Spain proposes hefty tax on foreign property buyers

Since the local Spain broke the news that the Spanish government has lodged a draft bill to charge non-EU, non-resident home buyers a 100 percent tax, there have been doubts about how much this tax would truly amount to.

The Socialist government of Pedro Sánchez last week presented a draft law in Congress, confirming what the Spanish premier announced last January: his administration plans to impose a 100 percent tax on property purchases by non-EU, non-resident foreign buyers.

This initiative is part of several fiscal measures aimed at addressing Spain’s housing crisis, specifically targeting third-country nationals such as British and American buyers, much like the cancellation of the golden visa scheme last April.

Understanding the implications of the proposed tax

So how much money does a 100 percent tax actually represent? Some readers have suggested that this tax would be applied to the existing Spanish property tax (ITP or AJD), effectively doubling the amount owed, rather than being calculated solely on the property’s value.

Until recently, the specifics of how the Spanish government intended to implement this tax were unclear. However, the draft bill now elucidates this matter. "The full amount of the tax will be obtained by applying a 100% tax rate to the taxable base," states the new State Complementary Tax on the Transfer of Real Estate to Non-EU Non-Residents.

The taxable base, or base imponible, refers to the property’s value. In this context, the taxable base will be determined as the highest of either the declared value, the market value, or the cadastral reference value.

For instance, if the taxable base of a property in Spain is €100,000, a non-EU, non-resident buyer would effectively pay close to €200,000 due to the 100 percent tax imposed.

Reputable sources, including Spain’s leading daily El País, have reported that non-EU non-residents will indeed be paying double for Spanish properties. Property and legal experts such as Spanish Property Insight and Agusti Asociados corroborate that the tax will apply to the taxable base.

Legislative nuances and potential deductions

According to the draft law, those who pay property transfer tax on second-hand homes (ITP) or stamp duty (AJD) at the regional level will have the opportunity to deduct this amount from the total due. These taxes vary by region, with ITP rates ranging from 6 to 11 percent.

If a non-EU, non-resident purchases a €100,000 second-hand home in the Valencia region, where ITP rates are 10 to 11 percent, they can subtract €10,000 or €11,000 from the €200,000 total. Consequently, they would end up paying €190,000 or €189,000, compared to the €110,000 or €111,000 that Spanish citizens and foreign residents would owe for the same property and taxes.

It is crucial to note that this law has yet to pass and may never do so, considering the ruling Socialists hold a weakened position in the Spanish Congress. Similar skepticism surrounded the golden visa scheme; however, Sánchez’s administration managed to implement a legislative change that ended the residency program for non-EU nationals purchasing properties valued at €500,000 or more.