After the purchase is before the tax - Important information for buyers in Mallorca

Property taxes - After the purchase is before the tax - Important information for buyers on Mallorca

After purchasing a property, the owner can expect numerous tax and financial obligations.

Some of these should already be set out in the purchase agreement. Tax and financial advice is generally recommended.

First things first: anyone buying a property, whether in Germany or Mallorca, should seek advice from a tax or financial advisor from the outset. Both the tax aspects and the additional costs incurred during and after a property purchase on the island are generally very complex and require tax advice.

Tax resident or not? That is the question;

The Spanish tax office distinguishes between foreign „tax residents“ and foreign „non-tax residents“. The former have a tax identification number (NIE) and are fully taxable, just like Spanish residents. If a person lives in Spain for more than 183 days per year, they are considered a resident for tax purposes and are assessed for tax. Non-tax residents who buy or sell a property in Mallorca will, of course, also be asked to pay tax. They also have to pay income tax on the income from their property.

Which contract is the best fit?

Not all purchase contracts are the same. Until the final notary appointment, the buyer and seller can make various contractual agreements.

Contrato Opción de Compra

This is an option contract that gives the buyer the right to buy the seller's property by a specified date in return for payment of an option sum. The contract is usually drawn up when certain details or the financing are unclear. The amount of the down payment is usually between 10 and 20 percent of the purchase price. If the purchase does not materialize, the seller retains the option amount. Otherwise, it is offset against the purchase price.

Contrato de Reserva

The so-called reservation contract is a special form of option contract. The buyer asks the seller to reserve the property for a few days in return for payment of a small sum. If no private-law purchase or option contract is concluded by the end of this period, the seller retains the reservation sum.

Contrato privado de Compraventa

Buyer and seller have agreed on all the details and the financing has also been clarified. In this case, a private purchase contract is usually concluded. The content of the contract includes the exact legal description of the property, the determination of the final purchase price, the payment terms, the determination of the time of fulfillment of the contract and the time of handover of the property.

Important: Which contract is ultimately used should be decided on a case-by-case basis and in consultation with the appointed lawyer. The content of the preliminary contract includes the precise legal description of the property, the determination of the final purchase price, the terms of payment, the determination of the time of fulfillment of the contract and the time of handover of the purchased property.

Taxes and ancillary costs

When buying and selling a property, various taxes and duties are incurred for both parties.

Plus Valia

The capital gains tax is a municipal levy. It taxes the increase in value of the land (but not the value of the property built on it) since the last change in the land register. For this reason, this tax is rather low for the purchase of existing properties in Mallorca.

The amount of the tax is determined by the municipality. For this reason, it is advisable to check the

current tax rate with the respective municipality. This can be done, for example, in many towns and cities via their homepages. According to the law, the capital gains tax must be paid by the seller of the property. However, it has often happened that the seller tries to push it on the buyer's ear. It is therefore advisable to include an explicit contractual provision on the payment of this tax in the purchase contract.

What is new is that the buyer is also obliged to provide the municipality with a copy of the notarized purchase contract for the Mallorca property. To ensure that the seller fulfills his payment obligation, it is advisable to withhold the calculated capital gains tax as part of the purchase price payment. Reason: If the seller does not comply with their obligation to pay capital gains tax, the buyer must pay this tax.

Real estate transfer tax (ITP)

In the Balearic Islands, the following rates currently apply for the real estate transfer tax:

8 percent of the purchase price for properties with a price of up to 400,000 euros.

9 percent of the purchase price for properties with a price between 400,000 and 600,000 euros.

10 percent of the purchase price for properties with a price above 600,000 euros.

Municipal taxes (IBI)

Communal taxes are payable annually and are calculated on the basis of the cadastral value or the property value used by the Spanish tax office. The cadastral valuation takes into account both the value of the land and the value of the building, depending on its type, location and use. Each municipality uses this value basis to decide the percentage to be applied when calculating the municipal tax.

But beware: For years, there have been discrepancies between the land registry and cadastral office in Mallorca. The reason for this is a complete lack of data synchronization and exchange between the two authorities. This is mainly due to their nature. In Spain, the land registry is under the control of the municipalities, while the cadastral office is under the control of the Spanish Ministry of Finance. In contrast to Germany, the registers kept there do not consist of reliable survey plans of properties. The cadastral registers are primarily concerned with determining the respective property tax.

The differences between a German and a Spanish land registry are just as great. This starts with the access authorization. In Germany, only courts, authorities, notaries and architects have the right to inspect the registers. In Spain, anyone can actually take a look at the land register.

As part of a reform of the Mortgage Act, communication between the land register and the property register is soon to be improved once again through a „mutual exchange of information between the land register and the cadastre“. The aim is to prevent conflicts arising from contradictory information about the same property in the land register and cadastre in the future. This means that the layout of a property must not only be clearly recognizable from now on, but must also be consistent in the land register and property register.