TAX
Mallorca Real Estate: Taxes for Non-Residents
When buying, owning and selling a property in Mallorca, the local tax authorities always participate. It is just not equally inventive everywhere in the world: right-hand transaction taxes, capital gains taxes, taxes on the advantage of personal use – these are taxes that the Spanish tax authorities have come up with.
But taxes alone are not enough when buying real estate in Mallorca. It is important to take into account other ancillary purchase costs, which account for about 1% to 2% of the purchase price: the fees of the notary public, the costs for the entry in the land register, the fees for the Gestoria, which handles the transactions with the land registry and banks, and finally the costs of a lawyer who may be involved in the purchase process.
In recent years, the taxation of real estate in Spain has also been quite confusing: due to the crisis, for example, VAT and real estate transfer tax on property purchases have been halved in certain periods in order to stimulate the real estate industry and enable banks to reduce the stock of properties under compulsory administration. Some taxes were raised (real estate transfer tax), others were lowered (income tax).
The wealth tax was also suspended, then revived. In short: a tax confusion. The legislative marathon was followed by many months of legislative stalemate, as Spain was and is not in a position to install a government capable of acting. To provide a little overview, in this article I give an overview of all taxes that are incurred in connection with the acquisition, possession and sale of Mallorca real estate of an EU non-resident as well as the current tax rates (as of January 1, 2020).
In doing so, I will limit myself to the taxes of non-residents, i.e. those natural persons who stay in Spain for less than 183 days or who have closer personal and economic ties to another country (centre of vital interests) or who have their habitual residence in another country (definition of the Spanish-German double taxation agreement (DTA)).
Taxes on the purchase of real estate
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One-off taxes
Real estate transfer tax
The purchase of a second-hand property is subject to real estate transfer tax (ITP).
The determination of the amount of real estate transfer tax is the responsibility of the individual regional authorities. In the Balearic Islands, the following real estate transfer tax is payable when buying a second-hand property:
the first €400,000 of the purchase price is taxed at 8%
between €400,000.01 and €600,000, the real estate transfer tax is 9%
the amount between €600,000.01 and €1,000,000 is taxed at a rate of 10%
a purchase price over €1,000,000 is taxed at 11.5%
Example calculation with a purchase price of €800,000
up to 400,000 € tax burden 8 % = 32,000 €
for the amount between €400,000.01 and €600,000, 9% is due = €18,000
on the amount of €600,000.01 to €800,000 it is 10% = €20,000
Total tax burden thus 70,000 €
The tax is payable within 30 days of the transfer of ownership.
VAT
While the purchase of a second-hand property is subject to real estate transfer tax, VAT (IVA) must be paid when buying a property for first occupancy. The applicable tax rate depends on the type of property: For residential properties including garage parking spaces (max. 2 per residential unit), 10% IVA must be paid on the purchase price.
The tax rate is 21% for the purchase of land from a commercial enterprise and the purchase of commercial real estate. Real estate transfer tax and VAT are never cumulative, but always alternative.
Notarization or stamp duty
In the Balearic Islands, it will now be 1.5% from 1.2% from 1 January 2020. The old tax rate remains the case if it is the purchase of the first residential property and its value is less than €200,000. The deadline for paying stamp duty is 1 month after signing the notarial deed. Stamp duty is also levied on mortgage orders, but has been payable by the lender since 2018 due to changes in the law. Proof of payment of stamp duty is a prerequisite for the registration of the notarial deed in the land register.
Gift tax
If the property is not acquired by purchase, but by gift, for example, gift tax is due. In Germany, we have very high allowances for gifts in the immediate family circle, every ten years, so that the gift is a form of intelligent estate planning. Spanish tax law does not provide for such allowances, but taxes gifts between direct relatives in the ascending and descending line, as well as between spouses and partners, at a single, moderate tax rate of 7%.
In order to avoid the incurrence of gift tax in Spain, the gift should be made in Germany by taking advantage of the exemption amounts. Certain formalities should be observed. If a father wants to give his sons money to buy a property in Spain, he should transfer the corresponding amounts in Germany to the children's accounts so that they can then transfer the payment amounts from their own account to Spain. If, on the other hand, the father were to transfer the required purchase price to his own Spanish account and then make the money for the purchase price available to the children there, gift tax could be payable in Spain.
It should also be noted that an increase in value in the past is to be taxed separately by the donor. If, for example, the father gives away a property worth €700,000 to his son, which he once purchased himself for only €400,000, the father is subject to profit tax of 19% on €300,000 and the son is subject to gift tax of 7% on €700,000.
Inheritance tax
Inheritance tax is an ongoing issue in Spanish-German estates. We remember: According to the national Spanish tax law, the inheritance tax of the non-resident was 34% for assets of €800,000 or more; in (rare) extreme cases, it could rise to 81%. For residents, it all looked much more pleasing: Spanish national tax law had granted the Autonomous Regions the right to reduce inheritance tax for residents. The autonomous regions had diligently made use of this, often reducing the inheritance tax on close relatives to 1%, basically abolishing it (abolition by trivialization). With the decision of the European Court of Justice of 3 September 2014, the Spanish legislator was called upon to treat residents and non-residents equally and also to eliminate differences between different autonomous regions. The hope that everyone would now only have to pay 1% inheritance tax lasted only a short time. For the Balearic Islands, a new inheritance tax table has been in force since 1 January 2016 for residents and non-EU residents.
Tax rates inheritance tax in Mallorca 2020
Thus, estates of close relatives up to €700,000 are subject to only 1% inheritance tax, from €700,000 to €1,000,000 with 8%, with 1,000,000 euros to €2,000,000 with 11%, with €2,000,000 to €3,000,000 with 15% and over €3,000,000 with 20%.
Taxes on ownership
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Current annual taxes
Property tax
The property tax (IBI) is levied on the value of rural and urban land on the basis of the cadastral value by the competent municipality and must be paid annually. The owner of the property, the heritable building owner and the usufructuary are liable to tax. The amount of property tax is set by the municipalities and ranges from 0.4% to 1.1% for developed land and between 0.3% and 0.9% for undeveloped land throughout Spain. During the financial crisis, many municipalities had drastically increased property tax.
In the Balearic Islands, property tax is multiplied by a certain factor by the cadastral value and related to the development. The exact values will be provided by the municipal administration on request.
Income tax
Income tax (IRPF) for owner-occupancy of the property
In the case of a non-resident who uses the property only for holiday purposes, the Spanish tax authorities tax the owner-occupancy benefit as fictitious rental income. The tax is 19% on 1.1% of the cadastral value.
Example calculation: cadastral value 380,000 €
1.1 % of €380,000 = €4,180
thereon 19 % = annual income tax 794.20 €
Income tax on renting
If the property is rented out to a non-resident, income tax of 19% must be paid on the rental income for this period. However, various costs are deductible, e.g. interest on mortgage loans, community costs for a residential complex, property tax, repair costs, insurance, costs for utility providers, depreciation = 3% p.a. on the value of the buildings.
Wealth tax
By law of 23.12.2008, the wealth tax in Spain was "suspended", with retroactive effect from 01.01.2008, so that no wealth tax had to be paid from 2008 onwards. For the years 2011 to 2016, the wealth tax was reinstated. The tax rate for non-residents is between 0.2% and 3.5% (from a net worth of €10,695,996.06) for all assets located in Spain. What value should be applied to a property? The highest of the following values: the cadastral value, the acquisition value or the value determined by the tax authority.
Last updated: 01.01.2021
There is an allowance of €700,000. For example, if a property has two owners (married couple with 50% each), each of the owners is entitled to the allowance.
The tax rates of wealth tax can be found in the table above. It is the state table that the taxpayer can choose if the tax rates there are lower than those of the respective autonomous region, which is the case for the Balearic Islands.
If a Spanish property belongs to a Spanish S.L. with German shareholders who are not resident in Spain, the value of the share is subject to Spanish wealth tax as of 01.01.2013 (DTA). Value is the book value shown in the balance sheet. If there is no audited balance sheet or if it is negative, the highest of the following three values must be applied: nominal value of the shareholdings, book value according to the last audited balance sheet, capitalisation at 20% of the average profit of the last three completed financial years.
Taxes on sales
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One-off taxes
Income tax on capital gains
The profit from the sale of a Spanish property owned by a non-resident is taxable in Spain. The profit from the sale of real estate is calculated as the difference between the purchase price (plus ancillary acquisition costs at the time – IVA, real estate transfer tax, notary and register costs, value-enhancing expenses – modernisation and renovation costs, accumulated depreciation, brokerage fees) and the proceeds of the sale. 19% tax is payable on the profit thus determined. In this context, it should be noted that in Spain – unlike in Germany – there is no speculation period, so the profit is always taxable at the same tax rate of 19%, regardless of whether the purchase took place 5, 10 or 20 years ago.
It is often read that the profit made in Spain is also subject to taxation in Germany, but that the tax paid in Spain must then be credited. This is only partially true. As a rule, the sales profit is not taxable in Germany, namely always if the Spanish property was only used for one's own residential purposes. This is always the case if the Spanish property was used exclusively for own residential purposes in the period between acquisition and sale or in the year of sale and exclusively for one's own residential purposes in the two preceding years. Holiday apartments are also used for one's own use, even if they were actually used for only a few weeks a year, but were available to the owner for exclusive use during the remaining period. You should keep this issue in mind when buying a holiday property – also – for the purpose of holiday rental. If you sell the Spanish property after a holding period of 10 years, the sale process is not taxable in Germany in any case.
The 3% tax withholding
With regard to the income tax to be paid by the seller on the capital gain, there is a special rule in Spain that the buyer must withhold 3% of the notarized purchase price and pay it to the tax office within one month as an a a-conto payment on the seller's profit tax. In this way, the Spanish tax authorities secure part of the expected profit tax. The non-resident seller must file a tax return for the sale of the property within 4 months of the sale, in which he can then deduct the 3% as a payment already made on the final tax liability.
Capital gains tax (Plusvalia)
In addition to the profit tax, the seller is subject to the so-called capital gains tax (Plusvalia) on the part of the seller, which is levied by the local municipalities. It taxes the (fictitious) increase in value of land – not of buildings – since the last notarization process. To calculate it, you need the cadastral value of the land, the duration of ownership and the calculation factor of the respective municipality. Plusvalia's tax liability must be paid to the tax office within 30 days by way of self-assessment.