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

Those who love the beauty of the Balearic Islands are interested in ensuring that they are not urbanised. Apparently, the Balearic legislator and the island administration see it the same way. This makes it more and more difficult to build a property in rural areas (“suelo rustico”) on the Balearic Islands.

While you have to pay high prices per square metre for building land (“suelo urbano”), the prices for undeveloped land in rural areas are more affordable per square metre. However, in order to obtain a building permit, a number of legal and official hurdles have to be overcome. Both the Building Law of the Balearic Islands of 2018 and the Balearic Agricultural Law of 2019 have contributed to the fact that building in rural areas has become much more difficult.

Under the generic term “suelo rustico” one finds a number of differently defined zones. The PTI (Plan Territorial Insular) of the Island Council already lists a number of nature protection zones in which building development is excluded from the outset. In certain zones, a minimum plot size of 50,000 m2 is required. In ordinary rural areas the minimum plot size is 15,000 m2. Only one family house may be built per plot and there are restrictions on the type and nature of the property. A construction method typical for Ibiza is mandatory.

According to the second transitional provision of the Balearic Islands’ agricultural law (Ley 3/2019), the so-called ZAVA zone (“Zonas de alto valor argrario”) must first be defined and limited (“delimitación”). However, such a delimitation in rural areas has not yet taken place on Ibiza, unlike on the neighbouring island of Mallorca. If one interprets the provision of the Agricultural Law, no new building permit may be issued in the rural area of Ibiza until the limitation of the ZAVA zone mentioned in the law has been carried out by the authorities.

In the case of an old building ruin, the first thing to clarify is whether it is even a habitable house. A barn or a stable cannot simply be converted into a residential house. In the case of old buildings, which are often not even in the land registry, the responsible municipality must first of all take a stand on the age and the type of use of the property. Ideally, one receives a municipal age certificate in which the building is described as habitable (“vivienda”). However, if the dilapidated old house does not comply with the current building regulations (“fuera de ordenación”), a project for its reconstruction will fail. In the past, in rural areas, buildings were often built without a building permit and it was hoped that all building infringements would be time-barred after 8 years. Since the new law, however, building sins in rural areas are no longer subject to the statute of limitations and, in addition, the owner is threatened with heavy fines.

There are also two competent authorities for a building application concerning a plot of land in rural areas: One is the building authority of the municipality where the property is located and the other is a building commission of the Ibiza Island Council (Consell Insular). The fact that two authorities check the building application means that the approval procedure can sometimes be lengthy.

Therefore, extreme caution should be taken when buying a rural property for building purposes. On the way to obtaining a building permit, a number of legal and official hurdles must be cleared. Before the planned purchase, it is strongly recommended to consult a specialist.

What is to be taken into account in the notarial declaration of new construction?

Only 30 years ago, there were only a few legal standards for the Spanish declaration of new construction. Conditions for the registration of the notarised declaration of new construction in the land register were hardly to be fulfilled.

An explanation can be found in the fact that there is a principle in the Spanish Civil Code according to which the owner of the property is also the owner of the structures that are firmly connected to it. This ensures that when a plot of land is sold, the ownership of the individual parts of the building is also transferred to the buyer.

As a result, many owners who were afraid of the costs associated with registration in the land register voluntarily waived the registration of new buildings in the past. However, since the 1990s, the new building declaration has been constantly upgraded by law and today there is an independent law in addition to the central government regulations on the Balearic Islands. This means that it is now almost impossible to use a property without registering the declaration of new construction. Especially in recent years, the legal and administrative requirements for the declaration of new construction have become even more difficult. For example, a declaration of new construction is a mandatory requirement for connecting a new building to the public electricity and water network.

In the Balearic Islands, the following documents must be submitted for the certification of a declaration of new construction: the original building permit (licencia de obra), the architect’s certificate with signature attesting that the construction has been completed (certificado final de obra del arquitecto), the GPS location data of the property (datos georeferenciados, in this case a technical architect must prepare a CD-ROM which is handed over to the land registry), the municipality’s certificate of completion of construction (certificado final de obra del Ayuntamiento), the certificate of habitability (cédula de habitabilidad), the licence for initial occupation (licencia de primer ocupación), which must be applied for from the competent municipality once the cedula has been obtained, the building register (libro de edificio), the ten-year insurance policy (seguro decenal) and the energy performance certificate (certificado de eficiencia energética)

The above documents must be presented in original to the notary’s office. The first notarized copy of the deed will be accompanied by certified copies of all documents.  The so-called bulletin (boletin) only gains great importance after the declaration of new construction has been recorded. This is a technical acceptance certificate from established craftsmen, which in turn is a prerequisite for the connection of electricity and water to the public utilities. The notarial certification of a declaration of new construction is taxed with a stamp duty of 1.2% on the value specified in the certificate for the new construction.

A special case is the declaration of a new building under construction (obra nueva en construcción). In this case, an architect confirms that the building permit and the planning documents correspond. The declaration of new construction is then entered in the land register according to the progress of the building (example: 30% of the construction has already been completed and is recorded in the land register). As a rule, this type of declaration of new construction is used for the construction of housing estates.

In summary, it can be said that over the course of time, the requirements for the recording of a declaration of new construction have been constantly extended. It is therefore no longer a simple, voluntary declaration by the owner of a property. Rather, a number of proofs must be provided and conditions fulfilled and the advice of an expert should be consulted for the preparation of the notarial declaration of new construction and its registration in the land registry. Translated with www.DeepL.com/Translator (free version)

Many owners in Ibiza bought their properties years ago at a very low notarially determined purchase price compared to today’s market values. Accordingly, the profit tax incurred on the sale of the property is correspondingly high. However, all those sellers who bought their property before 1994 can claim a reduction of the profit tax.

Before we begin, a few tax-relevant remarks on the sale of property in Ibiza: the tax base for the state profit tax is the difference between the transfer value and the purchase value of the property. The acquisition value is derived from the last notarial deed. This can be a notarial deed of sale, a deed of inheritance or gift or a purchase of company shares. The acquisition value is the amount for which the property was acquired, plus the costs and taxes associated with the purchase.

Typical taxes are “transfer taxes” (abbreviated to “ITP” in Spanish) or inheritance taxes, as well as notary, lawyer and land registry fees. The tax type “ITP” is often referred to as the land transfer tax, but this is actually not quite correct, as the corresponding law also taxes the transfer of movables (such as cars). In principle, all investments made in the property that increase the value of the property can be deducted. An example is the addition of an extra bedroom and bathroom with a municipal building permit. Measures that only serve to make the property more homely (e.g. PVC windows instead of wooden windows) are not recognised by the tax authorities as upgrading.

The transfer value is the amount for which the property is now sold, less the costs and taxes associated with the transfer, which are borne by the seller. These are mainly the municipal increment value tax (so-called “plusvalia”), lawyer’s fees and any broker’s commission that may be incurred.

Until 2006, there was a valuation standard which reduced the profit achieved by 11 % per year from the third year onwards, depending on the number of years elapsed between the acquisition and the transfer. This tax concession continues to exist in the period up to 2006 for all properties acquired before 1994, although a concession limit of €400,000 has been set by the tax legislator.

By way of illustration, a practical case: a non-resident client sells his apartment in Ibiza on 2 September 2019 for €170,000. He had the property on 10 January 1985 for just under €6,000. The seller had had the property renovated 20 years ago, but the corresponding invoices can no longer be found. For the period from 10 January 1985 to 19 January 2006 (21 years) the profit tax can be reduced considerably. The period from 2006 to 2 September 2019 (13 years) is taxed with a profit tax of 19%.
The calculation example then produces the following result: The transfer value is € 170,000. From this amount € 6,000 can be deducted as acquisition value. The basis for calculating the profit tax is therefore an amount of €164,000. Since the reduction rule is applied for the years from 1985 to 2006, the profit tax in our case is only about €12,000, which is a considerable advantage (a difference of €19,000) compared to the full tax rate of 19% (about €31,000). As the case study clearly shows, before offering their property for sale, all owners should have a specialist clarify beforehand how much profit tax is likely to be payable on a sale.

Nowadays many people can make their dream of a property in Ibiza come true.

Thanks to good flight connections, the “isla blanca” can be reached quickly and the sun shines even in winter, when it hardly gets light in the north. No matter if romantic finca, modern luxury villa or simple apartment, Ibiza’s real estate market offers everything your heart desires.

However, once the dream property has been found, one should not switch off one’s critical mind before signing a sales contract. Especially when buying a property in Ibiza, where many people are not familiar with the legislation or the language, you should seek the advice of an independent professional, not the self-proclaimed corner bar owner who has given you the last beer and boasts of 20 years of island experience.

The following is a brief outline of what you should look out for when buying a property in Ibiza: The first thing to check is whether the owner is even registered in the land register.  This may seem strange to some readers, but unlike in other European countries, the purchase of a property in Spain does not necessarily have to be notarised and entered in the land register.

For reasons of legal security, we strongly advise every buyer to choose the path of notarial certification and to have the title of ownership entered in the land register when purchasing a property.

Furthermore, when looking at the land register, one should pay attention to the description of the property. Is my dream finca, for which I pay a lot of money, with everything that belongs to it, listed in the land register? Are the property area, living space, pool, garage, etc. correctly registered? Or is the finca possibly described as dry land with trees and a ruin on it? And are there perhaps only 5,000 m² in the land register instead of 20,000 m² of land? If the entry is not only insignificantly wrong, one should consider whether the seller should not make the time and cost-intensive correction of the entry, if at all possible. Another point that can be clarified by looking at the land register is the question of existing encumbrances. Do rights of way exist in favour of other properties? Will I therefore have to tolerate the neighbour driving over my property in future? Or has a creditor of the seller possibly registered a priority notice in the land register because of a debt? If such entries are not deleted before the notarised deed of sale is signed, the buyer may get into a lot of trouble because he may be held liable. In addition to checking the land register, it is always worth taking a look at the land register. The cadastral office in Spain is a separate register independent of the land register, with the consequence that the entries in both registers often differ from each other. Often, previous owners or – in the case of rural properties – huge original plots of land, which have long since been divided up, are still registered in the cadastre, which can cause difficulties in determining the property boundaries and paying the annual property tax.

Unfortunately, checking the land register and cadastre is not always enough. There are some special features to be taken into account for new buildings. When buying an apartment, it is advisable to clarify whether the seller has always paid his contributions to the condominium owners’ association, as the new owner is liable for any outstanding debts.

In addition to what has been said so far, you should also find out exactly what costs and taxes are incurred in connection with the purchase of a property: Land transfer tax, notary costs, costs for registration in the land register, possibly Plusvalia (municipal increment value tax), to name only the most important.

If you are well informed before buying a property, this is of course never a guarantee that you will not have problems with your dream house at some point. However, the risks can be significantly minimized if you obtain competent legal advice from a lawyer.

In Ibiza, it happens that you are the owner of a property that is largely unregistered in the land registry or cadastral office.

Furthermore, in some cases it is unfortunately not possible to determine exactly where the boundary of a property is. The owners concerned only notice the problem when the property is sold or inherited. Many of these cases of unclear property boundaries and sizes end up in Spanish courts.

In Spain there is on the one hand the cadastral office, which is an authority located at the municipalities, whose main function is to determine all taxes concerning the property, especially the cadastral value. In the cadastral office plans of the properties are deposited, which give however only an approximate idea of the property areas. On the other hand, there is the Land Registry, which is intended to provide legal certainty when buying and selling real estate. In a number of cases, however, the size specifications in the cadastre and the land register do not correspond. In addition, neither the plans nor the size specifications in the plans are legally binding in the cadastral office. In the cadastral plans, the main buildings are listed together with the outbuildings such as garages and the swimming pool. However, the enumeration of the existing areas serves mainly to determine the tax level. The more square metres of living space built on the property, the more property taxes the municipality can charge the owner.

Nor can the owner rely on the fact that the details of his land plot are correctly recorded in the land registry. Although the notarial deeds of sale are forwarded to the Cadastre, it can take weeks before the change is made. If there is a change of ownership in the current year, the property tax receipt (IBI), which is usually payable in late summer, will still be in the name of the old owner.

There are also uncertainties at the land registry regarding the size and boundaries of the property. The property boundaries are often described with outdated details of the names of the property neighbours.

A new law “Ley Hipotecaria y del Catastro”, which came into force on 25 June 2015, is intended to remedy this situation. The data entered in the cadastral and land registry are to be compared. The new law enables the two institutions to exchange data in order to prevent conflicting information about one and the same property in the future. From now on, this should prevent a finca registered in both institutions from remaining without an exact identification of its boundaries, size and location. This legal innovation could be a big step forward for the legal determination of the location and size of properties in Spain.

However, the Association of Goemetriker Experts AEGEX (Asociacion Española de Geometras Expertos) is sceptical whether the new law will provide sufficient legal certainty. According to its president, the new law retains the old scheme of separation between cadastre, the various land registries, notaries and public administration. According to the president of AEGEX, the various institutions would continue to cooperate insufficiently, which would create a high degree of legal uncertainty. As an example, he cites the fact that the plans available to the cadastre are not the work of professional topographers. In practice, any plan submitted by a private individual could be included in the cadastral cartography.

If you want to build and buy a building plot yourself, you are of course interested in clarifying before purchase whether and what may be built on the plot.

In the municipal administrations there is a department for urban development, “Urbanismo”, which is almost always very helpful. There you can ask for the “normas urbanisticas”, the building norms, which specify the exact details of the buildability of the plots of land located in the municipal area, stating the location of the plot.

After making an appointment, the municipal architect will provide information in case of any uncertainties, and above all, whether any changes to the development are planned in the near future. By the way, information in the land register such as “building plot” or similar do not offer any security. These are completely non-binding and do not prevent the local authorities, for example, from declaring such “building plots” as green spaces. Irrespective of this, you should also seek advice from an architect and a lawyer in this connection.

Unfortunately, the responsible local authority does not provide binding information on the admissibility of the building project in the case of a planned purchase of land. At some point in time (every municipality in Ibiza has its own pace) you will receive a reply from the municipality in the form of a certificate from the local authority, the so-called “certificado de calificación urbanistica”; however, you cannot be sure that your subsequent building application will actually be approved. A preliminary inquiry is only informative, but the concrete building project must be approved later.

If the information provided by the municipality is incorrect or if this exceeds its approval competence, the municipality is always obliged to decide the later application for building permission solely in accordance with the actual legal situation, otherwise it would have to approve illegal building projects. Therefore, if one wishes to buy a building plot, it is often an advantage if a valid building permit already exists. If there is no building permit yet, it may be advisable to contractually secure an option on the property, so that the building permit is applied for before the purchase.

If a building permit already exists for the property, you should check whether it is still valid, since building permits are limited in time. If the permit has expired, there may be the possibility of an extension.

A few more words about the taxes that apply when buying a building plot: Here you have to look at the specific case, as in some cases land transfer tax and in other cases VAT has to be paid. This depends on whether a building permit has already been granted and who the seller (private or commercial) is.

In this article we will look at what the owner who wants to sell his property should consider and how he can make it possible for himself and the buyer to make the sale go smoothly.

First of all, the seller must consider whether he wants to use the help of an estate agent or whether he prefers to look for the buyer himself. Most estate agents in Ibiza charge a commission of 5% plus VAT on the purchase price achieved; the brokerage commission is payable by the seller. It is certainly advisable to set out the brokerage agreement in writing. It is rarely advantageous to give an exclusive brokerage contract.

In order to facilitate the sales negotiations with the buyer’s side, it makes sense for the seller to seek out the notarial purchase deed (so-called “escritura”) in advance, for example a notarial purchase deed or inheritance acceptance deed. If this deed cannot be found, one can either apply for a certified copy from the notary who notarised the purchase or apply for a certificate from the competent land registry office, which is also sufficient as proof of the title of ownership.

In addition to the “Escritura”, one should also have a current extract from the land register at hand. From the land register extract you can see who is registered as owner in the land register. It also contains a description of the property (size of the plot, built-up area, etc.), and any encumbrances (mortgage, rights of way, etc.). The seller must be registered at the latest at
Notarization of the purchase proves that the property tax (so-called “Impuestos sobre Bienes Inmuebles = IBI”) has been paid. The “IBI” results in the cadastral reference number and the current cadastral value.

In the case of apartments, the seller must prove that he has no debts to the condominium owners’ association and has always paid his contributions. A buyer may also ask for the certificate of habitability (so-called “cedula de habitabilidad”). This is needed above all for the conclusion of electricity and water contracts. It is always useful to have the “cedula” in the documents. For new buildings the “cedula” should always be presented. In the case of older buildings and existing electricity and water bills, proof of the last bills is sufficient for most buyers.

A well advised buyer will not only check the description of the property in the land register but also in the cadastral office. In the event that the description in the land registry or cadastral office does not correspond to the actual condition, the seller should consider making a correction in the land registry and cadastre for the sake of smooth processing. Especially a buyer who buys with bank financing will insist on a correct registration. Here it depends on the individual case. For the correction in the land register a notarial deed is necessary in any case.
A seller should also always seek advice on tax law before selling a property. As a rule, he or she must pay his or her profit tax and the municipal increment value tax (Plusvalia).
In summary, the following applies to the seller: Before he or she puts his or her property up for sale, he or she should always have a specialist look through the documents in order to ensure that the contract is processed as simply as possible.

Since August 2015, the new EU inheritance law has been in force, which is intended to regulate the entire law of succession in the case of touching inheritance cases in the member states of the EU (except Great Britain, Ireland and Denmark).

One of the most important aspects of the EU inheritance law regulation also affects EU citizens resident in Ibiza. This group of residents in Spain should make a choice of law regarding the applicable law of succession in a will. Those who do not have a permanent residence in Spain do not necessarily have to take action.

Resident EU citizens may have already had a will drawn up in the past by a civil law notary or lawyer and this will contains provisions that should be implemented after their death. Since this summer, however, a decisive change has taken place as a result of the EU inheritance law regulation: The will is no longer subject to the law of the country of origin, but to Spanish law, since the law of succession of the country in which the testator had his last “habitual residence” applies. Since the term “habitual residence” is not defined by law, it must be interpreted in practice. If the testator commutes back and forth between Ibiza and Germany in the years before his or her death, it depends on where the centre of his or her life is. In many cases, the circumstances will indicate Ibiza as the “usual place of residence”. This means that Spanish inheritance law has been in force since August, regardless of whether a will has been drawn up or not.

Spanish inheritance law does not apply to the entire national territory, but is divided into formal rights according to the autonomous region. The law of succession therefore varies greatly in Andalusia, Catalonia or the Balearic Islands. In general, it can be said that according to the legal succession in Spain only the children inherit and the surviving spouse has a right of sneezing. However, in Ibiza and Formentera, formal law does not even allow the surviving spouse to have a right of sneezing! The testator can only dispose of a part of his or her estate, a substantial part of which is governed by the law and cannot be overridden by a will.

Fortunately, the EU inheritance law regulation allows a choice of law. However, you cannot choose any law, but only a law of succession to which the testator has a clear connection.

What does this mean in practice? For almost all EU citizens resident in Ibiza, a will with a choice of law is necessary if one wants to avoid Spanish law being applied in the case of inheritance.

Please also note the new Spanish inheritance tax law: At the beginning of 2015, the discrimination of non-residents in Spain with regard to inheritances and gifts has been legally abolished. Non-residents in Ibiza can now benefit from the tax advantages of the Balearic inheritance and gift law if the property that is part of the estate is located on the Balearic Islands. For 1st order heirs (children, parents), only 1 per cent of inheritance tax is payable, and 7 per cent of gift tax is payable for gifts. In addition, 1st order heirs who have paid too much inheritance tax in previous years can apply for a refund of inheritance tax at the relevant tax office in Madrid.

For all those who are interested in buying a property in Spain and especially in the Balearic Islands, buying a new building could be an interesting option.

In the following we will point out the most important points that a buyer should pay attention to when buying a new building.

Already the question of who is the seller should be considered. If it is a building contractor, it is advisable to check the solvency of the company. If you make a down payment and the building contractor goes bankrupt before signing the notarial deed of sale, you can only assert your claim in the insolvency proceedings.

In the case of apartments, it should first be clarified whether the notarial declaration of division (“división horizontal”) is already available. In the case of apartment buildings with several units, the purchase of a single apartment is only possible after the declaration of division has been made. In addition to the declaration of division, the following should also be submitted
the new building declaration before a notary (“declaración de obra nueva”) and the building approval by the municipality (“final de obra”) are already available.

One of the most important documents when purchasing a new building is the certificate of habitability, the so-called “cédula de habitabilidad”. The cédula de habitabilidad is issued in Ibiza by the island council, the Consell Insular, and is valid for 10 years. Without this document, neither electricity nor water contracts can be concluded with the utility companies.

Anyone who purchases a new building can therefore ask the seller for the relevant certificate. Property developers should not sell until the cédula is available. If the certificate of habitability is not yet available when the notarial deed of sale is concluded, the purchaser should at least impose a contractual obligation on the developer to produce this certificate at his own expense within a period to be determined.

In order to get the electricity and water connection, one needs the certificate of habitability as well as the certificates of the technical installations, the so-called “boletines de instalación” for electricity and water. When buying a new building, the “Seguro decenal” should also be available at the latest when signing the notarial deed of sale.
This is an insurance policy that the seller must take out to cover defects in the building. The insurance is valid for 10 years. In the contract of sale, it should also be noted that the municipal increment value tax, so-called “Plusvalia” must be borne by the building contractor, as this is often not negligible.

A value added tax of 10 % applies to new buildings when a private person is acquired from the contractor. It should be noted that 1.2% stamp duty is payable in addition to the value-added tax, so that a total of 11.2% tax is due. The payment of VAT replaces the otherwise usual land transfer tax of at least 8% of the notarial purchase price.

In summary, it can be said that the buyer of a new building must observe the following in the contract: The costs for the new building declaration, as well as the costs for the procurement of the official certificates for the utilities, the certificate of habitability and the value-added tax of the municipality are at the expense and cost of the seller.

At least once a year, the co-owners of a residential complex in Ibiza meet for the ordinary owners’ meeting to decide on the income and expenditure of the owners’ association, among other things.

The president is the legal representative of the community; he is the leader of the community and is responsible for convening the meeting. Each owner has the right to vote at the meeting, provided that he or she is not in arrears with payments to the community.

All owners, including defaulting co-owners, have the right to speak.  The list of debtors is sent as an attachment to the invitations. Meetings must be held in Spanish, unless all owners agree to hold the meeting in another language. Usual items on the agenda of the owners’ meeting are the greeting and determination of the owners present or represented who are eligible to vote, the report of the President, the adoption of resolutions concerning the income and expenses of the community, the election or confirmation of the Board of Directors, other matters of concern to the owners.

In order to ensure the proper conduct of the owners’ meeting, the president of the community should ensure that the items on the agenda are dealt with briefly and objectively and that legally enforceable resolutions are passed which cannot be easily challenged in court. The President is usually assisted at the meeting by an administrator (“administrador”), a community lawyer and an interpreter. The aim of the administrator and the lawyer is to mediate in the event of disagreement between the co-owners and to reach solutions acceptable to the majority

Resolutions of the owners’ meeting require either unanimity (example: amendment of the statutes), a 3/5 majority or a simple majority (adoption of internal house rules), depending on the matter under discussion. For the latter two majorities, so-called double majority is required: A majority of the total number of owners and at the same time a quota majority (there is a “quota” for each housing unit, which is recorded in the land registry).

The secretary of the owners’ association should actually draw up the minutes of the owners’ meeting, but in practice this task is often performed by the administrator. The minutes must be written in Spanish so that it can be noted in the minutes book. For communities with many foreign owners, the minutes are often translated into German, English or French. The minutes do not have to reflect literally the course of the meeting with all the contributions to the discussion, but are mainly used to record the resolutions. The following points should not be missing in the minutes: Place and date of the meeting, first or second call, the names of the owners present and represented, the details of the defaulting debtors who are not entitled to vote, all the items on the agenda and the respective results of the votes (“for, against, abstentions”) and the exact wording of the resolutions. It is essential that the resolutions are written down in full. If the minutes do not accurately reflect the resolutions of the meeting, some owners will object and try to challenge the minutes. An objection addressed to the community administration has no legal effect. If the resolutions violate the statutes, the law or are in conflict with the interests of the community, the owner can appeal against them in the courts. A lawyer is required to bring an action for annulment, although it should be noted that the time limits for appeal are very short. Translated with www.DeepL.com/Translator (free version)

When preparing for the purchase or sale of a property, it is often found that the entries in the land register and the cadastre do not match and, moreover, both registers do not necessarily reflect the actual condition of the property.

In the “Registro de la Propiedad”, the Spanish land register, all contracts and rights are registered which are connected with real estates.

Entries in the land register enjoy the protection of good faith in their accuracy and have legal effect against third parties. Responsible is always the land registry office in whose district the property is located.

Notarial, enforceable, judicial and other state documents can be registered. Agreements in private writing cannot be registered. It is not mandatory that the change of ownership must be registered at the land registry. Nevertheless, registration is strongly recommended. The protection of good faith can be of practical importance, for example, in the case of a double sale: if a seller sells his apartment on the Balearic Islands with a private written agreement and transfers ownership to the buyer, the buyer becomes the new owner. If the seller subsequently sells the apartment a second time, the second buyer is protected as the owner if, unaware of the first sale, he or she achieves registration of his or her right in the Land Registry and the first buyer was not registered for his or her part.

Good faith does not extend to the description and size of the property. If the purchase price has been determined independently of the size of the plot, the buyer has no rights against the seller in the event of a discrepancy. Of course, the situation is different if the size of the plot of land has been expressly made the subject matter of the contract by the parties.

The cadastre is a register administration which is under the control of the Ministry of Economy and Finance ( Ministerio de Economia y Hacienda) and in which the descriptions and plans of the real estate are entered. The tasks of the cadastral office are mainly in the topographical area.

Both registers are independent of each other and a comparison of the data has only taken place sporadically in the past, with the result that in many cases the data in both registers do not match. Since 1996, notaries and land registrars have been legally obliged for the first time to include the cadastral reference (“referencia catastral”) in deeds and land registers. This is done by the parties to the contract presenting the notary with the last land tax document from which the cadastral designation is derived. In 2002, Spain received a modern cadastral law and the information from the land registry and cadastral office is now being increasingly aligned.

For historical reasons, the sizes of the plots of land stated in the notarised purchase contracts are often not correct. The only way to determine the actual size of the property is to have it surveyed by a private topographical surveyor.

In the following cases, which are listed as examples, it is advisable to seek advice from a specialist:

If there are border problems with the neighbours and no agreement is reached on how the border should actually be drawn, then legal proceedings, a so-called “expediente de deslinde” must be initiated.

If a plot of land is not registered, there is a judicial procedure, called “expediente de dominio”, to determine the rightful owner.

Another possibility is to carry out a notarial ascertainment procedure to determine the position of the owner. If one wishes to correct the size of the land plot entered in the land register, this correction can be made with a notarial deed and on the basis of the description of the land registry office.

The tourist rental of private houses has been made much easier by a law passed by the Balearic Government in 2012.

Homeowners in Ibiza and Formentera who meet all the criteria laid down in the law will now be able to obtain permission to rent detached houses to tourists more easily and quickly.

The competent authority for granting tourist rental licences is the Island Council (Consell Insular).

A homeowner can submit an application to the Ibiza Island Council and, when the application is submitted, receives a provisional permit, i.e. the house can already be rented. If it later turns out that the conditions for the granting of a permit are not met and the final permit is not granted, the tourist rental is of course no longer permitted.

Here are the most important requirements for the granting of a licence:

– in principle, only one single-family house per plot can be rented for tourism, but under no circumstances apartments or apartment blocks

– only a rental contract with a maximum term of 2 months may be concluded, otherwise it is no longer a tourist rental

– the property must not have more than 6 bedrooms and a maximum of 12 sleeping places and must be equipped with at least one bathroom for 3 places each.

– Furthermore, the property owner must guarantee certain services to the tenant: Among other things, the rental property must be cleaned regularly, bed linen and towels must be provided. Also the house should be regularly maintained and there must be someone available for the tenant 24 hours a day.

Together with the application the owner must submit a number of documents to the Island Council. In addition to proof of ownership (e.g. through a current extract from the land register), a map of the house and a plan of the interior rooms and the layout of the rooms are required. The applicant or an authorised expert must also submit copies of the owner’s ID and tax number (NIE), as well as proof of payment of property tax (IBI).

If these details are incorrect or incomplete, the licence will not be granted and the provisional licence will be revoked.

The income from the rental must of course be taxed and VAT must be paid. On the pure letting 21 % value added tax is due. If services are offered that go beyond mere letting, a different VAT rate may be applicable.

It is advisable to seek advice from an expert regarding the authorisation procedure and the exact conditions as well as the taxes that apply.

If you are planning to rent your property in Ibiza for the summer, you are advised to apply for the permit as soon as possible.

This is a question most owners of property in Ibiza and the Balearic Islands would like to have answered.

Unfortunately the answer is not so easy to find. In the case of a sale or inheritance of a property, the valuation of the property is of vital importance, because the value of the property as stated in the notary deed is the basis for the calculation of both land transfer taxes and inheritance taxes.

There are several starting points for determining the value of a property: One reference point is the purchase price declared in the notary deed at that time. However, this is often no longer current.
A glance at the current property tax document of the property provides information about the cadastral value. Within the framework of the taxation of real estate with the real estate tax (so-called “IBI”), the municipal administrations evaluate each property located in their municipal territory with the so-called “Valor catastral”, the cadastral value. This value serves as the basis for calculating the real estate tax, for determining the “true value” in the case of inheritances and for calculating the municipal plusvalia tax (“Gemeindliche Wertzuwachssteuer”). This means that the cadastral values must be constantly updated by the municipalities. Currently, the cadastral value is adjusted to the market value in all municipalities at different speeds. Unfortunately, the Balearic Islands do not have the same system of calculation as Catalonia, where the administration has tables of land values based on the cadastral value on the one hand and on a coefficient worked out for each town on the other. These tables are used for the calculation of the land transfer tax, for the sale of land and for inheritance tax, so that the taxpayer can obtain accurate information on the valuation of his property from the authorities.

What guidelines does the Balearic Tax Authority give to taxpayers to enable them to calculate a value that will subsequently remain unobjected?
The tax authority provides a methodology on its website that can be used as an indicative calculation basis:
http://www.atib.es/TA/valoraciones/inmuebles.aspx
On the mentioned website you can enter the key data of the property to be valued: The cadastral value, the age, the location and the square footage of the property. At the end of the process you will receive a valuation of the property.

However, this calculation is not binding for the tax authorities and is only a way to arrive at a valuation that approximates the “true” value of the property. The taxpayer still has the option of having the current value of the property determined by an expert opinion. Such appraisals are prepared on the basis of comparison parameters: For comparison purposes, sales prices in similar locations and of properties of similar size and quality are used.

In summary, it can be said that the value determined by the taxpayer for the notarial deed can be checked by the tax authorities at any time. The tax authorities have the right to review at any time and can make their own assessment and therefore always have the last word. In practice, the taxpayer is left with two methods of valuation: firstly, the calculation of the value based on the website of the Balearic Islands Tax Authorities, and secondly, the commissioning of an external valuation report.

If a resident or non-resident sells their Spanish property in Ibiza, this may mean that they have made a capital gain and a capital appreciation, both of which are taxable.

In principle, the seller is subject to the municipal capital gains tax (“Plusvalía municipal”), unless otherwise agreed between buyer and seller.

However, according to the latest case law, such an agreement is only valid under certain conditions. In addition, the seller must pay tax on the capital gain from the sale of his or her real estate between the time of purchase and sale (“state capital gains tax”) if he or she receives a financial benefit as a result.

This is treated as income in the Income Tax Act (IRPF) and added to his or her other income.

This means that a distinction must be made between two completely different taxes when taxing the appreciation or capital gains of real estate:

– The state income tax, which taxes the capital gains of land and – if any – buildings constructed on it

– The municipal ‘Plusvalia’, which taxes the increase in value of urban land without taking existing buildings into account

As a result of the tax concessions for acquisitions made before 31 December 1986, the longer the acquisition is made, the lower the tax on the capital gain. In the case of Plusvalia, on the other hand, the longer the transferor was the owner of the property, the higher the tax is, whereby only the last twenty years are taken into account.

Spanish (state) profit tax

With regard to the state profit tax, a distinction must be made between residents and non-residents. For non-residents in the Balearic Islands, the current tax rate on capital gains has been a uniform 19% since the beginning of 2016.

If a non-resident transfers a property located in the Balearic Islands, the buyer is obliged to withhold an amount equal to 3% of the notarised purchase price and pay it to the tax office within one month of the notarisation of the purchase contract using the appropriate form in the seller’s favour, and then hand over the corresponding proof to the seller. If the seller has not made a profit on the sale, the tax office will reimburse the seller on request the amount paid in or a partial amount after deduction of possible tax debts.

Municipal Capital Gains Tax – “Plusvalía municipal

As a general rule, any transfer of urban land subject to property tax (IBI) is taxed with the tax on the increase in value of urban land, the “Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana”, colloquially called Plusvalia.
The tax is based on the increase in value of urban land.

This means that when you buy a built-up plot of land, buildings are not included, only the land itself. The tax is based on the actual increase in value during the last twenty years before the transfer. The calculation of the exact amount of the Plusvalia tax prepared by the municipal administration is based on the so-called “Valor catastral”, the cadastral value. The cadastral value can be taken from the respective property tax assessment of the previous year.

The notaries are obliged to provide the competent municipal administration with a list of all public deeds they have notarised, insofar as these contain legal transactions relevant to the Plusvalía tax.  Without the corresponding application of the buyer or seller side to the municipality for the calculation of the Plusvalia, the competent land registry office will not register the new owner at present.

If the seller of the real estate is a non-resident, the municipality can apply directly to the buyer of the real estate when collecting the Plusvalía tax. As a result of this legal situation, municipalities can hold the purchaser liable, even if the purchaser was not explicitly obliged to pay the tax in the notarised deed of purchase.

Already at the end of 2012, the Spanish government decided to update the databases of the Spanish land registry office.

The owner of a property on the Balearic Islands was thus given the opportunity to update his registration in the Spanish land registry without incurring a fine.

This regulation of the land register is therefore also called a kind of cadastral amnesty.

For the municipalities in which the properties updated in the cadastre are located, the regulation means additional income, as the cadastral value of the properties increases due to the regulation and this cadastral value is the basis for the calculation of the property tax ( IBI ) and the municipal capital gains tax ( Plusvalia ).

Even before the state regulatory measure, the property owner was obliged to notify the Cadastral Office within 2 months of any changes to the property due to conversions or extensions, and to update the cadastral value in this way. Otherwise, a fine of up to € 6,000 is to be expected. However, the regulation of the cadastre does not automatically apply throughout Spain, but is limited to those municipalities that have been officially designated.  In the municipalities of San Josep and San Antonio the regulation was already completed last year, in the municipalities of Santa Eulalia, San Joan and Ibiza City it is still in progress.

The owner of the property can either submit a regulation proposal on his own initiative or the land registry office can request the owner to do so ex officio. After the regulation, a fee of 60€ per property is due, as well as an additional payment of the property tax for the last 4 years calculated on the basis of the increased cadastral value. In order to initiate the procedure voluntarily, the owner must enclose plans and building descriptions by an expert in addition to the relevant forms (Form 902-N).  Only legally built properties can be updated in the cadastral office. Those buildings that violate building regulations are generally excluded from the regulation. Something different applies in cases where the building law violation has already become statute-barred and thus there is protection of existing buildings.

The regulation of the land registry office does not extend to the Spanish land registry (“Registro de la Propiedad”). However, it is advisable to have the square metres not previously recorded in the land registry registered. Such a correction of the land registry office is done by a notarial new building declaration, the so-called “Declaración de obra nueva”. The purpose of this declaration is to have the buildings erected on the property or the extensions or conversions made to it entered in the land register with a precise description and indication of their value. The registration is carried out on the basis of a declaration of new construction to be submitted to the notary and recorded by him in a public deed.  The new building is subject to stamp duty in the amount of 1.2 % of the certified value.

The declaration of new construction is of legal significance, for example, if the registration of a usufruct cannot be made because it is not clear from the land register that a building exists. The declaration of new construction is also of great practical importance if the purchase of real estate is financed by a mortgage. The buyer usually only receives a loan from a Spanish bank if the entries of the house to be encumbered are correctly noted in the land register.
In summary, cadastral regulation offers many property owners in Ibiza and the Balearic Islands an excellent opportunity to update their property in both the cadastre and the land register.

When recovering debts in Spain, the creditor should always try to settle the matter with the debtor out of court, as court proceedings in Spain are often lengthy, labour-intensive and costly.

Therefore, in practice, about 90% of all disputes are settled out of court, only in about 10% of cases the involvement of courts is necessary.

In a first extrajudicial step, the creditor can put his debtor in default.  A debtor is requested to pay by means of a request for payment by registered mail (or by a so-called “Burofax”, a special form of registered mail) with a reasonable deadline and is in default after the deadline has expired.
Should legal proceedings become necessary, the Spanish
Civil Procedure Code (Zivilprozessordnung), the court will be preceded by an order for payment procedure. Up to a maximum amount of 30,000 €, monetary debts due can be asserted in a simplified dunning procedure.

The prerequisite for the legal dunning procedure is that the claim is a due monetary claim. In the application, the amount claimed must be specifically quantified. The dunning request must be filed with the court of the debtor’s domicile. An order signed by the debtor, invoices, proof of delivery or other documents documenting the existence of the claim must be submitted.

There is no obligation to hire a lawyer for the dunning procedure. However, the procedure is
experience has shown that the involvement of a lawyer considerably simplifies matters for the creditor. This begins with the determination of the address of the competent court and the submission of the dunning letter to the court. If the application fulfils all requirements, the court will send the debtor a demand for payment with the request to pay the claim or to file an objection within 20 working days.

If the debtor lodges an objection, the dunning procedure leads to ordinary legal proceedings.  If the debtor does not raise an objection, an enforcement order is issued ex officio, against which no further appeal is possible. The experience with the judicial dunning procedure is quite positive for undisputed claims in Spain. Only in a small proportion of cases is the transition to legal action necessary.

Should it become necessary to assert the claim in court, only one procedure through the ordinary legal channels (“Juicio Ordinario”) is available. All essential documents must be submitted in the original. Furthermore, the appointed lawyer needs a detailed Spanish notarial power of attorney.
The duration of the proceedings varies extremely from court to court, even within the same Spanish province. However, a minimum duration of 1 to 2 years must always be expected.

After court fees were abolished for some years, court fees were reintroduced for most procedural acts 2 years ago. Currently, however, court fees for natural persons have been abolished again (as of March 2016)!
The lawyer’s fees for court proceedings are based on the amount in dispute. The Spanish bar associations prescribe minimum fees. In addition to the lawyer’s fee, the fees of the trial agent (“procurador”) are also payable. According to the Spanish Code of Civil Procedure, the procurador is responsible for filing the claim, which he must sign alongside the lawyer. In addition to the timely submission of the pleadings prepared by the lawyer, the procurador’s duties include the acceptance of summonses and notifications from the court.

In summary, the creditor should first of all endeavour to pursue the claim out of court before the court action is taken. The dunning procedure is particularly suitable for the assertion of lower claims, the recovery of which would be too costly by legal action. A lawyer should already be involved in the dunning procedure, as he or she is familiar with the strict formalities of the application procedure and any subsequent legal action.

1. as the buyer, obtain proof of the seller’s right of ownership of the property by presenting his notarised contract of sale ( Escritura Publica de Compraventa) or a recent extract from the land registry ( Registro de la Propiedad).

Furthermore, check whether the entry of the development in the land register corresponds with the details of the land registry ( Catastro).

2 Before making any written agreements with the seller, check the following points concerning the property:

If you are buying a plot of land with a house, make sure that the property has been built with a municipal building permit. Many people confuse the entry in the land register with the approval situation of the property in question at the municipal building authority.  Even if a house has been entered in the land register, from the point of view of the municipality it is only a legally constructed building if there is a corresponding municipal building permit and building inspection.
Have the last water and electricity bills and the certificate of habitability (cedula de habitabilidad) presented to you and make sure that there will be no problems with the water and electricity supply.
Check that the actual size of the property is the same as the size entered in the land register
Is the owner alone entitled to dispose of the property or does the consent of the spouse need to be obtained to make the contract valid?
Check all encumbrances resulting from the extract from the land register
Are there any tax liabilities that burden the property? In particular, proof of payment of the property tax (IBI – Impusto sobre Bienes Inmuebles) for the last few years should be provided. In this way, you will also know the amount of property tax to be paid in the future.
If the real estate object is subject to the Condominium Act, demand proof that the seller is not in arrears with the payment of the levies (certificate from the president of the owners’ association)

3. insist on the drafting of individual agreements within the framework of a private-written sales contract.  Have even seemingly minor assurances confirmed in writing by your contractual partner.  Form contracts, on the other hand, only cause confusion between the contracting parties, which can then lead to discussions during the notarisation process before the Spanish notary. One of the main functions of the Spanish notary public is to guarantee the buyer an unencumbered property purchase. However, his task is not to provide legal advice to the buyer or seller. The notary public certifies rather within the legal framework of what the contracting parties stipulate. It is therefore advisable to consult an expert advisor even in cases that at first glance appear simple. His fee amounts to only a fraction of the damage which can be caused by a contract which is unfavourable for one of the contracting parties.

4. insist as a buyer on the prompt notarisation of a notarial purchase contract and your entry as owner in the land register, even if instalment payments have been agreed.

5. if you purchase from the developer in instalments a property under construction that has not yet been completed, the seller must provide proof that insurance or a bank guarantee has been taken out in respect of the payment of instalments.

6. find out about the taxes and costs associated with the purchase of a property. Roughly speaking the additional costs such as notary, land registry and lawyer are about 3 to 4% of the notarial purchase price. In addition, there is either land transfer tax (in the Balearic Islands, progressive from 8% to 11% depending on the purchase price) or value added tax (10% for new buildings or 21% for commercial properties plus the stamp duty of 1.2% in each case).

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.

With the acquisition of a real estate on the Balearic Islands either a land transfer tax ( ITP ) or a Spanish value added tax ( IVA ) is due.

If the seller of a used property is a private person, the buyer has to pay a land transfer tax ( ITP).

For some years now, the following progressive tax rates have been in force on the Balearic Islands: 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 on the Balearic Islands, 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 will find the link to this tool: https://www.atib.es/TA/valoraciones/inmuebles.aspx

Succession planning is one of the main concerns of many property owners in the Balearic Islands.

The contract of inheritance (“pacto sucesorio”) is an interesting instrument for regulating the transfer of property within the family, as the contract of inheritance can be structured as an anticipated inheritance for tax purposes. Parts of the inheritance can thus be distributed to the heirs during their lifetime by means of a contract.

However, the inheritance contract is only permitted in certain autonomous regions of Spain, including Aragon, the Basque Country, Galicia, Catalonia and above all the Balearic Islands.

The will, unlike the contract of inheritance, is a unilateral document which depends solely on the will of the signatory. If he or she changes his or her mind, he or she can always draw up a new will which cancels the previous last will and testament. The contract of inheritance, on the other hand, is a contract and depends on the will of all the parties and is usually irrevocable.
The contract of inheritance may provide that assets (real estate, shares, etc.) are to be transferred during the lifetime of the deceased. Therefore, this form of inheritance contract is also called an anticipated inheritance (“adelantado de la herencia”).

The following points must be observed when concluding the inheritance contract: The contracting parties must be related. From a tax perspective, the ideal constellation is that of direct relatives (parents, children). The inheritance contract must be notarised. If one of the signatories is Spanish, he must have lived on the Balearic Islands for at least 10 years. In this context one speaks of the civil law territoriality (“vecindad civil”).

For non-residents, it depends on whether the inheritance contract is also regulated by law in their home country. This is the case, for example, in German civil law, so that German citizens can have an inheritance contract notarised in the Balearic Islands.
There are a number of tax advantages that are applicable after the conclusion of the inheritance contract. When a property on the Balearic Islands is transferred by inheritance contract, direct relatives up to a value of €700,000 only have to pay 1% inheritance tax, whereas a normal gift would be subject to 7% gift tax.

According to the highest court jurisdiction, the inheritance contract is equated to inheritance, so that no profit tax is payable here within the framework of income tax (so-called “plusvalia del muerto”). As a rule, the municipal tax on capital gains (“plusvalia municipal”) provides a 95% bonificación for inheritances, which means that only 5% of the total plusvalia taxes are payable. In this case, however, the respective municipal ordinance applies in each individual case. In practice, certain municipalities on the Balearic Islands apply the bonificación only to residents, but not to non-residents. Those persons who already pay wealth tax can reduce their wealth tax by transferring assets through the inheritance contract. Wealth tax is applied to assets of €700,000 or more.

Example case:
A resident homeowner, who has lived on the Balearic Islands for 30 years, transfers to his son, who lives in Germany, a property located in Sta. Eulalia with a value of € 500,000 by way of an inheritance contract. The father has net assets of 3 million euros. The inheritance tax is 1% after deduction of the tax-free amount of 25,000 €.

Since the son is non-resident on the Balearic Islands, the inheritance contract has to be taxed in Madrid. As a rule, there should be a 95% reduction on the municipal plusvalia tax. The father does not have to pay tax on any profits and he can reduce the annual property tax by several thousand euros.

This case study clearly illustrates that tax money can be saved in the end by timely design and advice.

If the notary asks you at the notarial appointment for a property purchase in Mallorca, which matrimonial property regime has your outside of Spain marriage and he mentions with a questioning look, among other things, the community of property (“comunidad de bienes)”, then you are perhaps tempted to nod in agreement, because after all, you have no separation of property (“separación de bienes”) agreed and the term community of property seems to fit.

However, the matrimonial property regime is a pitfall that is often underestimated in practice.

After decades of marriage, many couples are obviously unaware of which matrimonial property regime they actually chose when they got married.

If the marriage was not contracted in Spain, the spouses’ home law normally governs the matrimonial property regime. It should be mentioned here that there are current legal efforts at EU level to strengthen cooperation in the area of matrimonial property regimes. Regulation 2016/1103 is intended to contribute to closer cooperation, for example in the areas of jurisdiction, applicable law and the recognition and enforcement of decisions in matrimonial property regimes. The Regulation was published in the Official Journal of the EU on 8 July 2016 and must be applied by the participating Member States from 29 January 2019.

Coming back to the situation described at the beginning of the notary appointment, the following matrimonial property regimes can be distinguished: Separation of property and community of property are the two extreme points of the matrimonial property regime. The community of property unifies the assets of the spouses, i.e. the assets of both spouses merge upon marriage; the separation of property has the opposite effect, i.e. a strict separation of the spouses’ assets. In Germany, for example, these two matrimonial property regimes must be notarised by a marriage contract.

Between them, according to German law, lies the statutory matrimonial property regime, the so-called community of gainful employment, which is described in the Spanish notarial deed as follows: “separación de bienes con participación en las ganancias”. In the case of the “Zugewinngemeinschaft” (community of gains), the assets are basically separated and only the gains acquired after the marriage are to be compensated. Thus, in the case of the profit-sharing community, the spouses manage their assets independently, however, if the marriage is terminated by divorce or death of one of the spouses, the gain is to be balanced. The consequence of this regulation is that if one spouse enters into a contractual obligation, the other spouse is not necessarily bound by it.

If only one spouse is present at the signing of the notarial deed in Mallorca and he signs exclusively in his own name and he has erroneously nodded in agreement at the mention of the words “comunidad de bienes” (community of property), then it has happened in the past that the Spanish notary public had to assume in the deed that the signing and the not present spouse acquire equal shares of ownership of the property in Mallorca. This then had the consequence that both spouses are registered in the land registry as owners.

The spouse signing alone naturally assumed that the house is in his sole ownership and he can appear alone before the notary when selling. If he wants to sell the house later without the other spouse, the Spanish notary will point out to him that he is not the sole owner of the property and that the consent of the spouse is required. The mistake can have very unpleasant and costly legal consequences: If in the meantime the divorce is carried out and if the person who signed the purchase alone, in ignorance of the actual ownership of the house in Mallorca is not affected by the divorce proceedings, he will have to buy the necessary consent to the sale possibly expensive. If the consent is denied, then it may be necessary to sue for annulment of the co-ownership community (“extinción de condominio”).

The registration of a lifelong usufruct right in the land registry is a capital protection strategy quite often chosen in practice by property owners in Ibiza to reduce the high tax burden.

A classic case study provides for the parents to acquire the property directly in their children’s name or to transfer the property to them and grant themselves a lifelong usufructuary right.

Whether the creation of a usufructuary right makes sense must be examined in each individual case. Here the basics of the lifelong usufruct right in Spain should be explained.

The lifelong usufruct right is called “usufructo vitalicio” in Spanish and it is a right of use in rem, which is regulated in the Spanish Código Civil. The usufruct embodies the right secured in the land register to be able to use a foreign object permanently. Even if the usufructo can be limited in time, the practical meaning is lifelong usufruct. Through proper order, the children become “naked or bare owners” (“nuda propiedad”) of the property. The parents are the usufructuaries (“usufructuario”) and receive lifelong ownership and use of the property.

For this reason, the lifelong usufructuary right makes sense above all in a family context, where there is a clear difference in age between the “naked” owner and the usufructuary.  The parents as usufructuaries know that they can use the property until the end of their lives. At the same time, however, the children already own the property now and will only take over the use of the property themselves after the death of their parents. At the death of the parents, the property does not fall into de estate and a notarial acceptance of inheritance in Spain will then usually not be necessary (unless there are other assets). One should know, however, that even a usufruct right is seizable (the right of residence, “derecho de habitación”, however, not) and the nießbrauchsberechtigte parents who have transferred the “bare property” to their children before, can no longer sell freely, and they are thus dependent on their own children.

Because the usufructuary holds a position similar to that of owner, the legislator imposed on him the full cost of the property. He must keep the property in good condition, pay all running costs (electricity, water, owner’s charges) including taxes (property taxes, garbage fees), but conversely he can also rent out the property at any time and collect the rents, in contrast to a pure right of abode (“derecho de habitación”), which only entitles to own use. The “naked” owner (“nuda propiedad”) has the obligation to pay the investments which preserve the substance of the property:
For example, if the roof needs to be renovated due to water permeability.

The order of usufruct is taxable, but reduces the tax burden. The lifelong usufruct can have a maximum value of 70% and no less than 10% of the property. The highest value of 70% is for usufructuaries under 20 years of age and the lowest of 10% for usufructuaries over 79 years of age. This means that from the age of 20 the value of the usufruct decreases by one percentage point every year. It can therefore be calculated using the formula: usufruct = 89 minus age of the usufructuary.

The value of the usufruct for a usufructuary of 64 years of age is thus, for example, 25% of the total value of the property (89 – 64 = 25). Consequently, this means that in this case the property has a value of 75%.

The Island Council of Ibiza has further tightened the conditions for building projects in rural areas in the current development plan (“PTI”) by amending the law at the end of 2016, after the Legislative Decree 1/2016 of the Balearic Government came into force in Palma, Mallorca, at the beginning of 2016, which among other things amended the Land Law of the Balearic Islands.

This decree (“decreto ley”) from Palma merely suspends the application of the existing regulations.

The reason given for this is the urgency to prevent irreversible situations. The suspension of the application of certain regulations is only provisional, until the corresponding final regulations are issued.  The government has set a deadline of the end of 2017.

The amnesty that has been in place since March 2014 for so-called illegal construction on rural land (suelo rustico) was thus also lifted for Ibiza in January 2016. Previously submitted documents have since been processed further, provided that all the necessary documents were submitted to the responsible municipality in time. The situation is different for building applications in the protected area of special interest, the so-called ANEI zone (Areas naturales de especial interes), where the decree has a retroactive effect of 3 months. This means that a building application for a real estate project in the ANEI zone was only processed by the municipality if it had been submitted three months before the decree law came into force.

Since the beginning of 2016 the old status quo has thus been restored in Ibiza: illegally constructed buildings can no longer be challenged because of the time that has passed, but this does not make them legal. However, if the properties are located in a nature reserve and the buildings were erected after February 1991, the authorities can intervene at any time and order their demolition in individual cases.

On 30th November 2016, the Ibiza Island Council, as explained above, further tightened the conditions for building in rural areas with changes to the development plan (“PTI”). According to the amendment to the law published in the Official Gazette, the aim is to put an end to property speculation in rural areas in Ibiza and to protect specially protected areas from massive development.

The following cornerstones of the amendment to the development plan in Ibiza should be emphasised:

– The volume of construction on normal rural land (“suelo rustico comun”) for detached houses will be reduced. The upper limit is now 320 square metres, which includes the annexes. Only one swimming pool may be built per family home; the size of the water surface may not exceed 35 square metres.

– General halt to construction in the Red Natura 2000, SRP-ARIP (nature reserves in unique locations), SRP-APR (fire-prone zones) and SRC-F (forested zones) nature reserves.

– No single-family houses may be built on land parcelled after November 1, 2016, unless the parcelling was due to a gift between parents and children or an inheritance among family members. This is to prevent excessive parcelling and building on land.

– All fencing must be adapted to nature and must not be higher than one meter.

– All construction projects of buildings in rural areas must provide a rainwater collection basin of at least 15,000 litres.

The question of whether the change in the development plan should also be applied to building applications already submitted remains unresolved. For example, the law’s transitional provision (“Disposicion transitoria”) states that the changes do not apply to building applications for which complete documentation is already available (“documentacion completa”). Does the “complete documentation” mean that it must be available when the municipality forwards the building file to the Island Council? Or can the Island Council decide until it issues its final report (“informe favorable del Consell”) whether a building file contains the complete documentation? In the context of the application of this standard, there will always be questions that can only be solved by interpreting the legal regulation.

The following article describes the legal framework and consequences of construction and conversion of real estate in the Balearic Islands.

1. the building contract
Spanish law assigns the construction contract to the work contracts. There are different types of construction contracts:

Either the owner develops his land himself and uses an architect, building contractor and building craftsman or a developer builds a property on his land to sell it later. If the developer sells the property to finance the construction project even before construction begins, this is known as buying property according to the construction plan. If he sells the property after completion, it is called turnkey construction (“llave en mano”).

The content of construction contracts can be freely agreed by the parties. It is not unusual in the Balearic Islands for contracts for the construction of detached houses or for major conversion or renovation work to be concluded verbally without a specification. Often the building contract is also awarded on the basis of a more or less precise estimate.
In order to avoid later disputes, however, a lawyer should always be called in to check the building contracts when a building contract is concluded. Do not accept a global construction contract, but ask the architect for a list of the individual trades (preparation of the building, sanitary facilities or painting). Construction work should not be carried out without a fixed written price agreement. In practice, however, instead of a fixed price, it is often stipulated that the contractor receives a percentage of the construction sum (for example 15%) as a wage.

2. the execution of construction work
The parties involved in the construction are:
– the first lead architect, who has drawn up the construction plans and specifications and construction plans. He is the one who starts and completes the construction.
– the second technical architect (the so-called “aparejador”), who is responsible for the concrete construction supervision and technical monitoring.
– the building contractor, who is responsible for the execution of the construction.
– the developer (“promotor”), who acquires an undeveloped land plot in order to build on it.

When the work is finished, the architect issues a certificate that the construction is finally completed (“certificación final de obra”).

This document is a prerequisite for the so-called certificate of habitability (“cédula de habilitad”), which is issued by the Consell de Mallorca (Island Council). Subsequently, the responsible municipality issues the licence for the first-time habitability of the property (“licencia de primera ocupacion”).

3. submission of a new building declaration
The so-called “Declaración de obra nueva”, the declaration of new construction, is about having the buildings erected on the property or the extensions or conversions carried out registered in the land register with a precise description and indication of their value.
The registration is carried out on the basis of a declaration of new construction to be submitted to the notary public and recorded by him in a public deed. The land registry must be informed of the existence of a new building. The new building is subject to a document tax of 1.2 %, which is calculated on the basis of its value according to notarisation.

The declaration of new construction is of legal significance if the entry of the building located on the property in the land register is a necessary prerequisite for subsequent entries. For example, the registration of a usufructuary right cannot be made if it is not clear from the land register that a building exists.

The declaration of a new building, however, has above all a great practical significance if the acquisition of real estate is financed by a mortgage. The buyer receives a mortgage from a Spanish bank only if the entries of the house to be encumbered in the land register are correct, i.e. in particular if the declaration of new construction is entered in the land register.

Before buying a property in Ibiza there are many things to consider and check: From the building permit to the existing encumbrances in the land register to the payment of the corresponding taxes etc.

The importance of the first occupation permit ( licencia de primera ocupacion) and the certificate of habitability ( cedula de habitabilidad) is often underestimated by both the seller and the buyer.

In Ibiza, the first occupation permit is issued by the municipality responsible for the first occupation and use of a property. However, this is the case regardless of whether the property is a new construction or whether the existing property has been altered or enlarged. In the second case, a first-time occupancy permit must therefore be issued again by the authorities.

The first-time occupancy permit should not be confused with the certificate of habitability (“cedula de habitabilidad”). There is often the mistaken view that this is a document that is only required for the completion of a new building. The “cedula” is a document issued in Ibiza by the Consell Insular (Island Council). It proves that a building used for residential purposes meets the minimum requirements in terms of size, technical installations and sanitary facilities. The “cedula” thus fulfils a state control function, which can already be seen from the fact that water and electricity connections in new buildings may only be installed if the “cedula” is present.

But even if the “cedula” existed at an earlier point in time and the connections exist, one has to know that this has a duration of only 10 years and is not automatically extended by the authorities. Depending on the individual case, the property falls into one of three different “cedula” categories:

-The “cedula” at first occupation (“cedula de primera ocupacion”) is always necessary when a building is completed for the first time or when parts of it have been added. In addition to proof of ownership (current excerpt from the land register), plans and photographs signed by an architect, including cadastral data, must be submitted to the Island Council. Furthermore, the building permit and the certificate of completion ( certificado final de obra) of the architect and the municipality must be submitted.

-The “cedula”, which is issued in case of an extension (“cedula de renovacion”), must be applied for after ten years. In this case, a current extract from the land register, a site plan signed and dated by the architect, with the cadastral office data and photographs of the property must be submitted to the authorities. Through the certificate of renewal, the authority has the opportunity to review properties that may have been altered in the last ten years without a building permit.

-A negative certificate (“cedula de carencia”) can only be applied for if the property in question was built before 1 March 1987. Here too, a recent extract from the land register must be presented to the authorities as proof of ownership, together with photographs and a site plan. However, in contrast to the other two cedula applications, it is sufficient to present a certificate (“certificado de situacion urbanistica”) which shows that the building was completed before 1 March 1987 and that no structural changes have been made to the property since then.

As can be seen, the extension of an expired “cedula” is particularly important for the planned sale. The existence of a currently valid “cedula” is also a prerequisite for obtaining the commercial tourist licence to rent out private houses in Ibiza.

When buying a “second-hand” property, the buyer should always bear in mind that the entry of a new building in the land registry does not necessarily mean that the “cedula” and the first occupation permit are also available. The notary is not obliged to require the presentation of the permission for first occupation and the “cedula” when the declaration of a new building is made for an already existing property. Therefore, when buying a property in Ibiza, always insist on presenting these documents and check what you are buying.

The new regulations on holiday rentals were published in the Official Gazette of the Balearic Islands by the Balearic Government at the end of July 2017. Until now, only the tourist marketing of detached houses has been permitted in Ibiza. The letting of flats, apartments or terraced houses to holidaymakers takes place in the legal grey zone and was not previously provided for in the Balearic legislation. With the new legislation, apartments and terraced houses can, in certain cases and subject to certain conditions, be granted a tourist rental licence, but infringements are liable to heavy fines.

However, the question of which properties can be rented out for tourism in the future can only be answered in part in a year’s time. First of all, there is a one-year moratorium. Initially, the Island Council (Consell) and the responsible municipalities are to be granted a period of up to one year to decide in which zones properties may be rented out to holidaymakers. Only then will new licences be issued. This means that since the end of July, the Ibiza Island Council has no longer accepted any applications to obtain a tourist rental licence in the case of detached houses. And since the tourist marketing of apartments has not been permitted until now, there can be no official licenses for apartments in Ibiza.

Therefore, at the moment the following differentiations must be made:
Properties that have already been registered with the Island Council can still be rented normally. Owners of detached houses who have received a licence for tourist rental from the Consell in recent years will practically not be affected, as the changes are minor. However, there is a large number of licences applied for, which still have to be processed and approved by the Island Council. If the examination reveals that the property does not have the required certificate of habitability (cedula de habitabilidad) or has non-legalisable annexes, the authority may refuse a licence and the application will be cancelled retroactively.

Apartments located in multi-family houses can be rented out to tourists in the future under certain conditions: First of all, one must wait for the zoning by the Town Halls and the Island Council. The authorities will determine in which areas tourist rentals will be possible and what quotas are available for this. In addition, requirements will be set for quality and technical equipment. It should be emphasised that in the case of communities of owners, the majority of owners must give their consent to tourist rentals at the owners’ meeting. A further innovation of the regulations is that owners can leave their otherwise self-used apartment to holidaymakers for a maximum of 60 days per year.

Seasonal rentals, applying the Spanish Rental Law (“LAU”), are made more difficult by the Balearic Islands Tourism Law: according to the law of the Balearic Islands, the accommodation of tenants for a period of less than one month is considered tourist rental. Therefore, every landlord must either have a registration number for tourist rentals from the Island Council in the future or prove that the tenants’ stay of less than one month did not serve a tourist purpose. Although a seasonal rental contract has been drawn up in accordance with the rental law, the owner is not allowed to market the property through portals such as Airbnb or Homeaway. Otherwise he is liable to fines of up to €40,000 and the authorities may order the temporary cessation of the business. In the catalogue of fines, a distinction must be made between a fine of up to €4,000 for simple offences (“sancion leve”) and a fine of €4,001 to €40,000 for serious offences (“sancion grave”). For particularly serious offences (“sancion muy grave”), the law even provides for fines of up to € 400,000.

Tenants do not have to deal with Spanish tenancy law in Ibiza only when the termination of the rental contract is imminent, but already with typical questions such as repair costs, rent increases or the assumption of additional costs.

The Spanish rental law dates from 1994 and was reformed four years ago.

Since June 2013, Spain has introduced a number of changes to its tenancy law, which are intended to make it more flexible and create incentives in the housing market. For example, the minimum term of rental contracts has been reduced from 5 years to 3 years.

No form is prescribed for the tenancy agreement, but for reasons of proof one should insist on a written contract. It is advisable to state in the lease not only the exact address and number of square metres of the property, but also its cadastral reference number.

Tenants cannot avoid paying a deposit. As a rule, a deposit of two months’ rent is required. The deposit cannot be offset against the rent. For example, a tenant cannot stop paying the remaining rent two months before the end of the contract with reference to the deposit paid at the beginning.

Spanish tenancy law does not recognise a tenancy of indefinite duration. This would limit the owner’s right of ownership too much. Unlimited contracts are considered to be concluded for one year; since June 2013, long-term rental contracts have been valid for terms of up to three years. In the case of an implied contract term of three years, where neither the tenant nor the landlord terminates the lease, the tenant has the right to stay for an additional year. According to the law, anyone wishing to terminate in the case of an annual extension must give at least 30 days’ notice. The tenant or landlord is required to provide proof of receipt of the notice of termination. Therefore, it is essential to have the receipt of the notice of termination acknowledged or to send the notice of termination as a so-called “Burofax”, a court-proof registered letter.

In Spain, unlike many places in Northern Europe, no distinction is made between cold and warm rentals. The tenant pays electricity, gas and water depending on consumption. Other costs such as gardener, swimming pool or insurance have to be distinguished from this. The landlord can only pass on the additional costs to the tenant if this has been expressly agreed in the rental agreement. This also applies to the annual property tax (so-called “IBI”), which the landlord in Ibiza is happy to pass on to the tenant.

A further point of discussion is the so-called inflation compensation. The landlord can set an annual adjustment to the inflation rate in the contract. This is based on the most recently published annual index of consumer prices (so-called “IPC”).

Any repairs that may be necessary also create a potential for conflict. In Spain, it is distinguished whether a repair serves the maintenance of the property or the preservation of habitability. In the latter case, the landlord is in the obligation. In practice, however, the regulation is not so clear: if, for example, the boiler breaks down, then tenant and landlord would have to come to an agreement.

Tenants are urgently warned against reducing rent payments due to damage without consultation (keyword rent reduction). According to the Spanish law, the tenant has indeed a claim for damages, but if the tenant reduces the rent independently or even stops the rent payment completely, he runs the risk that the landlord will file an action for eviction and also sue for the outstanding rent.

The landlord can declare own use and terminate the lease prematurely. This only applies if the tenant is given at least two months’ notice and at least one year has passed since the conclusion of the contract.

Shortly before the turn of the year 2017/2018, the new Balearic Islands Planning and Land Use Law (Ley Urbanistica de las Islas Baleares, “LUIB”) was published in the Official Gazette (“BOIB”). The most important innovations are presented here.

The regulations, which came into force on January 1, 2018, replace a body of legislation from the previous government. With the new law, the amnesty for illegal construction in the countryside, which the current government in the Balearic Islands had already put on ice two years ago with a provisional regulation, will be definitively put on hold. The owner of a building project is threatened with sometimes draconian fines in the event of building offences under the new building code. In extreme cases, fines of up to 300 percent of the value of an illegal construction project can be imposed on unauthorized construction projects in rural areas. Fines can also amount to up to 100 percent of the value of an illegal construction project on building land.

Since in the past many owners have sat out demolition orders for years, from 2018 there will be fines for the delay of demolition orders. The law stipulates monthly penalties of ten percent of the value of the building project as a fine if demolition is demonstrably delayed. For example, if the construction project has a fixed value of €50,000, the authorities can impose monthly fines of €5,000. In addition, the new regulations grant the responsible building authorities of the municipalities and the Island Council a period of 15 years for future cases in order to allow illegal development to be demolished.
Civil servants and public persons can also be held accountable for the case, if they allow proceedings to become statute-barred or fines not to be enforced. Here, too, there are corresponding fines according to the value of the building project.

Probably the most important innovation of the Building Code, however, concerns the statute of limitations for building offences in agricultural land (does not apply to building land). According to the new legal situation, building offences in rural areas are no longer statute-barred after 8 years as was previously the case, and the authorities can order the demolition of the illegal property at any time, even after 8 years have elapsed. This means that a sword of Damocles hangs over every type of illegal construction in agricultural land that was started on or after 1 January 2018. The authorities here use the corresponding chronologically ordered aerial photographs as evidence.
Up to now, as mentioned above, building infringements in agricultural land have been time-barred within 8 years of the end of the building project, unless the responsible building authorities took action, i.e. did not send the owner either a fine notice or a demolition order.  A statute of limitations for construction offences in agricultural land was only excluded in nature reserves (in landscape protection areas such as the “ANEI zone”), now construction offences are no longer statute-barred even in “normal” Argraland (“suelo rustico comun”).

Although the owner can still have his property, which was built without a municipal building permit, entered in the land registry with a so-called age certificate (“certificado de antigüedad”) from an architect, which confirms that the property has been in existence for more than 8 years. However, in such a case the land registrar will note that the property was built without a building permit and that the development does not comply with the applicable building laws (“fuera de ordenacion”). In summary, any building in agricultural land constructed without a building permit since the beginning of the year can no longer be time-barred under the new law and the authorities have the possibility to initiate proceedings for building offences at any time. Should it become apparent in the course of this official procedure that the building project cannot be legalised, the construction work carried out without a municipal building licence can de facto never be legalised and must be demolished.

In the course of a real estate transaction, the purchaser of a property is confronted with many different questions:

• Is the property legally sound?
• Does the development comply with the building permit issued at the time?
• Have all taxes been paid?
• Is the quality of the house right or are there any defects?

This presentation serves as initial information for the interested real estate advertiser on the Balearic Islands.

The buyer should apply for a Spanish tax number before buying a property.

For foreign natural persons it is called NIE number (abbreviation for “Numero de Identificación de Extranjeros”).

Every foreigner who is doing business in Spain needs this NIE number. For some time now, lawyers have been able to order the tax number for their clients quickly and easily through the Bar Association.

Furthermore, it makes sense to open a Spanish bank account in good time by personally visiting a bank branch on the Balearic Islands.

Caution is advised with the fees of Spanish banks for accepting a bank transfer from abroad. Here, one should inform oneself in time, especially about the costs for the transfer of the purchase price.

When the right property has been found, a specialist should carry out a so-called “Due Diligence”, the legal and fiscal examination of the property.

In individual cases, a technical architect or engineer can also check whether the house is structurally sound and all installations are free of defects.

The buyer should request the following documents from the seller, although this is not an exhaustive list

• the notarized contract of sale (“escritura de compraventa”)
• extract from the land register (“nota simple Registro”)
• Extract from the land register (“Extracto del catastro”)
• Property tax assessment and waste collection (“Recibo de IBI y basuras”)
• Energy performance certificate (“certificado de eficiencia energética”)
• valid certificate of habitability (“Cedula de habitabilidad vigente”)
• Certificate that no proceedings for breach of building regulations have been initiated (“Certificado de no-infracción urbanistica”)
• last utility bill (‘ultimas facturas de luz, agua y gas’)
• Calculation of the municipal capital gains tax (‘calculo plusvalia municipal’)
• New building declaration (“escritura de obra nueva”)
• Building permits ( licencia de obra nueva).

The checklist needs to be extended depending on the individual case, for example if the property is located in the first sea line and a certificate from the coastal authority is required.

In Spain, private written contracts for real estate are legally effective differently than, for example, in the German legal system.

In practice, it is usually usual and advisable that the parties first conclude a private-written contract, because in the context of the private-written agreements, the course is set, not only at the notarization.

If the parties are already sitting at the notary’s office, there is little room for negotiation. In the private contract, the seller commits himself for a certain period of time and receives a down payment from the buyer, which is credited against the purchase price.

In the agreement, the seller’s side assures among other things that the property is free of defects, has all legal permits and is up to date with all taxes and duties.

The seller must provide all the necessary proof of this. If the seller sells to a third party within the specified period, he or she must repay double the deposit to the buyer.

If, on the other hand, the buyer does not pay the remaining purchase price after the deadline, the deposit is forfeited and the seller can keep it.

The down payment, usually 10% of the purchase price, is in practice paid directly to the seller, but this entails considerable risks for the buyer.

It is therefore advisable to deposit the deposit in trust with a notary or lawyer. The trustee is instructed by the parties in accordance with the private written agreement to pay the deposit only if all conditions mentioned in the contract have been fulfilled.

The subsequent notarised purchase agreement is a mandatory requirement for the purchaser of the property to be registered in the land register. With the notarial recording, the notary records the transfer of ownership and possession without encumbrances:

The buyer receives the keys to the house step by step against payment of the purchase price.

The purchase price is usually paid with a bank certified cheque from a Spanish bank.

A transfer of the remaining purchase price as means of payment is still the exception in Spain.

The buyer should be aware that the subject of the notarised purchase contract is exclusively the description of the property and the house, exactly as it is registered in the land register.

The real estate is usually bought “as seen”

There is hardly a term in Spanish legal language that is so misunderstood as the “plusvalía”. It starts with the fact that the term plusvalía is not found in the Spanish legal texts.

The correct term is as follows: Tax on the increase in value of developed building land (“Impuesto sobre el incremento de valor de los terrenos de naturaleza urbana”).

This is a municipal tax on the increase in value of land (but not of structures) since the last transfer. The plusvalía is often confused with the seller’s income tax (“IRPF”). The state income tax is used to tax the profit made on the sale, i.e. the difference between the purchase price and the sale price according to the notarial deed of sale. The basis for calculating the plusvalía, on the other hand, is the value of the land and the tax rates laid down in the municipal statutes.

The plusvalía is due on every transfer of ownership of a property that is subject to property tax ( IBI) and the maximum assessment period is 20 years. The plusvalía also applies to inheritances and gifts, although most municipal by-laws in Ibiza provide for a tax reduction (“bonificación”) of 95% in the case of inheritance from 1st order heirs (parents, children).

The starting point for calculating the plusvalía is the cadastral value (“valor catastral”), which can easily be read from the last property tax assessment. The cadastral value is divided into the value of the land (“valor del suelo”) and the value of the superstructures (“valor de construcción”), both values together make up the cadastral value. In Ibiza City, the cadastral value was last increased significantly in 2012. In order to prevent property owners from being surprised by this drastic increase from one year to the next, the tax is calculated on a base liquidable, which increases each year. In the tenth year of the increase, the cadastral value is then used in full for taxation (in Ibiza City in 2021).

In simple terms, the value of the land is multiplied by a factor to be defined by the municipality, depending on the number of years since the last change of ownership of the property. This results in a corresponding tax base, which in turn, by applying a municipal tax rate, results in the tax liability. An example from the municipality of San Josep will illustrate the principle: The value of the land is 13.642,79 €, 20 years have passed since the last transfer, the coefficient of the municipality of San Josep is 2,2 %, the tax rate is 20 This results in the following calculation examples: 2.2% of 13,642.79 € = 300.14 € X 20 years = 6,002.83 €, of which 20% = 1,200.57 € plusvalía must therefore be paid.

The plusvalía is by law to be paid by the seller. Occasionally the seller tries to charge it to the buyer, although Spanish case law has ruled that it is not permitted to transfer the plusvalía to the buyer. It therefore makes sense to explicitly impose payment of the plusvalía on the seller’s side in the contract. All notaries are obliged to inform the municipal administration of the recorded deeds which could be subject to the plusvalía. According to a decision of the General Directorate (BOE 26 January 2018), it is necessary for the municipality to confirm receipt of the notarial deed to the notary. As the municipality does not normally carry out any transactions, it is now all the more important that the parties in turn notify the municipality of the transfer process within 30 days of the notarisation. For some years now, land registries have only been allowed to make entries of changes in the law if at least the application for settlement of the plusvalia has been submitted to the relevant municipality.

Even a legal layman knows the importance of the land register when buying property in Ibiza. The information contained in this public register about registered properties and land is of public trust (“fé publica”) and, unlike private property purchase contracts, can be used against any third party and is available to anyone without restriction.

By providing the name of a real estate owner, a consultant is usually able to obtain a so-called “nota simple” excerpt from the land register (“nota simple”) of the property in question in a very short time. However, the complete historical land register extract (“certificación”) is not as easy to read as the “nota simple”. Entries such as the purchase or sale of a property or the creation or cancellation of a mortgage are entered consecutively. Furthermore, the marginal notes (“notas marginales”) must be observed. Since no deeds are kept at the land registry, the essential content of the deeds presented to the land registry must be entered directly into the register. This makes the historical land register extracts very extensive and quite confusing.

Plans are not kept in the land register. Information on the location, size and boundaries of a plot of land is provided according to local conditions, such as street names or the names of neighbours, and is therefore not always very precise. Especially in the case of an undeveloped property (“rustico”), it is worthwhile to commission a surveyor (“topografo”) with the exact measurement of the property before purchase and even to attach this topographic plan as an annex to the contract. In Spain, there is a land registry office (“catastro”) located at the respective responsible municipalities, but it usually does not have any really reliable plans. Since a change in the law, the land registry office requires a CD-ROM made by a topographer for notarial new building declarations, which contains the most important key data and the exact location of the property ( coordenadas georreferenciadas).

In Ibiza, the notary and the land registry judge (hereinafter referred to as the “registrar”) are the key players in the registration process: the notary certifies the declarations of the parties and the registrar carries out the registration in the land register.  The registrar is obliged to check the form, substance and content of each deed recorded by the notary. If the registrar has any objections to the deed presented to him, he may refuse registration and write a note (“calificación”) stating the exact reasons why he provisionally refuses registration. Normally, the deficiencies identified by the registrar can be remedied. However, depending on the circumstances, the notary may have to be called in again and draw up a supplementary document to remedy the defects identified by the registrar.

The Spanish notary public must order a current extract from the land register of the finca before recording a property purchase contract at the responsible land registry office. From the time the land registry office sends the current “nota simple”, a 10-day period begins, which is equivalent to a land register block. If the notarised purchase contract is not recorded within these 10 days, the extract from the land register requested by the notary expires. Unfortunately, in contrast to the commercial register, for example, notaries do not have daily access to the data available at the land registry office, but are dependent on the cooperation of the land registry office. After the notarisation, the notary immediately informs the land registry about the transfer of the property and a new blocking period of 60 days begins, within which the buyer can submit the deed to the land registry after paying the taxes.

Currently, the Spanish daily press is reporting a lot about the recent court decisions according to which banks have to reimburse their customers at least part of the incidental costs for the mortgage order. Until recently, the general terms and conditions of mortgage loans usually contained a clause stating that the customer, as the borrower, should bear all the ancillary costs. These included in particular the costs of the notary, land register, “gestoría”, and the so-called stamp duty (“actos jurídicos documentados”, abbreviated “AJD”).

The Spanish Supreme Court (“Tribunal Supremo”) has already determined at the end of 2015 that the Spanish consumer protection law prohibits a bank from imposing on the customer additional costs which, by their legal nature, are actually incurred by the bank. In practice, however, this decision does not automatically mean that the banks will be ordered to pay costs. The court merely concludes in the decision that the banks could possibly owe the incidental costs. Therefore, the relevant contractual clause must be examined in each individual case. Only those clauses which pass on the ancillary costs to the borrower in an undifferentiated manner are inadmissible and thus void.

Since then, the banks have been happy to argue that the clause in their specific contract is transparent and unambiguous and thus valid. It is true, however, that the mortgage is only registered in the direct interest of the bank and that the borrower is only indirectly interested. The Spanish Supreme Court expressly justifies the banks’ interest in registering the mortgage by stating that this would give them an enforcement order, a security in rem and special enforcement options. It literally concludes from this that “the person who has the main interest in the documentation and registration of the public deed on the mortgage loan is without doubt the lender” (i.e. the bank).

While the notary and land registry fees, as well as the cost of the “gestoria” for a standard mortgage are around 1,000 euros, the “AJD” tax, which is 1.2% of the amount of the mortgage in the Balearic Islands, quickly amounts to several thousand euros. It is therefore of particular economic interest to the bank client to have the stamp duty refunded. The banks argue in this context that according to the law, the borrower is the tax debtor (“sujeto pasivo”). In October 2018, the Spanish Supreme Court ruled that the banks must pay this stamp duty. This view seemed to be supported by the majority of the court’s judges. However, another controversial decision by the Tribunal Supremo on November 6, 2018 now states that the borrower must pay the stamp tax for the mortgage registration. A few days after this court ruling, the Spanish government has announced a law according to which, in future, it will be the banks and not the customers who will pay the stamp tax when ordering a mortgage.

Every borrower should read his cost clause carefully before he is too early to be happy about a refund of part of the additional costs. Clauses that pass on the bank’s costs to the private customer are inadmissible and therefore void. But there are probably also clauses that differentiate sufficiently between the costs of the banks and the customers. As a first step, the consumer can demand out-of-court reimbursement of all additional costs including stamp duty from his bank. However, in view of the latest case law of November 2018, the bank client must show greater willingness to compromise with regard to stamp duty if it is not already time-barred anyway (limitation period 4 years).

As a result, claiming the incidental costs of a mortgage is more complex than it appears at first glance. The banks like to play for time and court cases are a mixed calculation for them. In particular, the banks will not relieve the customer of the work of properly processing the facts of the case. It is advisable to engage a lawyer for the out-of-court assertion of claims against the bank in order to do exactly this preparatory work.

Property tax ( Impuesto sobre el Patrimonio) was reintroduced in Spain, and therefore also in Ibiza, a few years ago, after property had not been taxed with this type of tax for several years. Wealth tax is payable by both residents and non-residents if the value of the property in Spain exceeds €700,000.

For the calculation, mainly real estate, account and financial investments are added together and the corresponding tax burden for the taxpayer is calculated. The wealth tax only affects natural persons, not companies (legal entities).

It should be noted that there are two legal regulations for Ibiza regarding wealth tax: One is the central government regulation and the other is a Balearic legislative decree from 2014, when Spain had to adapt its legislation following a ruling by the European Court of Justice and recognised the same rules for residents and non-residents. This means that non-residents with property in Ibiza are entitled to the tax table of the Balearic Islands (for example, in the area of inheritance and gift law). However, since the Balearic Islands’ property tax table has been considerably increased, it makes sense for non-residents concerned to pay property tax according to the state table.

A calculation example should clarify this: With assets of € 3,000,000, the non-resident pays € 29,000 wealth tax after deducting the tax-free amount of € 700,000, rounded up according to the rules of the Balearic Islands. Non-residents, on the other hand, who pay tax according to the state table, only pay around €21,000. The non-resident can therefore save €8,0000 by applying the central government table. The deadline for submitting the tax return for the wealth tax of non-residents for 2018 is the end of June 2019.

There are various approaches to avoid or at least reduce the wealth tax. One possibility is to purchase the property not in one’s own name as an individual, but through a company. However, the tax law situation must be carefully examined in each individual case: Although it is correct that companies do not pay wealth tax, the shareholders behind them are not necessarily exempt from this obligation. After all, the shareholders as natural persons must be allocated the values of the assets brought into the company. Nevertheless, buying a property through a company can make sense depending on the circumstances, even if additional costs are incurred by the establishment and management of the company.

Another option is to distribute the property among several owners in order to take advantage of the tax-free amount applicable to each co-owner. A similar idea is behind the establishment of a usufruct right, which reduces the value of the property. In order to ensure that these transfers are handled sensibly, one should always consult a lawyer.

Finally, there is the possibility of reducing the taxable value of the property by taking out a loan and mortgaging the property. Taking out a bank loan reduces the property and can be deducted when calculating property tax. This option is particularly interesting for those owners who have a large amount of property to pay tax on in Ibiza. Ideally, the cost of the loan and mortgage can reduce taxes to such an extent that the loan is self-financing. This type of loan, like all the other options mentioned above, should be examined on a case-by-case basis to determine the cost-benefit ratio.

Did you know that a Canadian citizen can easily buy a penthouse apartment in downtown Ibiza, but that the same Canadian can only buy a finca a few kilometers inland from the island if the Ministry of Defense has expressly approved the project?

The fact that an EU foreigner can only acquire undeveloped land (“suelo rustico”) on Ibiza after obtaining a military permit is due to a law dating from 1975 and has concrete effects on the drafting of property contracts. As the Balearic Islands belong to the Spanish military zone ( zona militar), the Spanish Ministry of Defence ( Ministerio de Defensa) has a say in the settlement of EU foreigners on Ibiza. Obtaining the military permit is a mandatory requirement for the civil validity of the purchase contract. If the military permit is not available at the time of the notarisation, the notary will refuse to sign the deed of sale. Registration of the new owner in the land register will thus be impossible without permission.

This situation affects around 1,500 municipalities throughout Spain, which are located in zones defined in the 1975 law, the so-called “areas with restricted access for foreigners”. The restrictions apply exclusively to undeveloped land, but not to developed building land (“suelo urbano”).   After Spain’s accession to the European Community, citizens of the present European Union were put on an equal footing with Spaniards and have since been exempted from applying for a military permit from the Ministry of Defence. The same applies to countries outside the EU but which are part of the Schengen area (Iceland, Norway and Switzerland). The regulation also affects legal persons:  For example, if a Spanish limited liability company (“Sociedad Limitada”) wants to acquire a property, no more than 50% of the shares may belong to natural persons from outside the EU or the Schengen area. The question is currently completely open as to what will apply to British citizens in the future in the event that the UK leaves the EU (“Brexit”). In the absence of an agreement with the EU, will an English buyer in future have to apply for a military permit if he intends to purchase an undeveloped plot of land in Ibiza?

In order to apply for a military permit, an Australian, American or Russian prospective buyer should therefore ensure that, in the case of a private preliminary contract for a property in the countryside, he/she agrees with the seller on the longest possible period of time until the notarial recording. Unfortunately, in individual cases it cannot be predicted how quickly the EU foreigner will obtain his military permit: depending on the size of the property, the permit procedure can take 4 months.

As a rule, the following documents must be submitted to the authorities:
– A certified copy of the passport of the applicant
– A police clearance certificate from his home country
– A topographic map showing how far the property is from the nearest military base
– The exact description of the real estate according to the land registry and cadastral office

To sum up, I do not think it makes sense today that there are more than 1,500 municipalities in Spain which, for reasons of national security, are considered areas with restricted access for EU foreigners. The purchase of undeveloped land in Ibiza should not be subject to the control of the Ministry of Defence. If necessary, a differentiated authorisation procedure could be introduced based on objective and predictable criteria.

Succession planning is one of the main concerns of many property owners in Ibiza.

The contract of inheritance ( pacto sucesorio) is an interesting instrument for regulating the transfer of assets within the family, as the contract of inheritance can be structured as an anticipated inheritance for tax purposes. Parts of the inheritance can thus be distributed to the heirs during their lifetime by means of a contract.

However, the inheritance contract is only permitted in certain autonomous regions of Spain, including Aragon, the Basque Country, Galicia, Catalonia and above all the Balearic Islands. The will, unlike the contract of inheritance, is a unilateral document which depends solely on the will of the signatory. If he or she changes his or her mind, he or she can always draw up a new will which cancels the previous last will and testament. The contract of inheritance, on the other hand, is a contract and depends on the will of all the parties and is usually irrevocable.

The contract of inheritance may provide that assets (real estate, shares, etc.) are to be transferred during the lifetime of the deceased. Therefore, this form of inheritance contract is also called an anticipated inheritance (“adelantado de la herencia”). The following points must be observed when concluding the inheritance contract: The contracting parties must be related. From a tax perspective, the ideal constellation is that of direct relatives (parents, children). The inheritance contract must be notarised. If one of the signatories is Spanish, he must have lived in Ibiza for at least 10 years. In this context, one speaks of the civil law territorial affiliation (“vecindad civil”). In the case of non-residents, it depends on whether the inheritance contract is also legally regulated in their home country. This is the case in German civil law, for example, so that German citizens can have an inheritance contract notarised in Ibiza.

There are a number of tax advantages that apply after the conclusion of the inheritance contract. When transferring a property on Ibiza by means of an inheritance contract, direct relatives with a value of up to € 700,000 only have to pay 1% inheritance tax, whereas a normal gift would be subject to 7% gift tax. According to the highest court jurisdiction, the contract of inheritance is equated to inheritance, so that no profit tax is payable here within the framework of income tax (so-called “plusvalia del muerto”). As a rule, the municipal tax on capital gains (“plusvalia municipal”) provides a 95% bonificación for inheritances, which means that only 5% of the total plusvalia taxes are payable. In this case, however, the respective municipal ordinance applies in each individual case. In practice, certain municipalities in Ibiza apply the bonificación only to residents and not to non-residents. Those persons who already pay wealth tax can reduce their wealth tax by transferring assets through the inheritance contract. Wealth tax is applied to assets of €700,000 or more.

Example: A resident homeowner who has been living in Ibiza for 30 years transfers a property located in Sta. Eulalia with a value of € 500,000 to his son, who lives in Germany, by way of a contract of inheritance. The father has net assets of 3 million euros. The inheritance tax is 1% after deduction of the tax-free amount of 25,000 €. Since the son is non-resident in Ibiza, the inheritance contract has to be taxed in Madrid. As a rule, there should be a 95% reduction on the municipal plusvalia tax. The father does not have to pay tax on any profits and he can reduce the annual property tax by several thousand euros. This case study clearly illustrates that tax money can be saved in the end by timely design and advice.

Many owners in Mallorca have acquired their properties years ago at a very low notarially determined purchase price compared to today’s market values. Correspondingly high is then the profit tax resulting from the sale of the property. All those sellers who bought their property before 1994 can claim a reduction of the profit tax.

Before some tax-relevant remarks on the sale of real estate in Mallorca: Assessment basis for the state profit tax is the difference between the transfer value and the acquisition value of the property. The acquisition value results from the last notarial deed. This can be a notarised purchase agreement, an inheritance or gift deed or a purchase of company shares. The acquisition value is the amount for which the property was acquired, plus the costs and taxes associated with the purchase.

Typical taxes are “transfer taxes” (abbreviated to “ITP” in Spanish) or inheritance taxes, as well as notary, lawyer and land registry fees. The tax type “ITP” is often referred to as the land transfer tax, but this is actually not quite correct, as the corresponding law also taxes the transfer of movables (such as cars). In principle, all investments made in the property that increase the value of the property can be deducted. An example is the addition of an extra bedroom and bathroom with a municipal building permit. Measures that merely serve to make the property more homely (e.g. PVC windows instead of wooden windows) are not recognised by the tax authorities as upgrading.

The transfer value is the amount for which the property is now sold, less the costs and taxes associated with the transfer, which are borne by the seller. These are mainly the municipal increment value tax (so-called “plusvalia”), lawyer’s fees and any broker’s commission that may be incurred.
Until 2006, there was a valuation standard which reduced the profit achieved by 11 % per year from the third year onwards, depending on the number of years elapsed between the acquisition and the transfer. This tax concession continues to exist in the period up to 2006 for all properties acquired before 1994, although a concession limit of €400,000 has been set by the tax legislator.

By way of illustration, a practical case: a non-resident client sells his apartment in Ibiza on 2 September 2019 for €170,000. He had the property on 10 January 1985 for just under €6,000. The seller had had the property renovated 20 years ago, but the corresponding invoices can no longer be found. For the period from 10 January 1985 to 19 January 2006 (21 years) the profit tax can be reduced considerably. The period from 2006 to 2 September 2019 (13 years) is taxed with a profit tax of 19%.
The calculation example then produces the following result: The transfer value is € 170,000. From this amount € 6,000 can be deducted as acquisition value. The basis for calculating the profit tax is therefore an amount of €164,000. Since the reduction rule is applied for the years from 1985 to 2006, the profit tax in our case is only about €12,000, which is a considerable advantage (a difference of €19,000) compared to the full tax rate of 19% (about €31,000). As the case study clearly shows, before offering their property for sale, all owners should have a specialist clarify beforehand how much profit tax is likely to be payable on a sale.

Only 30 years ago there were only a few legal standards for the Spanish new building declaration. Conditions for the entry of the notarised declaration of new construction in the land register could hardly be fulfilled.

An explanation can be found in the fact that there is a principle in the Spanish Civil Code according to which the owner of the land is also the owner of the structures that are firmly connected to it. This ensures that when a plot of land is sold, the ownership of the individual parts of the building is also transferred to the buyer.

As a result, many owners who were afraid of the costs associated with registration in the land register voluntarily waived the registration of new buildings in the past. However, since the 1990s, the new building declaration has been constantly upgraded by law and today there is an independent law in addition to the central government regulations on the Balearic Islands. This means that it is now almost impossible to use a property without registering the declaration of new construction. Especially in recent years, the legal and administrative requirements for the declaration of new construction have become even more difficult. For example, a declaration of new construction is a mandatory requirement for connecting a new building to the public electricity and water network.

In the Balearic Islands, the following documents must be submitted for the certification of a declaration of new construction: the original building permit (licencia de obra), the architect’s certificate with signature attesting that the construction has been completed (certificado final de obra del arquitecto), the GPS location data of the property (datos georeferenciados, in this case a technical architect must prepare a CD-ROM which is handed over to the land registry), the municipality’s certificate of completion of construction (certificado final de obra del Ayuntamiento), the certificate of habitability (cédula de habitabilidad), the licence for initial occupation (licencia de primer ocupación), which must be applied for from the competent municipality once the cedula has been obtained, the building register (libro de edificio), the ten-year insurance policy (seguro decenal) and the energy performance certificate (certificado de eficiencia energética)

The above documents must be presented in original to the notary’s office. The first notarized copy of the deed will be accompanied by certified copies of all documents.  The so-called bulletin (boletin) only gains great importance after the declaration of new construction has been recorded. This is a technical acceptance certificate from established craftsmen, which in turn is a prerequisite for the connection of electricity and water to the public utilities. The notarial certification of a declaration of new construction is taxed with a stamp duty of 1.2% on the value specified in the certificate for the new construction.

A special case is the declaration of a new building under construction (obra nueva en construcción). In this case, an architect confirms that the building permit and the planning documents correspond. The declaration of new construction is then entered in the land register according to the progress of the building (example: 30% of the construction has already been completed and is recorded in the land register). As a rule, this type of declaration of new construction is used for the construction of housing estates.

In summary, it can be said that over the course of time, the requirements for the recording of a declaration of new construction have been constantly extended. It is therefore no longer a simple, voluntary declaration by the owner of a property. Rather, a number of proofs must be provided and conditions fulfilled and the advice of an expert should be consulted for the preparation of the notarial declaration of new construction and its registration in the land registry.

What is the purpose of the visit protocol (“hoja de visita”) during a property inspection?

When an estate agent visits a property in Ibiza with a prospective buyer, a protocol of the visit is usually signed, in the Spanish “hoja de visita”. Both the agent and the buyer should be aware of what this protocol is for.

Some real estate agents use the opportunity to impose further obligations on the prospective buyer of the property in this protocol. For example, a typical “hoja de visita” may include a clause that requires the buyer to pay part of the agent’s commission if the sale is successful. Is such a clause valid?

First of all, the visita protocol simply records in writing that a particular property for sale has been viewed by a prospective buyer with an estate agent. In case of doubt, the visit protocol serves as evidence for the estate agent in the later assertion of his brokerage commission.

An example should illustrate this: An estate agent signs a brokerage agreement with the owner of a house in Ibiza. After viewing the property with a prospective buyer who has signed the visit protocol, the seller and the buyer certify the notarised sale behind the estate agent’s back. If the estate agent now asks the seller to pay his commission, he will claim, for example, that he did not give the keys to the property to third parties and that he is the one who showed the property to the prospective buyers. In this case, the real estate agent uses the signature of the actual buyer in the visit protocol to prove his brokerage activities, in order to enforce his claim for payment of the brokerage commission in court, if necessary, in the absence of an agreement with the seller.

However, the mere signing of the visit protocol (“hoja de visita”) by the buyer does not constitute a contractual obligation to the real estate agency and must therefore be distinguished from a brokerage agreement (“hoja de encargo”). The brokerage agreement is usually concluded between the seller and the estate agent, so that only the seller and not the buyer is obliged to pay the brokerage fees. In addition, many courts consider it a misleading practice when a visit protocol contains contractual obligations. It is precisely for this reason that more extensive contractual clauses in the visit protocol are usually considered null and void at the expense of the buyer.

If, exceptionally, the buyer undertakes to pay the brokerage fee because, for example, he is looking for a specific property in a specific location, a brokerage agreement must be signed between the buyer and the broker containing the main contractual terms. Another possibility is that the buyer or seller is obliged to pay the brokerage fee in the private written purchase contract. In this case, the parties cannot claim at a later date that they were not informed of their obligation to pay the brokerage fees, as this obligation already arises from the private contract of sale.

Anyone who hires an estate agent in Ibiza should also be aware of the following: The brokerage contract is not regulated by law in Spain and can be structured differently in detail. As a rule, the seller, as the client in Spain, bears the brokerage fees. In legal practice, however, the brokerage fees are included in the sales price. The broker’s commission is usually 5 % to 6 % of the sales price. Brokerage fees are usually due upon conclusion of the notary contract. For approx. 1 % of the purchase price, the buyer receives legal security through legal advice when buying real estate.