I want to invest in a flat in Barcelona

By Cristina Pardo / Carolina Teixido

After the crisis of the euro zone, 2015 was the recovery year in the Spanish real estate sector boosted by a foreign capital investment increase, the US, French and British investors being the most active ones.

The most interesting locations in Spain for the foreign investor are the large capital cities of province, leaded by Madrid and Barcelona. We summarise below some of the most frequently asked questions when taking the decision to purchase.

(i) Can a foreigner acquire a property in Barcelona?

Any natural or legal person legally incorporated in any country may acquire a property in Barcelona, provided that (i) there are no limitations imposed by the authorities of the investor country or (ii) the ordinary controls in relation to money laundering and origin of the funds.

(ii) Which are the requirements for a foreign investor to acquire a property in Barcelona?

The Spanish regulations only require for a foreign investor to acquire a property in Spain the obtaining of a Foreign Identification Number N.I.E., which is a unique and exclusive number.

The Spanish regulations only require (…) the obtaining of a Foreign Identification Number N.I.E. (…)

On the other hand, we must remind that the presence of the investor will not be required in the different stages of the sale purchase, i.e., the investor may grant a power of attorney before a Notary Public in favour of its lawyers or any other person the investor may trust.

(iii) What should a foreign investor check before purchasing a property?

In the sale purchase of real estate, prior to the grant of the relevant sale deed, a private agreement is usually executed between the seller and the purchaser. Such agreement is not mandatory, but it is usual practice as a preliminary step to undertake the initial activities of the transactions.

In any event, before signing such document, the following points should be checked:

• Identity of the person signing for the seller to verify his/her capacity and legal standing.

• Location plans of the property and of the property itself, as well as its description.

• Existence of charges on the property, i.e., to verify if the property has any mortgages or if there is any seizure thereon. To know this circumstance, an informative uncertified extract of the relevant Land Registry shall be requested.

• Owners’ Association fee to verify that the seller is up to date with payments or otherwise the existence of any arrears.

• Statutes of the owners’ association and, if any, its regulations.

• Lease situation of the property to verify if the same is free from occupants and leases.

• Certificate of habitability.

• Energetic efficiency certificate.

• Receipt of the last annual payment of the Property Tax.

• Ten-year insurance, if any.

(iv) What expenses or taxes may arise from the purchase?

Any expenses and taxes resulting from the sale purchase may vary between 12% and 15% of the purchase price.

The main expenses and taxes arisen from the sale purchase are those below:

• For a new flat, the purchaser shall pay 10% of VAT on the sale price and 1.5% as Tax on Property Transfers and Stamp Duties ITP/AJD (in Barcelona).

• If the flat is not a new one, the Tax on Property Transfers (ITP) derived from the sale, whose percentage varies according to each Autonomous Community (in Barcelona, 10% on the purchase price).

• Municipal Capital Gains IIVTNU (at the expense of the seller).

• Notary Public expenses resulting from the sale deed (usually at the expense of the purchaser).
  • Registration expenses with the Land Registry (usually at the expense of the purchaser).

(…) in seasonal leases the lessor does not undertake to provide any ancillary service (…)
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(v) Is there any limitation when leasing a property?

• The property may be operated as usual home, but there are other lease forms much more attractive from an economical point of view in major cities as Barcelona: temporary lease and touristic lease.

• The usual lease: It is the lease on an urban inhabitable house whose purpose is to satisfy the permanent need of the lessee’s home. The minimum term of these contracts is of 3 years, of mandatory fulfilment for the lessor.

• Temporary lease: It is the lease on an inhabitable house, but which is not uncertain as the usual lease, since its purpose is to cover a temporary need of the lessee and the house will not be the lessee’s usual home.

Contrary to touristic leases, in seasonal leases the lessor does not undertake to provide any ancillary service to the lessee. Then, in such cases where the temporary lease may include ancillary services inherent to the hotel sector such as bed linen, towels and/or cleaning services, desk service, etc. it would be classified as touristic lease.

• Touristic lease: The Catalan regulations define houses for touristic use as such houses repeatedly leased for a valuable consideration for a seasonal stay in conditions of immediate availability, since stays shall have a maximum duration of 31 days. Moreover, the touristic rent shall extend to the whole property and shall be offered through touristic offer channels. The property to be leased shall be fitted and equipped ready to be lived with a profit-making purpose.

For leasing a property to tourists, a licence of house of touristic use shall be obtained, which shall require fulfilment of the requirements established by each Autonomous Community.

Additionally to such licence, the investor shall fill in other obligations, such as payment of the tax on stays in touristic establishments of the Generalitat de Cataluña.

Currently, the Town Council of Barcelona has restricted such touristic licenses to certain areas, but if the property acquired has an existing license, the investor may continue with the touristic lease activity.

As temporary leases, the touristic lease is considered as an economic activity in such cases where the lease is continuous over time. In this respect, as in any economic activity, the relevant registration with the appropriate registries shall be required, as well as to perform the corresponding legal obligations.

(vi) How is the lease income taxed?

Pursuant to the domestic regulations, revenues derived, directly or indirectly, from properties located in the Spanish territory are considered as income made in the Spanish territory.

In general terms, the tax base shall consist of the full amount of the income receive from such lease, with no right of expense deduction and excluding the Value Added Tax. However, in the event of taxpayers residing in another Member State of the European Union (EU), Iceland and Norway, the expenses set out in the Personal Income Tax Act (IRPF) may be deducted, provided that they are proven to be directly related to the revenues made in Spain and that they have a direct and inseparable economic link with the activity performed in Spain. These revenues shall be deemed as accrued when demandable by the lessor or on the collection date, if earlier.

The applicable tax rate for the financial year 2017 et seq. is of 19% for EU residents, Iceland and Norway, and of 24% for the rest of countries.

The applicable tax rate for the financial year 2017 et seq. is of 19% for EU residents (…)

If the property is leased only part of the year, the revenues for the months of the lease shall be determined and the proportional part of the taxed income shall be determined for the rest of the year (1.1% of the cadastral value or 2% in the event of reviewed cadastral values).

(vii) How is the transfer of the property taxed?

The transfer of a property in the Spanish territory by a non-resident individual shall result in a profit subject to the Non-Residents Income Tax (IRNR). In general terms, this profit shall be determined by the difference between the transfer value and the acquisition value, in both cases any expenses and taxes inherent to the acquisition, interest excluded, which may have been satisfied by the transferor, being deductible.

The applicable tax rate shall be 19% and its payment shall be made within a term of three months after one month as of the transfer date (accrual date) of the property, by filing the Form 210.

The 3% withholding of the sale price that the acquirer is obliged to apply and pay may be deducted in the tax payment. If this withholding exceeds the resulting tax liability, the transferor may ask for the refund of the excess paid.