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Non-Resident Income and Wealth Tax for property owners in Spain

One of the primary concerns when acquiring, purchasing or owning a property as a foreign citizen in Spain, is to understand the impact that taxation will have on a given situation.

The determining factor for the type of taxation applicable, is residential status. A taxpayer considered to be RESIDENT shall be subject to Personal Income Tax (IRPF), whereas a taxpayer considered to be NON-RESIDENT shall be subject to Non-Resident Personal Income Tax (IRNR).

 

 Property Spanish Taxes, Non resident.

 

Therefore, the first factor to decipher is how Spanish regulations establish that a citizen shall be considered to be resident for taxation purposes.

The current Regulations establish that a citizen shall be considered to be resident in Spain, given without distinction any of the following circumstances:

  1. Permanence on Spanish territory for 183 days or more per calendar year. In order to calculate the length of stay, occasional absences are counted, with the exception that fiscal residence in another country is certified. In the case of states or territories classified as tax havens, the Tax Authorities may require proof of residence in the given tax haven during 183 days of the calendar year.

When determining the length of stay, temporary periods in Spain shall not be calculated provided they are due to obligations falling under international agreements, such as cultural o humanitarian entitlements with the Spanish Public Authorities.

  1. Where the main core or base of business or professional activities or financial interests lay in Spain, directly or indirectly. Likewise, in the absence of proof to the contrary, it shall be considered that the taxpayer is resident in Spain if in accordance with the aforementioned criteria, his or her spouse (unless legally separated) or legally dependant children are resident in Spain.

A citizen shall be considered to be resident or non-resident throughout the calendar year, due to transfer of residence not interrupting the taxation period.

Taxation scenarios

From the range of revenue scenarios that could give rise to tax liability, we are only going to explore those that are directly related to the condition of being a property owner in Spain:

Due to owning a property in Spain

Spanish regulations establish that, non-resident taxpayers, owning urban real estate for their personal use on Spanish territory, shall be subject to Non-Resident Personal Income Tax (IRNR) for taxable income corresponding to that property.

Taxable income shall be the resulting amount after applying the corresponding coefficient to the cadastral value of the property (2% as a general rate and 1,1% for revised cadastral values). The cadastral value can be found on your annual Property Tax (IBI) receipt.

This tax should be settled in the calendar year following the date of accrual. For example, the amount payable for the calendar year of 2017, should be paid at the latest by the 31st of December 2018.

The proporcional amount shall be declared if you were not the owner of the property throughout the calendar year, or if during a period of time the property was leased.

Due to Taxable Profits deriving from property sale (capital gains)

Capital gains tax derives from the sale of a property. The taxable profit shall be taken into account as from the moment the property ownership is transferred.

In general terms, the taxable profit shall be established as the difference between the acquisition price and the sale price.

The acquisition price is comprised by the actual price for which the property was acquired, plus any expenses and taxes inherent to acquisition (excluding interest rates) that have been paid.

The transfer value is comprised by the actual price for which the property was sold, minus expenses and taxes inherent to acquisition, paid by the selling party.

The taxation rate applicable to the total amount of profit made shall be 19%.

The purchasing party, whether resident or not, shall be required to retain 3 percent of the total purchase price. This retention is a downpayment on behalf of the selling party for the capital gains tax corresponding to the property ownership transfer. The purchasing party shall provide the selling party with taxation Form 211 (as proof of the aforementioned payment) in order for the selling party to be able to deduct the retained amount from the total amount of taxable profit. If the amount retained proves to be more than the total amount payable, the difference shall be reimbursed.

The payment period is of three months, as from the deadline for the purchasing party to settle the capital gains retention (30 days following the sale date).

Expert advice

When a property is jointly owned, either due to marriage or other reasons, each and every part-owner shall be considered a taxpayer in his or her own right, and must therefore make a separate tax declaration.

At MSG Legal, as highly experienced lawyers specialising in Property Law and in safeguarding your interests when carrying out property purchase and sale transactions in Spain, we are at your disposal to provide you with advice on fiscal liability resulting from the purchase, sale or ownership of a property as a fiscally NON-RESIDENT citizen in Spain.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

Rent to buy in Spain. Smart solution.

In this article we will analyse the rent to buy option. This stands out as an attractive option in the current climate where the Spanish property market is undergoing a freeze (mainly from a financial point of view) for the successful completion of purchase transactions, and with appealing advantages for both parties, the buyer and the seller.

 

Rent to buy in Spain, Costa Blanca

 

Essentially, we are faced with a type of leasing contract that provides the right to occupy a dwelling in exchange for rent, and under this contract as an ancillary provision the landlord  grants the tenant the right to acquire the leased dwelling, the terms and conditions being stipulated by mutual agreement.

This type of contract “Rent to buy,” historically derives from common law (rent to own). In the Spanish legal system there are no specific regulations governing these contracts, but we are faced with; the freedom to agree terms and conditions, regulations governing similar contracts (leasing and option to buy), together with developments in terms of case-law.

Specifically, The Spanish Supreme Court defines ‘rent to buy’ as an agreement whereby one party grants another the exclusive right to decide whether or not the main purchase contract shall be executed, the main features of the contract being:

  • To grant the potential buyer the right to unilaterally decide whether or not to proceed with the purchase option
  • To establish the subject of the agreement (being the leased property)
  • To fix a pre-established price for the future acquisition;
  • and, to determine the timeframe in which the purchase shall take place

The following provisions are accessory elements and may be freely agreed between the parties:

  • To establish a purchase option premium, that is to say an amount for the exclusive right to acquire the leased dwelling which shall be awarded to the landlord by the tenant potential buyer, or by contrast that this right shall be free of charge
  • Likewise, to establish that rental payments shall be considered as a downpayment to the final price, this is also negociable, not only as a totality but also as any percentage that the parties may decide to deduct from the final price

The advantages for the tenant-potential buyer under the let to buy regime would be, among others:

  • To be able to establish a pre-fixed maximum purchase price
  • To be able to decide whether or not to proceed with the purchase (i.e. depending on the fluctuation of market prices)
  • The rental payments are not lost funds
  • To be able to verify the quality and characteristics of the dwelling prior to purchase
  • To be able to get a feel of the neighbourhood and community prior to purchase

For the owner, and as stated in the title of this article ‘rent to buy’ implies the possibility to sell the property in the future whilst obtaining regular revenue (rent).

Expert Advice

Depending on the timeframe established for executing the purchase, together with how the interests of the owner and tenant-potential buyer are protected, it is possible to either agree on a fixed purchase price, or by contrast to choose between a range of formulas to adapt the final price to the period of time stipulated for the purchase to take effect, and the possible fluctuations that may occur within this timeframe to the property market in the area the dwelling is located. The negotiation and inclusion of these kind of provisions in let to buy contracts can lead to significant profits or losses when the purchase-sale goes through.

Appropriate advice from a legal professional with expertise in the field of Property Law can prevent risks when carrying out these kind of transactions, and protect your legal and financial interests, as much for property owners as for tenant-potential buyers.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

 

Claiming Reimbursement for PLUSVALIA, Municipal Capital Gains Tax.

In this article we are going to address the issue of claiming reimbursement for undue Municipal Capital Gains Tax payment, which may and should be claimed by those whom have sold, or transferred ownership of a property within the last four years, given that the sale or transfer price is inferior to the property acquisition price.

 

Claiming Reimbursement for Pluvalia. Spanish Municipal Capital Gains Tax. Costa Blanca Property Lawyers.

 

In February 2017, the Spanish Constitutional Court made a ruling in favor of consumers, in this case with regard to undue revenue charged by City Councils for Municipal Capital Gains Tax (or City Council Taxation on the Increase in Value of Urban Land). The Constitutional Court ruling stipulates that in the case that there is no increase in value on transfer of a property (this is to say that the property is allocated or transferred for less than its acquisition value), the transaction shall be exempt from taxation.

Amongst the claims that can be made when transferring property at a loss, those involving Inheritance or Donation shall also be included.

What is the time limit for claiming Municipal Capital Gains Tax?

The time limit to make a claim is of four years as from the date of the transaction. This is to say that if you paid your MUNICIPAL CAPITAL GAINS TAX during the last four years, you will still be able to claim for reimbursement of undue payments, as long as your transaction resulted in capital loss (i.e., as from the date of publication of this article, you can make a claim for any undue Municipal Capital Gains Tax settled as from March of 2014).

The procedure to be followed to claim reimbursement for Municipal Capital Gains Tax

I.-Filing a formal complaint against the City Council

The complaint should be filed at the corresponding City Council, and must expressly request reimbursement for the undue payment made.

If the complaint is accepted and reimbursement granted, the procedure shall conclude here. If the request is dismissed by the City Council, or they do not respond to it, we should  proceed to the next step.

II.-Administrative Claim or Appeal for Reconsideration

As we mentioned previously, when facing dismissal of our initial complaint to a City Council, we can alternatively choose between the following options:

  • To lodge an Administrative Appeal for Reconsideration before the City Council
  • To make an Economic-Administrative claim before the competent Economic-Administrative Body or Tribunal

In the case that the aforementioned actions are dismissed, no further action may be taken via the administrative channel, then we should initiate a claim for judicial review.

III.-Appeal for Judicial Review before the Supreme Court

There is a maximum time limit of (2) months to make a claim for judicial review before the Supreme Court. (In the event of claims for Municipal Capital Gains Tax resulting from transferal  of property in the Costa Blanca region, the claim should be brought before the TSJ, Tribunal Superior de Justicia   of the region of Valencia.)

Expert Advice

In order to make a claim, it is essential to present the initial public purchase-sale deeds or transfer deeds, and the subsequent sale or transfer documentation, together with the Capital Gains Tax payment receipts.

Likewise, to strengthen accreditation of the declared sale value (Value leading to transferal at a loss), a report by an expert or chartered surveyor should be presented in order to prove the validity of the transfer value at the time of the transaction.

At MSG LEGAL we can provide you with expert advice on how to go about your reimbursement claim for undue payment of Capital Gains Tax, and any appeals the claim may involve. At MSG LEGAL previous to taking action, we always carry out a meticulous feasibility study of every case, on an individual basis.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

 

Purchasing property in Spain with encumbrances (hidden)

When purchasing a property in Spain, and in the case that the property acquired has any hidden encumbrances not mentioned in the Public Deeds, and where the encumbrance in question is of such importance that the buying party would not have purchased the property had he or she been aware of it, it is possible to opt either to claim for the contract to be rescinded, or to claim the corresponding compensation.

 

Propertys with hidden encumbrances Spain. Property Law

 

The time-limit to take the aforementioned action (to rescind or claim compensation) is of one year as from signature of the Public Deeds in the case of claiming to rescind, and of one year as from being informed of the existence of the encumbrance in the case of claiming for compensation.

Types of encumbrances that we may find when purchasing a property:

Properties over which usufruct (or Beneficial Ownership) exists

First of all we must specify that under the Spanish Property Law, Property Ownership is divided into Bare ownership (the right to dispose of the property), and usufruct or Beneficial Ownership (the right to use the property).

We are often faced with this kind of ‘Property Division’ when purchasing properties, mainly due to inheritance procedures.

In such cases, the presence of all owners, both beneficial and bare is required, or for them to have granted specific Power of Attorney (this Power of Attorney should be verified by your lawyer) in order for the property sale to go through to all effects and purposes.

Properties held in Co-ownership-Tenancy

This is when a property belongs indivisibly to various co-owners.

In these cases it is necessary to obtain the unanimity of all co-owners in order to complete the sale. Therefore, if a property held in Tenancy is sold by only one of the co-owners, the sale is radically null and void due to the absence of unanimity of all of the property owners.

Consequently, the sale of a property held in Tenancy (when it is unknown to the buying party that the nature of the property ownership is Tenancy holding), can lead to the contract being rescinded due to contractual noncompliance in detriment to the buying party.

Mortgaged Properties

The purchase of a property with a mortgage secured-loan, has the primary impact that when sold, it is transferred with the existing mortgage lien.

Such property purchases should be dealt with in the following manner:

The buying party should withhold the amount corresponding to the mortgage on the property in order pay it off directly to the financial creditor (or mortgagee) on signature of the deeds. Withholding the mortgaged amount serves as a fundamental guarantee for the buying party, the aim being to pay-off the amount due and to cancel the loan.

In property purchasing proceedings handled by MSG, as part of our conveyancing services, when dealing with properties with mortgage liens MSG will take care of managing payment to the corresponding financial creditor, and subsequent cancellation of the mortgage debt.

Expert Advice

We always evidently recommend that foreign citizens seek the advice of a law firm with expertise in the field of Property Law and Conveyancing when planning to buy or sell a property in Spain. With a correct Conveyancing service carried out by a specialist law firm, any encumbrances on a property that may not appear in the corresponding Land registry records ,will be detected previous to purchase.

In the case that such encumbrances are discovered subsequent to signature of the Public Deeds, a specialist law firm can take the necessary action to defend your interests (whether you wish to rescind the contract, or claim for compensation). This must always be within the legally stipulated time-limit (one calendar year).

At MSG Legal, as experts in Property Law and Conveyancing, specialists in our area of activity, being the Costa Blanca, we are at your disposal to provide you with advice and legal guidance for any property purchasing venture you may decide to embark on.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

Information to be supplied to the purchaser in Advertising campaigns promoting the acquisition of new-build properties.

The purchaser of new-build properties in Spain, is protected by a range of regulations. Particularly by the Consumer and User Protection Legislation, which establishes that the Property Developer is obliged to duly inform the consumer (purchaser), when promoting sales, regarding the features and nature of the property that will be acquired.

Supposing that a property is purchased directly from the Property Developer, and where publicity exists, the handover of a property with features that differ from those initially agreed, constitutes that the Property Developer or selling party is liable for non-compliance.

Information to be supplied in advertising of new-build properties, SPAIN
Therefore, the information provided by the Property Developer to the customer, must be relevant, accurate, and easy to understand. Among other obligations, the sale publicity shall indicate the following:

  • Definition of the building´s features, in terms of its distribution and quality standards. This shall be presented in the form of a scaled plan, in which the property, the layout and the facilities are defined
  • Location or site of the property development
  • Total constructed area and the inside area or effective surface. In the case that there are annexes (Garages, Storage rooms …), the surface area shall be stated on a differentiated basis
  • Detailed building specifications and quality standards
  • Identificación of the Property Developer (Commercial name, official company name, address…)
  • Registry number and expiry date of planning permission
  • The total price of the property including taxes and duties
  • Method of payment
  • Reference to the existence of a legal guarantee, according to which, the downpayment instalments paid by the purchasing party, shall be insured or covered by the Property Developer in case of non-compliance with the contract. In effect, the Property Developer is required to finalise the works with the same features, legal obligations and quality standards that were stated in the advertising campaign used to promote the project. That is to say, the public offer, although the aforementioned conditions were not expressly stated in the private purchase contract

Therefore, when selling off-plan properties, or those under construction, any modification to the so called technical specifications (features and quality standards) offered in promotional leaflets provided to clients with the aim of selling the property in question, shall be considered as non-compliance with the contract.

In the standard process of purchasing a new-build property, during the initial phase in which publicity is available, it is of vital importance to keep all of the documentation provided, in case of  any future requirement to make a claim due to non-compliance by the selling party regarding differences in the initial offer and what is finally delivered.

Expert Advice

If the information provided by the Property Developer only makes reference to the surface area, without specifying whether that surface area corresponds to the total constructed area, or the inside effective surface area, it shall be interpreted that the surface area in question refers to the inside effective area, given that it is a legal requirement to provide this data.

At MSG LEGAL, as experts in the field of Property Law and Conveyencing, we can advise you regarding your consumer rights as the purchasing party of new-build properties, and assist you throughout the purchasing process. Whether from the initial phase, or at a later stage facing the possible need to make a claim due to non-compliance by the selling party or Property Develoer.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

 

Rental of Holiday Apartments in The Costa Blanca area.

In this article we will explain the latest regulations governing holiday apartment rental in the Costa Blanca area.

Here we will approach the issue from the point of view of the Property Owner deciding to commercialise a property as a holiday home, generally by marketing it on specifically focused holiday rental websites, or by choosing to delegate the property management to an intermediary company in charge of marketing it on his or her behalf.

Regulation of the Holiday apartments at the Costa Blanca

 

Under the Spanish Legal System, the power to regulate these kind of rentals has been delegated to the various Autonomous Regional Authorities. Therefore, the rules for Holiday Rentals in the Costa Blanca area are governed by the Regulations laid down by the Authorities of the Region of Valencia, to be more precise, those established under Decree 92/2009, modified in part by Decree 75/2015 which regulate holiday homes denominated apartments, standalone houses, villas and similar, together with the corresponding property management companies, whether legal entities or legal or natural persons.

 

When is letting a property considered  a “Holiday Rental”?

The current legislation (D 92/2009) under Art. 2, defines the concept of a holiday home as one that has been granted to be used for the purpose of tourism, in exchange for payment, and on a REGULAR basis.

As REGULAR it is understood that the property is available rather than occupied, and leasing is carried out by means of:

  • Property Management Companies, including those legal entities and legal or natural persons, whom as part of their profesional activity manage the rental of at least 5 dwellings
  • Property owners themselves, provided that they offer hotel services (for example, cleaning during the stay, linen changing…)
  • Finally, properties are also considered to be holiday homes, and this is the most common situation, when rental is advertised via tourism marketing channels (such as Airbnb, Booking, HomeAway…)

 

Steps to follow for Registry of a holiday home

  • The property must be registered at the corresponding Regional Ministry of Tourism (this is a GENERAL requirement for ALL property owners commercialising short term rentals, including those that only commercialise ONE property and do so personally)
  • The registration request must be made via a statement of compliance at the General Registry for Businesses, Establishments and Professionals in the field of Tourism for the Region of Valencia, addressed to the Municipal Registry for Tourism corresponding to the province where the property is located

In the Province of Alicante, the Municipal Registry for Tourism is located in Calle                       Churruca 29, Alicante. Via the aforementioned request you will be provided with the                corresponding Holiday Home Registry Number

  • As from the date when the Property is registered, it is compulsory then onwards to state the property registry number together with the corresponding category, when launching any kind of advertising campaign. This is even compulsory when advertising or publishing on official tourism websites
  • Owners of holiday homes must assure that the accommodation is maintained in perfect conditions in accordance with the requirements for its category

 

Expert Advice

The regulations in force that govern the commercialisation of holiday apartments do not permit the possibility to rent either one or various rooms separately. Apartments must be rented in their entirety and it is not permitted for the owner to be living in the property when letting.

 

At MSG LEGAL we can advise you on how to regulate and formalise your business relationship with property management companies, in the case you decide to take that route.

We can also provide you with in depth information and advice regarding the range of legal obligations and responsibilities you shall be subject to if you decide to commercialise your property directly.

By way of example, we can assist you with the following transactions (among a multitude of others):

  • Legally established regimes of prices and reservation procedures
  • Legal publicity requirements (Registry Number), offer and management of holiday homes
  • Obtaining and managing complaint forms
  • Handling Guest Books and communication with law enforcement authorities

In the current climate, it is important to take into account that due to significant growth in this field, Public Administration bodies are carrying out campaigns and inspections to detect and  crack down on holiday homes that do not comply with the legal obligations in force. For this reason it is indispensable to seek correct and specialised advice from lawyers with expertise in the field of Property Law.

At MSG LEGAL we can advise and assist you during the entire process of legalising your holiday home, as well as with correctly handling its subsequent use, independently of whether you choose to manage the property personally, or to delegate the task to property management companies.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

NIE. Foreign Identification Number

The Foreign Identification Number, known as a NIE, is a document which is granted to foreign citizens for economic, professional or social reasons connected with Spain. This identification number is personal, exclusive and unique to the applicant, its purpose being for fiscal identification reasons.

It is important to point out that the NIE certificate does NOT enable residency in Spain. A NIE is necessary, as we will explain later, to identify foreign citizens carrying out economic, professional or social activities in Spain.

 

spanish NIE

 

How do you request a NIE?

NIEs requested in this manner are issued on the same day the application is made

  • It is also possible to make an application in Spanish territory by means of appointing a representative with sufficient power of attorney
  • Applications can also be made at one of the Spanish consular offices located in the applicant’s country of residence

Required supporting documents for a NIE application

It is necessary to present the following documentation:

  • Form number EX-15, duly filled in and signed by the applicant
  • Original Passport and full copy of the passport
  • Written communication of the economic, professional or social reasons for making the application, and the corresponding accreditation
  • Proof of payment of the corresponding fees (form 790-012) (The amount payable for the 2017 period is 9.54.-€)

Is it necessary to renew a NIE?

The answer is that NIEs do NOT need to be renewed. Although we must differentiate permanent NIEs from temporary ones.

Permanent. This kind of NIE is for foreign citizens whom intend to reside in Spain for a period exceeding THREE months, and, those citizens must make the application within 90 days as from their arrival to Spain.

Temporary. This kind of NIE is valid for a period of THREE months, and is aimed at foreign citizens residing outside of Spanish territory whom wish to carry out a particular economic or commercial transaction, or professional activity in Spain.

Why is a NIE necessary?

A NIE is indispensable for a wide range of transactions, economic or professional activities and processing of official documentation in Spain. For that reason, it is extremely advisable to make the application as soon as possible. It is the first transaction to be carried out in the case of a possible property purchase in Spain. By way of example we will list some of the transactions and procedures for which a NIE is required throughout the process of CONVEYANCING:

  • To open a bank account
  • To request and sign a mortgage
  • For proceedings at a Notary Public, signature of public deeds
  • For presenting documents at the Land Registry
  • For contracting utility supply companies

Expert Advice

Any public document which is a necessary supporting document or formality to a NIE application, and is issued by a foreign state, must be duly legalised and translated as per the requirements laid down in the factsheets provided by the General Secretariat of State for Immigration and Emigration.

At MSG LEGAL, as experts in the field of Property Law and Conveyancing, and as part of our comprehensive Conveyance service, we will handle the application and obtainment of your NIE from the outset of any real estate transaction you may wish to carry out, sufficiently in advance, so as to assure a successful outcome.

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

Down payment or deposit clauses –arras- in property purchasing contracts in Spain.

When formalising any real estate transaction in Spain, whether acting as the selling or buying party, those involved will usually come across a legally binding concept called an EARNEST MONEY DEPOSIT (or ARRAS)

In this article we are going to explain what legally binding earnest money deposits actually are, the different types of agreements currently valid under the Spanish legal system, and the true consequences they may have in the case of a breach of contract, depending on the clauses chosen.

 

The arras in the spanish transactions

 

Much confusion regarding the meaning of earnest money deposits and their legal implications generally arises from the initial phase of property transactions. This is when we find ourselves faced with signing different binding documents, for example a reservation contract, a provisional purchase agreement, a promise to purchase (in this article we are going to summarise them as reservation contracts). The misuse of the term stems from calling these type of documents down payment or deposit contracts, and given that deposit contracts do not exist as such neither are they recognised by Spanish law nor Spanish case law, earnest money deposits or ‘arras’ are simply possible agreements that can be included in a contract.

More specifically, earnest money deposits are additional clauses to reservation contracts, where both parties agree to the use the down payment or deposit as proof of reservation. This is a guarantee of compliance with the obligations laid down in the reservation contract. The agreement is of a voluntary nature, this is to say that the law does NOT compel the inclusion of these kind of clauses in contracts. Consequently, they should only be included by the free will and mutual agreement of the parties involved, and additionally, we highly recommend, with the assistance of an independent legal professional. Among other reasons, this is in order to assess your particular requirements and to apply the class of down payment agreement that will protect your personal interests.

Under the Spanish Legal System there are three classes of earnest money deposits:

FORFEIT DEPOSITS (ARRAS PENITENCIALES) These kind of deposits are the only ones expressly provided for under Spanish regulations, more concretely, under Article 1454 of the Civil Code. Ultimately, the use of this kind of deposit requires an ‘exit clause’, this is to say a lawful means for either party to unilaterally withdraw from the contract. The implementation of a forfeit deposit clause in a reservation contract (in the case of withdrawal or breach of contract) shall impede the party wishing to proceed with the purchase to be able to go to court to claim fulfilment of the contract. As explained above, this is due to the fact that forfeit deposits are unilateral exit clauses to reservation contracts.

They are the most common clauses found in reservation contracts presented for signature by REAL ESTATE agencies for the majority of property sale transactions, and in many cases, in an incorrect manner. This is either because the clause is not correctly included in the contract, or because it is contradictory to other clauses in the contract.

For this reason, it is absolutely necessary to seek the assistance of an independent legal professional expert in the field Property Law, whom in view of the particularities and requirements of all parties involved, and the purchase conditions in question, will make a correct assessment in order to include the appropriate and correct clause in the reservation contract in question.

The consequences of forfeit deposits are as follows:

  • If the contract is rescinded by the buying party, he or she will lose, to the favour of the selling party, the money paid in concept of an earnest money deposit
  • If the contract is rescinded by the selling party, he or she must return the money received in concept of an earnest money deposit, in duplicate

The other classes of earnest money deposits provided for by the Spanish legal system, and more concretely Spanish case law, are as follows:

CONFIRMATORY DEPOSITS (ARRAS CONFIRMATORIAS) These kind of deposits are considered to be an amount of money given on account of the final price, termination or cancellation of the contract is not allowed.

The distinctive feature of confirmatory deposits is that if no class of deposit is expressly specified in the reservation contract, this one will be applied by default.

PENALTY OR ENFORCEABLE DEPOSITS (ARRAS PENALES) These are included in sale contracts to reinforce compliance. This is to say that if the party paying the deposit breaches the contract, they will lose the amount paid. Furthermore, he or she could be liable for contract enforcement and also face payment for losses and damages. This class of deposit should be mutually agreed and must expressly stipulated in the reservation contract.

Expert advice

If the agreed class of earnest money deposit is not expressly stipulated, a confirmatory deposit will be enforceable.

In the case that both parties intend to apply a forfeit deposit, a clause must be included in the reservation contract clearly stipulating that the intention of the parties is to apply “a forfeit deposit in accordance with the provisions of Art. 1454 of C. Ci.”  and that “the amount payable shall be a down payment of the total sale price stipulated in the contract”.

It is of vital importance to seek appropriate advice from a legal professional with expertise in the field of Property Law before signing any preliminary document to the sale completion (such as a reservation contract, a provisional purchase agreement, a promise to purchase…). This will assure that previous to signature the document is adapted to your actual requirements, and amended in such a manner to guarantee the protection of your interests.

At MSG LEGAL, as lawyers with expertise in the field of Property Law and Conveyancing, we can provide you with our services from the outset of the real estate transaction. Whether you are the buying or the selling party, we will act in your defence, to protect your needs and find the best legal solution for you.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

msg.legal

Selling property in Spain as a non-resident. The buying party’s obligation to retain 3% of the sale price.

Selling property in Spain as a non-resident. The buying party’s obligation to retain 3% of the sale price.

In this article we are going to address the issue of property sale in Spain by non-resident citizens, and the buying party’s obligation to retain 3% of the sale price.

 

Selling property in Spain as a non-resident. The buying party’s obligation to retain 3% of the sale price.

 

Therefore, when a property is sold in Spain by a non-resident, any profit made shall be taxed as Capital Gains against their Non-Resident Income Tax (IRNR).

The gross profit shall be established by calculating the difference between the acquisition price (any expenses and taxes resulting from that acquisition shall be included), and the sale price (any expenses and taxes resulting from the transaction shall be deducted).

The procedure governing the aforementioned 3% retention is established by the Regulations on Non-Resident Income Tax (RD 1576/2006), which provide that:

  1. In cases of real estate transactions concerning property situated in Spanish territory by Non-Resident Income Tax payers, the acquirer shall be obliged to retain and deposit 3% of the agreed price, as an advanced payment against the Non-Resident Income Tax corresponding to the non-resident selling party.
  2. The acquirer shall NOT be obliged to retain and deposit the advanced payment when the selling party provides proof that they are subject to Personal Income Tax via a certificate issued by the competent body of the Inland Revenue (subsequently, we will provide more information on the prerequisites for the certificate, being a fundamental requirement to the entire process)
  3. The party obliged to retain or deposit the advanced payment (the acquirer) must present a declaration before the Delegation or Government Agency of the Inland Revenue corresponding to the area in which the property is located, and pay the retained amount of tax due, on account of the selling party, to the Public Treasury, within a period of one month as from the date of the transaction. Together with the official form nº 211
  4. The taxpayer whom is non-resident in Spanish territory must declare, and settle the definitive Capital gains Tax (the current tax rate in force for EU, Islandic and Norwegian citizens is 19%, and 24% for any other taxpayers), deducting the amount of 3% retained by the acquirer from the amount due, within a period of three months following the sale, together with the official form nº 210.

In the case that the selling party does not make any profit from the sale, the non-resident selling party shall not be liable to pay the tax and can therefore request a refund of the tax withheld              by submitting form nº 212.

If this occurs, the inland revenue will proceed, following the necessary verifications, to refund the taxpayer the excess withheld or payed.

  1. If the above-mentioned amount payable is not retained o settled, the transferred property shall remain liable for payment if the amount settled is lower than the amount withheldor played in advance, and the corresponding tax. The land registrar will record this to that effect in the corresponding registration, stating the amount outstanding on the property.

It is important to indicate that at the time of addressing the issue of whether or not to retain the 3%, that accreditation of residency or non-residency is neither sufficient or valid, neither is proof of being in possession of a residency card or certificate of residency, even a certificate of Fiscal Residence is not sufficient, the only valid document is the certificate that proves subjection to Income Tax in Spain.

In the case that the amount due is NOT payed, the property will remain subject to the outstanding payment. For that reason, the purchasing party should in all cases retain the 3%, which will therefore be reflected in the public deeds, unless the selling party presents a certificate issued by the Inland Revenue providing proof that the transferor is subject to Income Tax in Spain.

Expert Advice

Transferors whom are EU citizens, and furthermore are Non-resident taxpayers, shall not be liable for Capital Gains Tax on the sale, provided that the amount obtained through the sale is reinvested in a main residence.

At MSG LEGAL we can advise you on whether or not there is an obligation to withhold tax for any property purchasing transaction, from your point of view, being either the buying party, or the selling party. We can also handle the preparation and presentation of the various official forms required for settlement or refund of revenue, generated by the property sale procedure to be followed when the selling party is a non-resident citizen.

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

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Brexit. Consequences for British citizens residing in Spain. The importance of the Green Card.

Following the announcement made by the British government to the EU Authorities on the 29th of March 2017, much uncertainty has arisen regarding the consequences withdrawal may cause.

The consequence that most concerns us, and the one that we are going to address in this article, is the impact on British citizens residing in Spain.

 

Brexit. Consequences for British citizens residing in Spain

 

Currently, British Expats residing in Spain have EU citizenship, and therefore enjoy rights to freedom of movement, the free movement of workers and freedom of establishment, across the EU member states.

The UK’s withdrawal will mean that British citizens will no longer enjoy EU citizenship, nor the inherent rights of the EU legal order.

This leaves us facing different hypothesis regarding the consequences that Brexit may hold for British citizens residing in Spain.

Some of most flexible scenarios, in the case of a more tolerant Brexit, supposing that the UK comes to some kind of international or bilateral agreement with Spain, would be as follows:

  • That the right to freedom of movement for British citizens in the EU is protected
  • That this right is maintained but with nuances or limitations

But without a doubt, under our criteria, given that precisely one of the main reasons Brexit triumphed in the UK is due to the existence of freedom movement and residence for European citizens in the UK, the most likely scenario is that of a total or hard Brexit, which would mean the reciprocal loss of the right to freedom of movement and residence for British citizens in the remaining EU member states.

This is the scenario that we are concerned with, and are therefore going to analyse. Would this mean a hypothetical loss of rights for British citizens that are currently legal residents in Spain? In our opinion it is unfeasible that a status of legal residence could be converted into that of an illegal status.

That being, among other reasons, due to the fact that the Spanish regulations in force establish procedures for people to be able to modify their regime of leave to remain, or legal status (for example, modification from the EU regime to a situation of residence and self-employment due to the annulment of a marital link or divorce). Consequently, when the time comes, the Spanish Government will establish the necessary course of action to be taken to modify the residential status of British citizens residing in Spain.

Therefore, it will be possible, on a case by case basis, to initiate legal procedures for modification from EU Legal Status to Foreign Legal Status, with some deadlines and a series of requirements of an economic nature, taking into account the personal circumstances of each and every applicant.

Some practical examples of this kind of procedure are:

  • A British citizen with Spanish family could request an EU residency card
  • A British citizen who has resided in Spain for less than 5 years could request temporary leave to remain, whether non lucrative (without work) or with the right to work
  • A British citizen who has resided in Spain for more than 5 years could request long term leave to remain

And to our understanding, another of the substantial reasons for which British citizens in Spain will maintain their rights after Brexit, will be either due to accession to the European Economic Area (e.g. Norway, Iceland) or due to bilateral agreements (e.g. Switzerland) between the UK and the EU which allow the free movement of their citizens.

 

Expert Advice

In view of the scenario of a hard Brexit, which would entail the loss of the right to freedom of movement for British Citizens, and as we have underlined above, in order to modify your status of residency in Spain (From EU to Non EU), applicants should be legal residents in Spain. That is to say that applicants should have requested and obtained the Certificate of Registration as a European Citizen (Green Card), which is the only (and obligatory) document that certifies residency of the aforementioned British citizens in Spain (please note that the NIE neither grants nor enables residency in Spain). Therefore, the Certificate of Registration as a European Citizen is the only document that certifies your legal residency in Spain, and, is the document that will allow you, if necessary, to modify your status of legal residency in Spain, from EU to Non EU.

Given all of the above, at MSG LEGAL our advice is above all to stay calm, not to take rash decisions (such as proceedings to gain citizenship in other EU countries, sale of property in Spain…) to stay informed via official channels o via Law Firms with expertise in the field, on any specific news affecting the rights of British citizens residing in Spain, and to legalise your residency status (Certificate of Registration as a European Citizen).

 

At MSG LEGAL we are at your disposal for any enquiries you may have on this matter, to advise you on any course of action you should take, and handle the obtainment of the Certificate of Registration as a European Citizen for you, if you so require.

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.

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