Buying a property in Spain: stages, taxes, features of the transaction

Real estate sales to foreigners are growing

A prosperous southern country with a rich historical heritage, which accounts for the most Blue Flag beaches in the world, is particularly popular with foreigners. Many of them invest in apartments and villas in local resorts. 

According to research, sales of Spanish real estate to foreign investors have been growing over the past 15 years (with the exception of one quarter during the pandemic), and in the third quarter of 2022 they increased by 68% year-on-year. The most active buyers among non-residents are citizens of Germany and the UK. 

Russians also traditionally occupy a significant share among investors in the square meters of the kingdom. However, after the outbreak of hostilities in Ukraine and the subsequent international sanctions against Russia, Spain became less accessible, both for travel (direct flights were closed) and for investment. 

What has changed for Russians, Belarusians?

1.Many banks today do not open accounts for citizens of Russia and Belarus. However, there are credit institutions that continue to cooperate with clients from both countries, provided that they legally conduct business and can confirm the sources of their income.For example, the BBVA bank.

Note that opening an account is necessary to buy an apartment in Spain. Settlements with the seller will take place through it, and in the future payment of taxes and utilities. Only in rare cases, it is possible to transfer money to the developer from a foreign account. 

2. Some banks imposed restrictions on the replenishment of accounts opened earlier by citizens of Russia and Belarus, which made it difficult to make mortgage and utility payments.However, as market experts emphasize, this happens every year to those who forget to provide financial documents to banks with income declarations!

The key point is that Spanish banks require account holders to submit an annual income declaration. As a rule, it must be prepared in February-March for the previous year. If this condition is met, then there will be no problems with using the account. 

3. Citizens of Russia and Belarus cannot have an amount in excess of 100,000 euros on their accounts in European banks. Thus, if the property is more expensive (that is, in almost 100% of cases), payment to the seller is made fractional within a few days or weeks from the Spanish accounts of both spouses (if the family buys the apartment). In the case of installments, the payment plan is often formed so that each does not exceed the threshold amount. 

4. Russians can transfer from a Russian account in a non-sanctioned bank abroad to their own account or the account of another individual, an amount not exceeding $ 1 million or the equivalent in another currency.

5. Since Spain is included in the list of so-called "countries unfriendly to Russia", payment to the account of an individual or legal entity of Spain can be blocked by a Russian bank, even if the Spanish side approves such a payment, so transfers are first made to a personal account for subsequent settlements with sellers.

What has changed for Ukrainians? 

1. Citizens of Ukraine today cannot transfer funds from their country to pay for real estate in Spain, but they can make a transfer from their accounts in other countries. 

2. It is impossible to get a mortgage if the income is only in UAH.

Algorithm for buying an apartment or a house

Suppose you already know for sure that you want to buy an apartment near the sea in a residential complex under construction with all the infrastructure in Benidorm, a villa in Altea or a nice finished house with a garden in Torrevieja. You told the realtor about the purchase goals and criteria that are important to you, and together with him, online or in person, you considered the options and decided. 

We emphasize that the question of why you are buying real estate is a key one, and it is from the answer to it that the agency will start by selecting objects for your request. For example, real estate can serve as a main dwelling or a second home (to come on vacation sometimes), for renting and earning income, and, finally, for obtaining a "golden visa", that is, a residence permit in Spain, which will give the opportunity to live and work in the country. In the latter case, the cost of the house should be from 500,000 euros. 

So, where to start after the apartment or villa is selected?

Stage 1. Preparation of documents on the origin of funds and sources of income

While still in your country, you need to prepare papers confirming from which sources you received funds for the purchase of real estate, and justification will be required for the entire amount. These can be contracts for the sale of assets (for example, real estate or a car), salary certificates, tax returns, if you are an entrepreneur, statements on receipt of dividends, bank statements on the flow of funds for a year or more, where you can see the transfer of wages or revenue from the business.

This package of documents will need to be submitted to the bank to open an account, as well as to confirm the origin of funds before you make transfers. 

Stage 2. Search for a lawyer and fiscal representative

The notary, who is the guarantor of the transaction, connects to it already at the very end, so it is advisable that at all previous stages, starting from the reservation of the object, an experienced lawyer helps you from a legal point of view. He performs transaction support, verification of documents in the registry, cadastre, verification of developer licenses.The lawyer's services also include tax registration of real estate, tax registration of a foreigner's identification number (NIE), as well as verification of a bank guarantee or insurance for each payment under the contract (which is important!).

When buying ready-made housing, a standard check of the legal purity of the object is required, which is also carried out by a lawyer. The first step for this is to order an extract from the registry (Nota Simple). This can be done in person or online. 

The lawyer's remuneration will be from 0.5% to 1%. As a rule, the agency can recommend a good specialist with whom it has been cooperating for a long time. 

In addition to a lawyer, you will need a fiscal representative - a lawyer or a tax auditor who has the appropriate license. According to Spanish law, the data of this person must be entered in the bill of sale ("escritura"). The fiscal representative checks the taxation of the transaction.    

Stage 3. Reservation agreement. Making an advance payment

After the apartment is selected, a reservation agreement is concluded between the buyer and the developer or owner (Contrato de Arras), and the object is removed from sale. Then an advance payment of 5-10% is made, but usually not less than 5,000 euros.

After the conclusion of the reservation agreement and before signing the main purchase and sale contract, it is necessary to open a bank account, and it is also advisable to immediately obtain an individual tax number (NIE). If the documents confirming the origin of the funds have not been prepared in advance, they should be collected. 

Stage 4. Opening a bank account and NIE 

To open an account in a Spanish bank, you will need a certificate from your place of work, income certificates, an employment contract, a declaration of income for the last 2 years, if you are an entrepreneur, as well as a bank statement on the receipt of wages or other income to your personal account. To transfer money, you will also need a pre-contract of purchase, a reservation agreement or a payment document confirming the payment of the reservation. 

To open an account, the buyer must be present at the bank in person. A power of attorney can be issued for other transactions within the framework of the transaction.  

An individual tax number (NIE) is required for all foreigners buying property in Spain. Without it, non-residents cannot perform legal actions. 

You can apply for a NIE at the police or consulate.

Stage 5. Conclusion of the contract of sale

A contract of sale is concluded between the seller and the buyer – Contrato Privado de Compraventa, in which all the terms of the transaction are spelled out in detail, including the payment schedule. When buying real estate on the primary market, the developer offers an installment plan, the terms of which you negotiate in advance. The size of the initial amount may vary from 20% for large developers to 40% for small regional companies. At the same time, as a rule, it is possible to deposit funds not at a time, but in stages.

If you purchase an apartment in a new building, then, making each payment, you will need to immediately pay 10% tax (VAT).

When buying on the secondary market, there are two optionssettlement: transfer funds from your account to the seller's account or provide checks issued in the bank.

Stage 6. Waiting for the house to be ready and making payments according to the installment plan (for new buildings) 

As a rule, a new building is built for 1-2 years. During this period, you make contributions in accordance with the schedule under the contract and wait for the facility to be ready.

By law, all developers are required to insure the amounts of your payments. If the company goes bankrupt, the insurance amount will be reimbursed to you.

Stage 7. Applying for a mortgage, if necessary

In Spain, a housing loan can be obtained only if the new building has already been commissioned, since only in this case your apartment can become the subject of collateral.

As a rule, buyers apply to the bank with a mortgage application 2-3 months before the completion date of the construction of the facility and the date of the final transaction at the notary. The loan allows you to pay the remaining amount under the contract with borrowed funds.

However, it should be borne in mind that only those who have incomes in euros, dollars, British pounds, dirhams or some other currencies can count on a mortgage.

If the income that you can confirm is in Russian or Belarusian rubles, Ukrainian hryvnia, Kazakhstani tenge, banks will refuse you a loan. 

If you purchase real estate from the owner, a mortgage application can be submitted immediately after opening a bank account.

Stage 8. Signing the bill of sale at the notary

The final document in the transaction is the so-called bill of sale – Escritura Publica de Compraventa. The parties sign the certificate in the presence of a notary, and the notary himself puts his signature on it.

Notary services are paid by the buyer. 

Stage 9. Registration in the registry

From the notary, the bill of sale is sent to the register and immediately entered into the property register, after which the buyer officially becomes the owner of the purchased property.

A notarized copy of the escritura is issued at the notary's office, and after 2-3 months the original is sent from the register. After 1-2 days, you can already get a certificate or an extract of Nota Simple (an analogue of an extract from the EGRN in Russia) with the data of the new owner. 

Stage 10. Acceptance of real estate

After the transaction is concluded, the developer transfers the apartment to the owner. Independently or with a specialist, the buyer checks whether everything is in order and informs if there are any comments.

In practice, the acceptance procedure is sometimes carried out before the transaction at a notary, which is certainly preferable for the client.

Taxes and additional expenses when buying in a new building

The buyer of real estate in a house under construction pays the following taxes:

10% VAT (IVA) 

1.5% stamp duty (AJD) if housing is not basic (accommodation less than 6 months) or 0.1% if housing is basic

Approximately 1.5-2% – registration, notary services

Approximately 0.5-1% – lawyer services  

In total, you should focus on the amount of 12-14% of the value of the property indicated in the bill of sale. 

VAT is paid together with each payment according to the schedule. Stamp duty, notary services and registration fees are paid immediately after the transaction.

Taxes and additional expenses when buying ready-made housing

When purchasing an apartment from the owner, you will pay: 

6-10% real Estate Transfer Tax (ITP). The tax rate is approved by the regional authorities.For example, in Madrid it is 6%, in the Canary Islands 6.5%, and in Andalusia, Valencia, Catalonia and the Balearic Islands 10%. It is paid within 30 days after the transaction (if the object is purchased without a mortgage), but it is better to make this payment earlier so that the registry receives the appropriate mark and issues the original escritura as soon as possible.

Approximately 1.5-2% registration, notary services

Approximately 0.5-1% – lawyer services 

In total, the buyer will pay 12-13% of the value of the property indicated in the bill of sale.

In the case of obtaining a mortgage loan, additional costs arise for mortgage registration, which on average amount to 1-2% of the transaction amount.

Thank you for your help in preparing the article:

Elena Coffeepot, an expert on the sale, construction and investment in real estate SpainLuxInvest

Sources: Spanish Property Insight

Photos: depositphotos.com