Service charges and taxes when buying property in the Balearic Islands

In the context of a real estate acquisition, seller and buyer often pay too little attention to the incidental costs incurred.

Therefore an overview of the most important taxes should be given here.

When buying a property in Ibiza, either a land transfer tax ( ITP) or a Spanish value added tax ( IVA) is payable. If the seller of a second-hand property is a private individual, the buyer must pay a land transfer tax (“ITP”). For some years now, the following progressive tax rates have been in force in Ibiza: Up to a purchase price of €400,000, 8% tax is payable, from €400,000 to €600,000 9%, from €600,000 to €1 million 10% and from €1,000,000 upwards 11%.

If the seller is non-resident in Spain, the buyer is obliged to withhold 3% of the agreed purchase price (so-called “retención”) and pay it as a tax advance payment of the seller to the tax office within 30 days after the notarisation. The retention is paid with tax model 211 (“modelo 211”), which in turn serves the seller who is not tax resident in Spain to declare the capital gain with model 210 (“modelo 210”) within 4 months after notarisation of the purchase contract. Please do not confuse this with modelo 210 of the annual income tax return for non-residents!

If a foreigner is tax resident in Ibiza, he/she must prove this with a current certificate ( certificado de residencia fiscal) from the Spanish tax office. The notary public is obliged to list both the withholding tax ( retención) and the tax residence of the foreigner in the certificate.

Value added tax (“IVA”) is usually only payable on the sale of a property if the seller is an entrepreneur. The following tax rates apply: When purchasing undeveloped land, 21% IVA is incurred, and 10% IVA when purchasing new buildings. In addition to the value-added tax, a stamp duty (“AJD”) of now 1.5 % (previously 1.2 %) also applies. This is also the only real tax law innovation worth mentioning in the Balearic Islands for the year 2020. The “AJD tax” is incurred when registering the most varied notarial deeds. To name just 3 examples: In the case of the declaration of a new building, the dissolution of common property or the creation of a mortgage.

The municipal increment value tax (“plusvalia municipal”) taxes the increase in value of land, i.e. not of the superstructures, since the last transfer. Please do not confuse the plusvalia with the profit tax payable by the seller. By law, the municipal plusvalia is also payable by the seller. However, to avoid misunderstandings between the parties, an explicit provision regarding the burden of plusvalia should be included in the contract. The amount of the tax is determined by municipal statutes and therefore varies from municipality to municipality. It is advisable to have the amount of plusvalia calculated by the responsible municipality before signing the contract. If the seller is non-resident, it is advisable to withhold the amount to be paid from the purchase price, since in case of non-payment the property, and thus ultimately the buyer, is liable.

A final tip: The tax office of the Balearic Islands (“atib”) provides all guarantors online with a program with which one can determine the fiscal value of a property for the subsequent calculation of the land transfer tax. It is sufficient to provide the basic data of the property online (square metres of living space, cadastral value, etc.) to obtain a value.

Here you find the link to this tool: https://www.atib.es/TA/valoraciones/inmuebles.aspx