Case Study: How Should a Foreigner Pay for a Property in Spain? Scenarios, Taxes, and Legal Advice
Buying a property in Spain as a foreigner involves several key considerations, including how to transfer funds, tax implications, and the need for legal guidance. Below, we explore two common scenarios and offer practical recommendations.
Scenario 1: Direct Transfer from Abroad to the Seller
Advantages:
- Speed and simplicity: Enables payment directly from your foreign bank account to the seller or notary in Spain.
- Lower fees: Using services like Wise or Revolut allows for competitive exchange rates and lower fees compared to traditional banks.
Disadvantages:
- Declaration obligation: Transfers over €10,000 require submission of the Modelo S1 to the Spanish Tax Agency to report the incoming funds.
- Source of funds justification: The tax authorities will request documentation proving the money comes from taxed income or legal savings.
- Risk of temporary bank holds: Some Spanish banks may freeze funds coming from abroad until their origin is verified.
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Scenario 2: Transferring Funds to a Spanish Bank Account Before the Purchase
Advantages:
- Greater control and flexibility: Holding a Spanish bank account makes it easier to manage property-related expenses like taxes and utilities.
- Facilitates mortgage approval: Spanish banks usually require a local account to process mortgage applications.
Disadvantages:
- Account opening process: You will need to obtain a Número de Identificación de Extranjero (NIE) and comply with the bank’s requirements, which can take time.
- Declaration obligation: As in the first scenario, transfers over €10,000 must be reported via Modelo S1.
- Possible bank charges: Some banks may apply account maintenance or international transfer fees.
Taxes Associated with Buying Property in Spain
- Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP): For second-hand properties, 7% of the purchase price, in Andalusia.
- VAT (Impuesto sobre el Valor Añadido – IVA): For new properties, 10% of the purchase price.
- Stamp Duty (Impuesto sobre Actos Jurídicos Documentados – AJD): Applies to new properties, typically between 0.5% and 1.5% of the purchase price.
- Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes – IRNR): If you’re not a Spanish resident, you may be liable for this tax, depending on how the property is used and your country of residence.
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Is It Necessary to Hire a Local Lawyer?
While not mandatory, hiring a lawyer specialising in property law is highly advisable—especially for foreign buyers.
Benefits of hiring a local lawyer:
- Comprehensive legal advice: Guides you through the entire purchase process and ensures compliance with local regulations.
- Contract review: Examines all legal documents to safeguard your interests.
- Tax assistance: Helps you file taxes and obtain any required certificates.
Choose a Good Lawyer in Sotogrande
Sotogrande is home to several firms specialising in property law. Contact details are available online.
Key questions to ask your lawyer:
- What experience do you have with international property transactions?
- What services are included in your fees?
- How will you handle tax filings and the NIE process?
- Can you provide references from previous clients?
Conclusion
Buying property in Spain as a foreigner requires careful planning, especially with regard to capital transfers and tax compliance. The support of an experienced local lawyer who handles international transactions simplifies the process considerably and ensures that your interests are protected. We will be happy to send you a list of local law firms.
Our team specialises in assisting international buyers with every process step. Contact us for expert guidance and personalised service.
Charlie +34 607 911 661
Stephanie +34 607 465 383
Email: info@noll-sotogrande.com
Noll Sotogrande Real Estate
We deliver the dream of home-ownership in Sotogrande
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