There are numerous taxes to pay when buying a property in Mallorca. Our financial expert Cristobal Rueda from Perfil Asesor has compiled an overview of duties and taxes so that you don't experience any unpleasant surprises.
The right property has been found, the financing has been secured and the contract could be signed soon. However, before you sign, it is advisable to take a close look at the additional costs when buying a property on the island. Spanish law includes a number of pitfalls when it comes to additional expenses and taxes, which often confront buyers with unexpected surprises.
If you decide to use a Spanish bank for financing, you should bear in mind that they will only finance 80 percent of the property value if the property is to be used as your main residence. This requires 20 percent equity to even start the purchase process. You should also factor in the fees that banks charge for taking out a mortgage or opening an account. As a rule, these are two percent of the loan amount. But that is by no means everything.
If you intend to take out a home loan for the purchase of the property, you will need a appraiser. They will value the property. In some cases, the bank will cover the costs, which are currently between 250 and 600 euros. A valuation is valid for six months after it is issued.During the purchase, a settlement of the property tax and the mill fees must be made if these have not been paid. Likewise, if this applies to you, the outstanding income from the community fees and costs must be settled.
Another portion to be paid is the cost of professional mediation.
Signing the real estate contract before a notary is mandatory. The notary issues the public deed of sale (escritura). There is a fee schedule, which is based on the purchase price, so the choice of notary is up to you. The deeds issued by the notary must be registered. These fees also depend on the value of the property.
If the property being purchased is a municipal property, capital gains tax, the Plusvalia, is payable.Another cost item is taxes for inheritance transfers and documented legal acts. These include:
1. The property transfer tax (ITP) of 8 to 13 percent in the Balearic Islands. It is levied on the purchase price of the property.
3. VAT in the amount of 10 percent for new apartments
4. Real estate transfer tax of 4 percent, if the VAT exemption is not revoked.
As a property owner, you incur annual costs. As a resident, you pay the property tax and the municipal charges.
Taxes are also payable on the net assets if these amount to more than 700,000 euros. If this is over two million euros, an annual tax is due in Spain. The rate ranges from 0.28 to 3.45 percent for assets over 10,909,915.99 euros. From assets of 3,000,000 euros upwards, a new wealth tax will now be introduced.
If the property is rented out, the income less expenses must be declared annually for income tax purposes.
If you acquire a property in Spain as a non-EU foreigner, the income must be taxed quarterly if you rent out your property.
Are there advantages to buying real estate as a company?
First of all, it is important to define the term 'entrepreneur'. Anyone who is active in the real estate sector, i.e. is involved in the purchase and sale of real estate, but also in construction or reform projects, is considered an entrepreneur. If the activity is carried out within the framework of a company and declared as an entrepreneurial activity, the advantages are quite high. In this case, for example, you pay no income tax and the tax rate for small companies is limited to 23 percent.
Real estate as an investment – which expenses are deductible?
If you do not rent out your property, no expenses are deductible.
However, if the property is rented out, the direct expenses incurred during the rental period and used to generate income are deductible.
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