Housing for non-resident foreigners in Spain is also taxed

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Experts fear that the adoption of this regulation could shake the luxury housing market in Spain. Wealthy people are the main buyers of real estate in the upper segment of the market. The government wants to introduce this tax, which will be temporary, already in 2022.

The final approval of the tax can take place in the Folketing as early as this week. The tax affects assets that exceed 3 million euros. Spain currently has approximately 23,000 such properties.

Different sections are established based on net worth:

  • The first tax bracket will be 1.7% for assets between 3 and 5.34 million euros.
  • The second tranche is 2.1% and concerns the bandwidth between 5.34 and 10.69 million.
  • For assets greater than DKK 10.69 million. a tax rate of 3.5% is applied.

This new tax affects not only residents but also non-residents of Spain. The latter will be burdened with commercial obligations in relation to the assets and rights they own located in Spain. Furthermore, these foreign taxpayers may not reduce the tax base by the exempt minimum set in the wealth tax. And this is because this benefit is only given to taxpayers who are personally taxed.

See also: Spain will temporarily tax large fortunes extra

In other words, in the case of foreigners who are not tax resident in Spain, payment of this new tax may discourage them from investing in property in Spain and prefer other countries with a more favorable tax rate.

“If someone from Latin America decides to invest in a luxury property in Spain and has to pay wealth tax, this tax paid will not be able to compensate him in any way in the country where he is tax resident,” says the economist and tax advisor. José Miguel Saavedra in idealista.

Experts fear that the entry into force of this tax could shake the market for luxury properties in Spain, since the main applicant is the foreigner who wants to own and enjoy a residence on, for example, one of the Spanish costas.

In the case of foreigners living in Spain, the effect of this tax in connection with the purchase of a luxury property may be less. This is because the difference between the taxpayer’s assets and liabilities (liabilities) is taken into account when paying this tax. This means that it does not matter whether the fortune is in goats, jewelery or real estate.

What taxes does a non-resident foreigner who buys a luxury house in Spain have to pay?

When a non-resident alien buys a property in Spain, he must pay the price of the property and other mandatory expenses, such as the assessment of the property or the taxes on this transfer. But also for the following charges:

IRNR (non-resident income tax). When a person who is not tax resident in Spain owns a house in Spain, he must also pay his tax by submitting the corresponding forms individually or through a representative in Spain.

The Spanish Association of Tax Advisers (AEDAF) points out that it stipulates that 1.1% of the property’s cadastral value is imposed on the IRNR tax base. If the property has a market value of 5 million EUR and a cadastral value of 2.5 million. EUR (example), EUR 27,500 must be added to the tax base and a tax rate of 19% must be paid if the owner lives in the EU or 24% if the maximum tax is EUR6,600 per year.

Taxation of large fortunes, if finally adopted

The large wealth tax provides for different sections depending on wealth ranging from 1.7% to 3.5%. Non-resident foreigners will not benefit from the exemption on the first 700,000 euros that residents have.

If the tax comes into effect, the non-resident alien who buys a villa worth 5 million euros will pay 34,000 euros in drafts of this new tax at the time the properties worth more than 3 million euros are purchased.

José Pedreira, IRPF expert from AEDAF, points out that to own a house in Spain worth 5 million euros per year, a non-resident pays around 40,600 euros in taxes (34,000 + 6,600 euros).

VAT on new homes

The tax on this property is 10% VAT. So on a house worth 5 million euros, 500,000 euros must be paid in tax if the house bought is new.

ITP on second-hand homes

The tax imposed on used real estate is the transfer tax (ITP) and varies, depending on the autonomous community, between 5% and 10% of the registered price (between 250,000 and 500,000 euros for the example used).

AJD

Both new and used property purchases, if made through a mortgage, are subject to payment of another tax, the Actos Jurídicos Documentales (Documented Legal Deeds) (AJD), which represents approximately 1% of the purchase price.

IBI (property tax)

This is a municipal tax that must be paid by the natural or legal persons who own the property, per 1 January of the current year. The tax is charged on the value of real estate. The tax must be paid to the municipality where the property is located. The amount of IBI is calculated based on the property’s cadastral value. The percentage of tax that must be paid varies according to the municipality and the owner’s personal situation.

What happens to non-residents who indirectly own property in Spain

The General Directorate of Taxes (DGT) has confirmed that the ownership of shares or shares in companies by non-residents who directly or indirectly own investment properties in Spain does not generate any wealth tax (IP) in Spain.

This is stipulated in the binding resolution number V1947-22, which concerns non-residents in Spain who indirectly, that is through foreign entities, own property in this country.

But from AEDAF they point out that “wealth tax will be changed to tax in Spain the ownership of shares in companies whose assets are 50 percent real estate in Spain.”

How this new tax will affect the luxury housing market

Experts believe that “foreigners considering moving to Spain for myriad reasons will have to factor these new variables into their equation, which could make other international destinations more attractive.” They point to the legal uncertainty associated with this change in the rules of the game.

The tax can be avoided

Apart from the temporary nature of two years and the fact that the tax will be applied from 3 million EUR, you don’t know much more than what is in the amendment. Another economist points out in Idealista that the tax can be avoided based on the knowledge that it is temporary. For example, a villa could be rented with a forced purchase that had to take place after that period, thus avoiding payment of that tax.

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