We will assume that a non-resident intends to buy a property in Mallorca (or else where in Spain) and wishes to control expenses as far as possible. The resident and non-resident pay the same taxes upon purchasing a property. Our property owners have experienced this transaction and know that 7% purchase tax on the declared value, Notary and Land registration fees are paid by the buyer.
In the case of a new building, the purchaser pays 7% VAT on the declared price, 1% stamp duty and also Notary and Land Registration fees. We must take into account that the IVA will differ depending on the purchase of a plot or a building.
So what does the seller pay? The seller pays the so-called “plus valía” tax to the Town Hall in the municipality, where the sold property is situated. Furthermore, the seller is liable to pay capital gains with certain allowances if the property was purchased before 1994.
The question now is: who is in the better position when it comes to selling a resident or non-resident? The differences are substantial: the resident vendor, who sells before a year is over as from purchase date, is liable to pay from 15% up to 45% depending on the income of that year. On the other hand, if the property is sold one year after the purchase date, only 15% capital gains tax is due to be paid.
The non-resident vendor will always pay 35% on capital gains, no matter if a year before or after purchasing. And the buyer will always retain 5% of the declared value on account on the payment of capital gains tax.
So it is clearly more advantageous to sell as a resident – or take another route as a non-resident. In order to decrease the expenses in the sale of a property one of the best options is to set up a Spanish SL company (Limited Company) and purchase the property through this company. If a Ltd. Company sells before a year after the purchase is over, it will get slapped with 40% on capital gains!! But, if it sells one year after the purchase date, it will only pay 15% on capital gains, like a resident, which technically a Spanish SL Company is! The next advantage is: the purchaser will not retain 5% of the declared sales price on account of its capital gains.
A further tax advantage related to the SL Company is when someone inherits a property owned by an SL Company. Then differences between this possibility and possibly inheriting a property owned by a non-resident can be huge depending upon the individual circumstances.
Finally one must point out that it is not always advisable to purchase a property through a Spanish SL Company, it is recommended when 2 circumstances come together: when the property has a value higher than 300.000€ and the purchaser has no intentions whatsoever of becoming a resident in Spain.
Balearic Properties is rightly proud of its team of experts, so please do not hesitate to contact us for further information relating to the subject Spanish SL Company. Alternatively, we collaborate with excellent solicitors whom we can put you in touch and who will also give you best and up to date advice.
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