On new residential buildings there is VAT (IVA) charged at 8% of the value, plus 1% stamp duty that are paid by the buyer. However, when it comes to urban plots, commercial premises and some garages (not annexed to a home) bought from developing or trading companies, VAT is 18%. On re-sales there is a property transfer tax set at 8%.
In all cases there is a surplus value tax 'plusvalia' (not to be confused with capital gains tax payable by the seller on the profit made when selling the property), which is a municipal tax on the increase in value on the land only. In theory, the 'plusvalia' is paid by the seller, but this may be subject of negotiation between buyer and seller.
Annual Property Taxes
I.B.I. (Impuesto de Bienes Inmuebles)
I.B.I is a real estate tax levied by the local town hall and is usually 0.85% of the cadastral value (valor catastral) of the property. This tax is normally paid in autumn of the year in question, i.e. for 2007 it was paid in October 2007.
Property Income Tax
This is a tax paid for any income the property has had over the past year, generally from renting out. It covers the period starting from Jan. 1st to Dec. 31st. of each year, and is payable during the following year. The income tax rate is 25% and is applied on the taxable base. This base, which is the estimated income, is obtained by multiplying the cadastral value of the property by, in most cases, 2% - sometimes lower.
Property Wealth Tax
Non-Resident private ownership
The non-resident owner of a property in Mallorca / Spain will be taxed yearly on the value of the real estate on account of wealth tax. The base is taxed according to a sliding scale (between 0.20% to 2.5%). The taxable base will be the highest of the following values:
- The catastral value
- The value estimated by the tax authorities
- The purchase price declared on the deed of conveyance
Non-Resident company ownership
When the owner of the property is a non-resident company, a special tax has to be paid yearly. From 1996 the rate applicable has been set at 3% of the cadastral value of the property.
For non-resident owners there are significant benefits to be obtained regarding inheritance tax. Feel free to contact us at MJC Associates, if you would like further information.
Capital Gains Tax
A non-resident seller is subject to a 3% tax withholding on account of any possible capital gains tax. If the seller's liability is less than 3%, the seller can claim it from the tax office. Capital gains tax on the profit of the sale is currently 19%.