Spain has long been a favored destination for those seeking a Mediterranean lifestyle, whether for retirement, investment, or a holiday home. However, buying property in Spain involves specific legal procedures, and it’s essential for foreigners to be aware of these to ensure a smooth and lawful transaction. This article outlines the critical steps and requirements for foreigners looking to purchase property in Spain
Can a foreigner buy property in Spain?
The short answer is yes. Both EU citizens and non-EU nationals can purchase property in Spain. There are no legal restrictions preventing foreigners from acquiring real estate, whether as a residence or an investment. However, it is important to consider certain administrative procedures and tax implications that may vary depending on the buyer’s country of origin.
1. Obtain a Foreign Identification Number (NIE)
The first essential step for any foreigner wishing to buy property in Spain is to obtain a Foreign Identification Number (NIE). This number is required for any financial transaction in the country, such as opening a bank account or signing a purchase contract.
The NIE can be obtained through the Spanish Embassy or Consulate in the buyer’s home country, or in Spain, at the Directorate-General of the Police.
It is important to obtain this number before beginning the purchase process, as it will be required for all steps related to acquiring the property.
Required documentation to obtain the NIE:
- Valid passport.
- EX-15 application form.
- Justification of the reason for the request (in this case, property purchase).
2. Opening a bank account in Spain
Although it is not a legal requirement, opening a bank account in Spain significantly facilitates the purchase process. Payments associated with the purchase, such as taxes and notarial fees, are generally made from a Spanish bank account. This account will be necessary for transactions related to the purchase, such as the payment of the deposit, notary fees, and taxes associated with the acquisition of the property. Additionally, a local bank account also helps manage utility payments after the purchase (water, electricity, etc.).
Each bank may have its own specific requirements for opening an account for a foreign buyer.
3. Earnest money contract (contrato de arras)
Once the buyer has found the desired property, it is common to sign an earnest money contract with the seller. This contract is a preliminary agreement that ensures both parties are committed to the transaction. The earnest money contract outlines the terms of the purchase, including the final price and the date for signing the final contract.
Typically, the buyer pays a deposit (usually between 5% and 10% of the property’s total value) as a sign of commitment. Clauses can be included regarding the return of the deposit in case of breach. For example, if the buyer decides not to proceed with the purchase, they lose the deposit; if the seller withdraws, they must return double the deposit received.
4. Signing the purchase contract before a notary
The next step is to sign the purchase contract before a notary. In Spain, the purchase of real estate must be formalized in a public deed, and the notary ensures that both parties are acting in accordance with the law. The notary also verifies that there are no liens or mortgages on the property that could affect the buyer.
The purchase contract includes key details such as:
- Identification of the parties (buyer and seller).
- Description of the property.
- Price and payment terms.
- Declaration of encumbrances on the property, if any.
Required documentation for signing the deed:
- NIE for both the buyer and seller.
- Documentation proving ownership (previous deed).
- Certificate of payment of local taxes (IBI and homeowners’ association fees).
- Energy efficiency certificate of the property.
5. Registration in the Property Registry
Once the purchase contract is signed, it is essential to register the property in the Property Registry. Although this step is not mandatory, it is highly recommended as it provides legal security to the buyer by ensuring they are officially recognized as the owner of the property. Registering the property guarantees that the buyer’s ownership can be verified by anyone.
The Spanish Mortgage Law regulates the registration of properties, and while failure to register does not invalidate the purchase, the buyer risks third parties claiming rights over the property.
Required documentation for registration:
- Public deed of sale.
- Proof of payment of taxes and fees.
6. Taxes and fees associated with the purchase
One of the key aspects of buying property in Spain is the taxes and fees that the buyer must assume. The main ones include:
- Transfer Tax (Impuesto de Transmisiones Patrimoniales – ITP): This tax applies to the purchase of second-hand properties and ranges from 6% to 10% of the property value, depending on the autonomous community.
- Value Added Tax (VAT): If the property is new (purchased from a developer), VAT is 10% of the property’s value.
- Notary fees: These are the fees for the notary who formalizes the public deed. Typically, they range between 0.5% and 1% of the property’s price.
- Registration fees: These fees are for registering the property in the Property Registry and usually range between 0.1% and 0.2% of the property’s value.
- Management fees: If you hire a gestoría (a service that handles paperwork and administrative tasks), this is another cost to consider.
7. What happens if the buyer applies for a mortgage?
Foreigners also have the option to apply for a mortgage from a Spanish bank to finance the purchase of a property. The requirements for granting a mortgage are similar to those for residents in Spain, although additional guarantees may be required depending on the buyer’s profile and country of origin.
Some banks offer up to 70% of the property’s appraised value for non-residents, while residents may obtain up to 80%. It is important to carefully review the mortgage terms and seek appropriate advice before making a decision.
8. Taxation for non-residents
Foreigners who do not reside in Spain must consider that once the property is purchased, they will be subject to certain annual taxes, such as the Non-Resident Income Tax (IRNR) and the Property Tax (IBI). The IRNR taxes imputed income from the property, even if no actual income is generated, and the IBI is a local tax levied on property ownership.
Summarising, purchasing property in Spain as a foreigner is a relatively straightforward process as long as the proper legal steps are followed and the correct advice is sought. From obtaining the NIE to signing before a notary and paying taxes, each phase is essential to ensure a secure and well-documented purchase. If you are considering buying property in Spain, it is advisable to seek the assistance of a lawyer specializing in real estate law to ensure that the entire process is carried out correctly and in accordance with current regulations.