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Important facts about the BUYING PROCESS in Spain:
The acquisition of properties in Spain implies a number of legal obligations.
If you decide to purchase a property in Spain, which legal processes must be followed?
1. QUESTIONS PRIOR TO THE PURCHASE
OBTAINING A N.I.E. NUMBER (tax identification number for foreigners)
The N.I.E. (Número Identificación Extranjeros) is an identification number for foreigners for fiscal purposes, necessary to carry out any economic activity in Spain. It must be provided to the Notary and is necessary for any tax payment. In order to obtain the N.I.E. number, the application must be duly completed and submitted at the National Police
EXAMINATION OF THE LEGAL STATE OF THE PROPERTY
Once you have chosen the property you wish to purchase, CR-INMOBILIARIA-MARBELLA carries out its due diligence with regard to the property, especially with respect to its legality.
Considering that the purchase of a property on rural plots, in many cases, poses the problem of housings built without municipal license, a study of the legality of the home is carried out. Should the building have been constructed without municipal license, an examination of whether or not legalization could be possible is carried out.
In addition, we carry out a study of the documentation to be required from the vendor for the completion of the purchase, in granting the public deed of purchase. We also investigate as to whether any liens or encumbrances are present on the property.
To acquire a property in Spain, it is not necessary to sign a public deed (notary formalization), although it is necessary to register that property in the Property Registry. As we will explain later, the registration in the Registry is very important, although optional.
Once the vendor and the buyer have agreed on the price, conditions of payment, and other specifics they consider appropriate, an option contract or a private purchase contract with deferred payment is signed. This contract may be subject to suspensive or resolutive conditions, in guarantee that the transferred property will be completely legal.
In cases where both parties are in agreement and the buyer is already in possession of the necessary financing of the purchase, the public deed can be directly granted in front of a Notary, chosen by the buyer.
Nevertheless, an option contract to purchase is signed in the majority of cases; less common is the private purchase contract with deferred payment of the price.
OPTION CONTRACT OF PURCHASE
The option contract is a private contract. In signing this contract, the vender is obligated to sell the property to the purchaser. Usually, upon the signature of this contract, TEN PERCENT (10%) of the purchase price is paid as an option rate, though the percentage or amount of the option rate may be freely discussed and agreed upon by the parties, based on the temporary reservation established in the contract.
This option rate can be paid either directly to the vendor or deposited in the bank account of a third party, which is usually that of the lawyer involved in the purchase, or that of the estate agent, who carried out the operation, or an escrow account of the Notary. The buyer is granted a time limit between one and three months to exercise the option, which means that the purchaser notifies the vendor that s/he wishes to buy the property and grant the public deed of purchase, communicating the date and time of the appointment at the notary to sign the public the purchase deed.
The option contract contains the agreed-upon consequences of failure to fulfill the contract, in case the vendor or the buyer finally does not appear to grant the public deed of purchase in the notary. In case the purchaser fails to appear, normally, the parties agree that the option rate will be withheld by the vendor and the contract is cancelled. If it is the vendor who fails, the buyer is enabled to choose between requiring from the vendor to grant the public deed of purchase, and requiring the refund of the received and deposited option rate, plus another amount of the same quantity as indemnity.
This purchase option contract does not assign ownership of the property; it only grants a right to purchase for the buyer and imposes an obligation to sell for the vendor.
PUBLIC DEED OF SALE
The granting of the public deed of sale is indispensable for the registration of the acquired property in the name of the buyer in the Property Registry. Once registered, the property no longer appears in the name of the vendor in the Property Registry. As a result, no liens stemming from debts owed by the vendor or registration of charges on the property can be implemented, and the property cannot be sold by the initial vendor. The public deed is granted in front of a notary, and the legally required documentation, such as proofs of carried out payments and the last receipt of the Municipal Property Tax (IBI), must be presented.
In addition, the vendor is required to hand over the Certificate of Occupancy, the Energy Efficiency Certificate, and various other documents, depending on the specific circumstances surrounding the property.
NOTARY AND PROPERTY REGISTRY FEES
After the granting of the public deed, the Notary fees must be paid, whereby the original of the deed is provided for its registration in the Property Registry. Before this occurs, both the taxes related to the operation and the municipal tax have to be paid.
It is advisable to change the bearer of all the bank direct debits regarding the supplies related to the property, in order to avoid default of payments and the related problems.
Thus, the vendor has to provide the last bills of the utility companies (water, gas, electricity, telephone, etc.) to the purchaser. CR-INMOBILIARIA-MARBELLA provides this change of owner service.
TAXES LINKED TO THE PURCHASE
Once formalized the deed of sale in front of the Notary, the following taxes must be paid:
REGIONAL TAXES (ITP / AJD) – NATIONAL TAXES (VAT)
**The acquisition of a property may be subject to payment of the ITP, or the VAT (and in this case also AJD Tax), depending on whether the sale is of first transmission or of successive transmissions and the condition of the selling party being a promoter or an entrepreneur. We explain it below: **
ITP - PROPERTY TRANSFER TAX
ITP (Property Transfer Tax) levied on the acquisition of "second hand" or successive transmissions.In this case, the tax rate will vary depending on the Autonomous Region and the calculation basis is the purchase price appearing in the deed.
Currently in Andalucia, an 8% of ITP is paid for the acquisition of a property up to € 200,000 (garages up to 30.000), 9% for the part from € 200.000 up to € 700.000 (garages 30.000 - 50.000) and 10% upon € 700.000 (garages upon 50.000).
Term: The deadline for the settlement and payment of this tax is one month from the date of the granting of the public deed.
**VAT (Value Added Tax) **or IVA: is levied on the first transfer of real estate objects, meaning the tax only is applied on properties of new construction and first transmission. The current applicable rate is TEN PERCENT (10%) on the purchase price. For transfers of other real estate objects subject to VAT (locals, warehouses, garages - which are not transferred together with the housing, plots, etc..) the general VAT of 21% applies.
Term: The buyer must pay this fee to the vendor at the time of the transmission of the property. (VAT is a Governmental Tax).
COSTS ASSOCIATED WITH THE SALE FOR THE VENDOR
“PLUSVALIA MUNICIPAL” - Tax on the increase in urban land value.
As result of the transfer of ownership of a property, or the provision, or transfer of property rights, the Tax of Increase of Value on Urban Land must be paid, also known as “Plusvalía municipal” (Municipal added value).
In the case of sale of a property, the payment of the tax is the responsibility of the selling party, be it a person, company or entity, because the value of the plot increased during ownership.
If the vendor is a non-resident natural person, company or entity in Spain, the purchaser is responsible for the payment of the Municipal Tax, but does so on behalf of the vendor, who is the person obliged to pay this tax. In this case, it is advisable to retain the amount of the purchase price.
**Terms: **The payment must be completed within 30 business days, beginning from the date on which the transfer of ownership was finalized (the public deed).
Location: In the respective town hall, providing a copy of the deed.
Quote: The amount varies depending on the Cadastral Value (listed on the receipt of ground tax - IBI) and the number of years the property has been in the assets of the vendor (the years between the initial purchase and sale of the property).
*It is mandatory to provide the proof of payment of the municipal tax as condition to register the purchase in the Property Registry. However, if, for any reason, the payment cannot be proven, the Registry is enabled to carry out the registration of the property, and has authorization to communicate the legal act to the town hall, so that it is informed about the operation.
OBLIGATION OF RETENTION OF 3% OF THE PURCHASE PRICE
Should the vendor be a non-resident, the buyer (resident or not) is required to withhold and pay the Public Treasury 3% of the agreed price in the time limit of one month from the date of sale. If in the public deed, if the purchase price has been split into the price for the housing and the price for the furniture, it must be taken into account that the retention of 3 % only needs to be applied to the total of the purchase price of the housing.
LOCAL PROPERTY TAX (IBI)
All property owners in Spain (residents and non-residents) are obliged to pay the annual property tax to the Town Hall corresponding to the location of the property.
The amount of property tax is calculated by each municipality, based on the cadastral value of the property and the application of a tax rate, provided by the same Town Hall.
The cadastral reference of the property appears on the receipt, information which is necessary to check the registration status of the property in the Cadastre and the cadastre value of the property, which is the base of calculation of other taxes on the property.
The deadline of payment varies depending of the municipality, although usually it is in September, October or November every year.
TAX ON GARBAGE/SOLID WASTE, SEWAGE, ETC.
Every city has its rates and the payment is annual. The deadline for payment also varies according to each city.
NOTE: Both taxes (Local Property Tax and Garbage) have bank direct debit, so that the City annually and automatically charges them through this way, without prior notice of payment to the owner.