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BASIC
TAX GUIDE FOR FOREIGN REAL ESTATE INVESTORS.
Special
non-resident Tax.
Withholding
Tax.
Property
Tax.
Indirect
Taxation on Property sale.
Special
non-resident Tax.
Non resident entities that own estate in Spain,
or otherwise enjoy or benefit from Spanish real estate, are liable to an
annual 3% tax on the cadastral value of the property.
This special tax shall not apply to:
-
States, public institutions and international organisations;
-
Entities resident in countries having concluded a
tax treaty with Spain which contains an information exchange clause, whenever
the ultimate owners of the share capital are individuals resident in Spain
or in a country that has a tax treaty with Spain containing also an information
exchange clause;
-
This exemption is available upon submission of the
certificate of residency of the entity and the ultimate owners issued by
the competent tax authorities;
-
Entities carrying out business activities on a regular
basis other than the lease of real estate;
-
Entities quoted on officially recognised stock exchanges;
-
Non profit entities of countries with a tax treaty
with Spain containing an information exchange clause whenever the real
estate is used for the activities carried out by these entities.
Withholding Tax.
It is compulsory to apply withholding tax whether
the beneficiary is a non-resident and the income has been earned without
having a permanent presence to:
-
Entities resident in Spain included in the "partner's
personal tax allocation" (taxed through the personal income tax instead
of the Corporate income tax)
-
Individuals resident in Spain engaged in economic
activities, in the context of income paid as a result of such activities.
-
Non-residents of Spain operating with a permanent
presence.
-
Non-residents of Spain operating without a permanent
presence and carrying out economic activities but only in the context of
income paid, supplies and purchases of materials for works when such expenses
are deductible.
Exceptions:
-
When the beneficiary provides evidence of compliance
with the compulsory non-resident Income Tax. In such a case, the relevant
Income Tax Return must be produced either by the beneficiary or a duly
appointed representative, under the responsibility of the withholding party.
-
When the beneficiary provides evidence that the income
earned is exempted from the payment of the non-resident Income Tax. In
such a case, supporting documentation must be produced, under the responsibility
of the withholding party.
-
Specific income of companies which are holders of
foreign securities.
-
Income derived from securities issued by the Bank
of Spain that constitute instruments that regulate intervention in the
money market and the yield of Treasury Bills, unless such income has been
obtained through a tax haven (with the same conditions as in the case of
residents).
-
Premiums arising from the conversion of debentures
into shares.
-
Public prizes.
-
Minor games.
-
Income arising from the transfer of assets represented
by accounting entries and are traded in the Spanish stock market.
-
Patrimonial gains (with exceptions).
-
Income from transfers or redemption of capital shares
of investment funds.
For real estate sales, the withholding base
will be the price paid.
Property
Tax.
Property owners in Spain, both individuals and
companies, are subject to Property Tax.
This tax is levied annually by local authorities
on the ownership of urban and rural property. The tax base is the official
value of the property ("cadastral value"), resulting from the value of
the land and the buildings.
In addition to the local Property Tax, other Taxes
on ownership are levied, the nature of which varies depending on whether
the owner is an individual or an entity.
Indirect
Taxation on Property sale.
A transfer of Spanish real property is liable
to either Value Added Tax (VAT) or Transfer Tax. Also a local tax is levied
on the increase in the value of urban land.
The transfer of real estate is, as a general rule,
subject to VAT at the rate of 7% for dwellings and 16% for other properties,
in the case the transferor is an entrepreneur or a legal entity.
Property transfers subject to VAT also carry an
additional stamp duty of 0.5% payable upon registration of the public deed
of transfer in the Public Property Register.
However, some transfers are exempt from VAT and
thus subject to Transfer Tax. The transfer tax rate is 6% or 7% (depends
on the Autonomous Community) of the actual value of the real property.
This tax is payable by the transferee and cannot be recovered.
Property held through a Spanish Company. Transfer
of Shares
The Spanish legislation prevents the transfer
of real estate by means of the sale of the shares of the owning company.
The capital gains derived from the sale of shares
of a Spanish or foreign company will be subject to tax in Spain if its
main assets consist of real estate located in Spain or if they give the
owner the right to use real estate in Spain.
A non-resident shareholder of such a company will
be liable to tax on capital gains, unless it is resident in a country with
double tax treaty with Spain. In such event, generally the treaties provide
for capital gains (resulting from the sale of shares) to be taxed
in the country of which the shareholder is a resident.
Spanish legislation states that certain transfers
of shares in companies owning real estate that meet the here-under requirements
will be taxed by Transfer Tax.
The transfer of shares is generally not subject
to any indirect taxation (VAT or Transfer Tax), but Spanish anti avoidance
provisions make the sale of shares liable to Transfer Tax at the rate of
6% (or 7%, depends on the Autonomous Community) if:
-
the transfer of shares allows the purchaser to control
the company and over 50% of the assets of the company consist of property
located in Spain;
transfer of shares obtained through the contribution
of real property to a company if the transfer is executed within a year
after contribution of real estate property.
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