Tax on real estate investment: VAT or transfer tax, non-residents and form 210
Nextica Law & Tax resolves the taxation of buying, holding and selling property: whether the deal falls under VAT or transfer tax and when waiving the VAT exemption with the reverse charge is worthwhile, the annual non-resident income tax filing on form 210, the 3% withholding the buyer pays through form 211 when the seller is not resident, and the municipal capital gains tax.
Getting the tax wrong on a property purchase does not cost a fine: it costs a percentage of the price, and it is discovered once the deed is signed.
What's included
1. Classifying each transfer before the deed
whether it falls under value added tax or under transfer tax, which are mutually exclusive and are not a matter of preference.
2. Analysing whether to waive the exemption on second and later supplies, with the formal requirements and the notice to the buyer completed before the deed.
3. Applying the reverse charge where the waiver operates, so that the party declaring is the acquirer and not the transferor.
4. Non-resident owners' obligations
periodic declaration of property income on form 210, and control of the withholding the buyer must pay on form 211 on sale.
5. Calculating the increase in land value by both methods the rule allows and choosing the more favourable one, with evidence of the loss where there is one.
6. Passing on and settling property tax and the current year's municipal charges, with the apportionment between the parties in writing.
7. A calendar for each property, because the municipal, regional and national deadlines of a single deal do not coincide.
THREE DIFFERENT AUTHORITIES OVER THE SAME SQUARE METRE
Municipal, regional and national, with deadlines that do not coincide and a prior classification that decides which of them collects.
Waiving the exemption without meeting the formal requirements
the waiver requires the acquirer's status and reliable notice given before or at the time of supply. Done wrongly, the deal falls under transfer tax, which is not deductible, and on top of that a tax has been charged that was not due.
VAT ActSelling a non-resident's property without handling the withholding
the law requires the buyer to withhold and pay on form 211 on account of the seller's tax, and where they do not, the property itself stands charged with the debt.
consolidated Non-Resident Income Tax ActSettling the increase in land value by the objective method without comparing
the rule also allows it to be calculated on the actual difference between acquisition and transfer value, and there is no automatic refund of the excess where the self-assessment was filed under the first method.
consolidated Local Tax Authorities ActFrequently asked questions
When is it worth waiving the VAT exemption on a property purchase?
When the buyer is a business or professional entitled to deduct input VAT and will use the property for that activity. The waiver turns an exempt transaction —which would be taxed under transfer tax, a non-recoverable cost— into one with deductible VAT, usually under the reverse charge. There are formal requirements to be met before the deed: get them wrong and the right is lost while the cost is already paid.
I am a non-resident and I rent out a flat in Spain. What must I file?
Non-resident income tax on the rental income, through form 210, with the frequency that applies to your case; and if you sell, the buyer is required to withhold 3% of the price and pay it through form 211, which is then credited against your capital gains settlement. The double tax treaty of your country of residence must also be reviewed, because it can change the outcome.
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