In the first of a regular column, Patrick Fay of Arteaga Fay looks at tax issues for non-residents.

Property taxes and the non resident

The tax payable on the purchase of the property can be either value added tax at 7% in the case of a first purchase of a dwelling from the promoter of the development or at 16% on the purchase of land or on the first purchase of commercial premises or offices from the promoter.? A stamp duty of 1% may also be payable.? In other cases there is a transfer tax of 7%.???

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An individual non-resident owning property in Spain is liable for income tax even though no income is received.? This theoretical or deemed income is calculated at 1,1% or 2% of the cadastral value, depending on the latest update of this value, and income tax is payable at 24% thereon.?

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An annual wealth tax is also payable, based on the highest of three possible values for the property: the purchase cost, the cadastral value (The cadastral value is an official value established each year by the local authority for local taxation purposes) or the cost as revised by the tax authorities.? Wealth tax is calculated on a sliding scale.? A law presently before parliament could abolish wealth tax with retrospective effect from January 1, 2008.?? These are personal taxes and do not apply if a company owns the property.

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?Where the property is let, the gross rent is subject to a 24% tax without any deduction for expenses.? This applies to both individual owners and to companies owning the property.

Where a non-resident company or individual sells a property, the purchaser is obliged to withhold 3% of the price and pay it over to the tax authorities.? This is considered to be a payment on account of tax at 18% on a possible capital gain that may be due by the seller.? If no tax is due, or the tax is lower than the 3% retention, the amount withheld can be reclaimed.?

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?The seller is also liable for the payment of a local tax on the increase in the value of urban property unless otherwise agreed between the parties.? In the case of a sale by a non-resident, it is the property itself that is responsible for the tax and the amount due will normally be withheld by the buyer.????

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The non-resident?s professional adviser will advise on his tax obligations in each case.? The purchaser should always use his own professionals and not be persuaded to use the same advisers as the seller since a conflict of interest can easily arise in such circumstances.

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