount in the acquired shares
or representative stock in the corporate capital referred to in the two
previous points and comply with the requirements established therein,
issued upon incorporation or share capital increase.
Canarian Autonomous Community, Municipal Governments of the Canary
Islands or their public companies or Autonomous Administrations'
negotiable public debt instruments as long as they are devoted to
financing investments in infrastructure and equipment or improvement
and protection of the environment on the Canary Islands, and limited to
50% of the amount assigned in each tax year.
Negotiable instruments issued by public administrations for the
construction or management of infrastructure or equipment of public
interest for public administration on the Canary Islands, when the
financing obtained from said issue is devoted exclusively to said
construction or management, and limited to 50% of the amounts
assigned in the tax year.
Negotiable instruments issued by bodies that will proceed with
construction or operation of infrastructure and equipment of public
interest to public administrations on the Canary Islands, once the
corresponding administrative concession or enabling administrative
instruments, has been obtained, when the financing obtained from said
issue is devoted exclusively to said construction or operation, limited to
50% of the assigned amounts in each tax year and subject to the terms
foreseen by Law. Issue of the corresponding negotiable instruments
shall be subject to prior administrative authorisation by the
administration competent to grant the corresponding enabling
administrative instrument.
The assets in which the investment is materialised must be located on or delivered
within the Canary Islands, used here, be taxable and necessary for the
development of the activities carried out by the tax-payer.
CORPORATE MODELS THAT EXIST IN SPAIN.
The sale or acquisition of real estate by any other means, may also be carried out
through one of the different corporate types regulated by Spanish Law. The
following is a brief description of the most common corporate models:
1ª.- Limited Responsibility Company (Sociedad de Responsabilidad Limitada o
S.R.L.-) With a minimum of three thousand six Euros worth of capital that must be
divided into equity interest but not stock, the S.R.L. enjoys its own legal personality
and the partners are not personally responsible for corporate debts. Incorporating
an S.R.L. Starts upon granting a Public Incorporation Deed (a Memorandum of
Association in Britain) before a Notary Public. Said Deed contains the company
agreements reached by the subscribers and Articles of Association on which the
operation of the company shall be based. In order to grant said Deed, first a
certificate from the Central Company Registry (Registro Mercantil Central) must be
obtained, verifying the availability of the name chosen by the partners and with
said certificate a bank account may be opened in the company name and the
corresponding initial outlay of share capital deposited into it by the subscribers, the
amounts corresponding to the participation that each subscriber shall have in the
corporation. Once the share capital has been deposited to the corporate bank
account, the corresponding certificate from the bank shall be requested.
Once the Public Incorporation Deed has been granted, including the Articles of
Association or By-Laws, this, the negative certificate verifying the availability of the
company name issued by the Central Company Registry and the bank certificate
issued showing that the share capital has been deposited to the account, must
within a two month period, be presented to the corresponding local Company
Registry for recording. The local Companies House will record the incorporation
and announce it in the Official Bulletin of the Company Registry (Boletín Oficial del
Registro Mercantil), from which moment the company shall acquire its legal
personality to all effects.
During the lapse of time between the presentation of the Deed at the Companies
House until completion of the procedure to record the company's incorporation, a
fiscal identification number (código de identificación fiscal or CIF) may be applied
for, including registering the company with the Tax Authorities and for the
Economic Activities tax, the VAT or IGIC (should the company be located on the
Canary Islands), as well as registering the company for National Health Insurance
and opening the account for payments of contributions.
The S.L. may be managed by a sole Administrator, Joint or co-Administrators or by
a Board of Administrators or Directors with a minimum of three and a maximum of
twelve members.
2º.- Public Limited Company (Sociedad Anónima o S.A.-) With a minimum share
capital of sixty thousand Euros divided into shares and made up of the contributions
of the subscribers, the partners are not personally liable for corporate debts. The
share capital must be fully subscribed and and least one quarter of it outlaid at the
time of incorporation. As with the S.R.L., an S.A. must be incorporated by means
of a Public Deed that shall be recorded at the Company Registry corresponding to
the location of the corporate registered office. The S.A. may be managed by a sole
Administrator, Joint or co-Administrators or by a Board of Administrators or
Directors. An S.A. may be founded by several subscribers or a single one, in which
case the corporate name must be followed by the letters S.A.U., sociedad anónima
unipersonal (Single Shareholder Public Limited Company). The S.A. Must be
registered for the Economic Activities Tax, the VAT or IGIC (if located on the
Canary Islands) in addition to being registered for National Health Insurance and
opening the account for payments of contributions.
© 2009 Planificaciones Mundiales S.L. The information contained herein is general in nature and is
not intended to convey specific personal or corporate data or circumstances. No matter how hard we try
to share information that is exact and current, we cannot guarantee that no changes will be introduced
in the future or at the time when access is required. For that reason, this information should not be
considered to be professional or expert counsel. For an exact and detailed study of your case, we
recommend that the details pertaining to it be studied exhaustively to obtain the pertinent professional
advice.