Acquisition of property by non-residents: important issues that must be considered
We take a lot of risks when deciding to buy a property in Spain. If the seller is a non-resident owner, there are specific risks that are usually not taken into account by investors.
A big part of the real estate on the Spanish coast belongs to owners who do not reside in our country and it is usually a house or apartment for holiday. If we buy this real estate to owners who are not residents, we must not forget the need to be cautious to avoid later unexpected problems with the administrations.
The most common risk is the obligation to pay the council tax on the increase in value of urban land (the so-called “plusvalía municipal”). The law provides that this tax should be paid by the seller, and so, the buyer does not usually care about this expense when calculating the total cost of the investment transaction. However, when the seller is not a resident, the law obliges to pay this council tax to the buyer as a substitute of the seller, the one who should be actually required to pay it. This exception to the rule has its own logic, as it tries to avoid that the administration has to prosecute abroad the non-resident sellers who did not pay their taxes voluntarily, because when they sell their property in Spain, they very often do not retain any other property in the country, and, therefore, they are technically insolvent. In this case, the municipality requires the payment of the tax to the party who is closer and this is the buyer.
That is why during the registration of the purchase contract we should require the seller the corresponding provision of funds (or withhold the foreseen amount of the tax from the money that is still owed to the seller for the property). If this exception to the general rule is not considered and no precautions are taken, in the case that the municipality requests that we as buyers pay the tax on the increase in land value because the seller did not pay this tax freely, we will have no choice but to undertake this payment, because, before the Spanish administration, we would be the only one who is obliged to pay. Another thing is that we can claim ourselves afterwards from the seller what we have paid to the municipality, through a civil action against him.
Carlos Prieto Cid
Tarracoiuris Abogados, Spanish Lawyers in Tarragona, Spain
Member of Eurojuris España, international network of Spanish Law Firms
