Tax situation for nonresident purchasers buying in Spain.

Recent changes to the tax system in Spain do not go far enough to make Spain competitive to investors buying property in Spain.

What tax proposals were made

An expert panel recently put forward a number of proposals to completely change the tax landscape in Spain. The panel took information from a number of sources including legal advisers dealing with buyers and Tourist chiefs.

Measures including recognizing the requirement for separate tax rules for residential tourism to attract buyers to Spain along with attracting pensioners and entrepreneurs to base themselves in Spain were put forward, most of which have not been acted on in the recent new bill.

One of the key measures of allowing foreign buyers to generate income from their property purchase without then the tax office assuming an income during the periods it is not let out, has not formed part of the bill.

Neither has a change to non EU residents not being able to offset all running costs against income derived from the property been put in place.

Taxation for buyers in Spain

With taxation levels above that of many of the buyer’s home countries and an inability to offset against tax many of the running costs including interest on mortgage payments, many foreign buyers looking to invest in Spain are pushed to consider other countries with more favorable tax rules.

Whilst Spain may be first choice for many investors due to its climate, location and communication structures, countries like Portugal, Malta, Italy and the USA are far more fiscally attractive than Spain.

With an inability to look at the indirect taxes that foreign investors and purchasers generate the Government in Spain has missed a great opportunity to put Spain firmly back on the outside investment map.

Issues with the tax system in Spain

On top of the archaic tax systems in place there is a total lack of transparency and clear guidelines on what is taxable and what is not. It is almost impossible in Spain for an outside investor to be clear on what their overall situation will be and indeed if the local tax office will in fact interpret the tax rules in the same way. With a system where the tax office takes money first and asks questions later and the ability to remove assumed monies direct from your Bank account; once a would be an investor has done their homework many decide to give Spain a miss.

Spain does not even have a nationwide tax system. Except for income tax all other taxes can and do vary from region to region.

Inheritance tax is different depending on where you live and where the asset is based. Wealth tax is only applicable for instance in Andalucía. Purchase taxes, outside IVA on new builds, range from as low as 6.5% in the Canary Islands to 10% in other areas.

In some regions you will pay a yearly tax just for the pleasure of owning a business in Spain even if you do not make a profit and in others you will not.

Are things likely to change for foreign buyers in Spain

Further pressure will applied by all interested parties who want to put Spain back as a major player in the area of Touristic development and investment and it can but be hoped that the calls will not continue to fall on deaf ears.

The unfairness of the tax system in Spain and it’s unclear rules are what encourage tax evasion and complex structures to be set up to avoid any tax. A clear fair and understandable tax system would encourage investment and increase tax revenues in both the indirect and direct taxation arena.