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How to invest in Real Estate in Spain with guarantees

Real Estate
How to invest in Real Estate in Spain with guarantees

Investing in Real Estate in Spain is a very attractive option for many foreign managers and investors. However, it is necessary to have some knowledge of Real Estate Law in order to guarantee the success of the operation.

In this sense, it is advisable to have a law firm, which can provide legal certainty to operations, optimize their profitability and manage the real estate portfolio.

Notwithstanding the previous recommendation, in this article we are going to explore some of the key issues that should be taken into account when betting on real estate investment in Spain.

Why invest in Real Estate in Spain?

There are many reasons to invest in Real Estate in Spain. First of all, it is a country with privileged climatic and socio-cultural conditions. Not in vain is it one of the preferred destinations globally both for tourism and to retire after retirement. 

On the other hand, the real estate market is one of the strengths of the national economy. In fact, according to the latest data from the General Council of Notaries, the sale of homes follows an upward trend in all the Autonomous Communities. During July 2021, home sales grew by 22.9%, with the price per square meter rising by an average of 2.2%.

In addition, investing in Real Estate in Spain allows access to the investor visa or Golden Visa. It is a residence and work permit that provides great facilities, especially demanded by non-EU citizens thanks to the advantages it provides in terms of mobility and work within the European Union.

In summary, real estate investment in Spain stands out for its profitability and the associated benefits. Whether for personal or family enjoyment or in order to make the investment profitable, the real estate sale in Spain is shown as a great option for those looking for a good opportunity.

What should I take into account before investing in real estate in Spain?

In the first place, it is convenient to consider how the property portfolio is going to be profitable. Traditionally, the most frequent options have been the sale or the lease. Currently there are new options, such as the creation of spaces for cohousing, investment through crowdfunding or the offer of the space as tourist accommodation.

Once we know if we are going to occupy, reform, resell or rent the space, it is convenient to determine the figure under which we will carry out this operation. Although we can carry out all these operations as individuals, it is common to resort to systems such as the constitution of a company (or cooperative, in the case of cohousing) or a patrimonial society.

The applicable tax regime will depend on the form of exploitation chosen. However, we must know the taxes to which the property will be subject in any case, such as VAT, property transfer tax, IBI or capital gains. Correct tax planning can contribute to tax savings.

Finally, it is convenient to know the regulations applicable to sales and leases. Although some rules are practically the same in most countries (for example, the determination of the competent jurisdiction in case of conflict, which usually falls on the place where the property is located), others may vary.

On the form of exploitation of the investment in Real Estate in Spain 

While the sale and rent are solidly regulated in Spain, other forms of exploitation are not so. This is the case of cohousing and crowdfunding, trends that are growing but require a detailed legal study.

In turn, forms of exploitation such as tourist rental are in full legislative review. This is due to the impact that platforms such as Airbnb have had on both the prices and the availability of rental homes.

This means that, unless you opt for traditional ways (for example, buying a home to reform and resell it, or a commercial premises or industrial warehouse to rent it to a company), it would be advisable to consult the business plan with a Spanish lawyer before starting the investment.

About the recommended legal form

From the consultation with the specialist Real Estate lawyer, you should come out with a more or less clear idea about the legal form to be used. Real estate investment is a low risk operation. Therefore, in principle there would be no problem with doing it as a private individual.

However, figures such as equity companies may be more recommendable both at the tax level, as well as in management and transmission. Ultimately, centralizing the real estate portfolio in a legal entity can help investors to isolate risks and facilitate their management and transferability. 

On the tax regime of real estate exploitation 

On a fiscal level, it is important to know that sales are subject to a transmission tax. This can be the VAT if the house is new or the Tax on Patrimonial Transmissions if it is second-hand. At this time, the IIVTNU (Tax on the Increase in Value of Urban Land) will also accrue, provided that the land where the property is located is classified as urban.

In addition, the Real Estate Tax (IBI) will be accrued on a recurring basis, which is levied on the ownership of rights over real estate.

On the other hand, if the portfolio is managed through a company, different operations could be subject to Corporation Tax. And in the case of belonging to a natural person, it would be subject to personal income tax or Non-Resident Income Tax.

In summary, it is convenient to know the tax regime applicable to the case, because it will have a considerable weight on the profitability of the investment.

About the regulations applicable to sales and rentals

Finally, we cannot forget the importance of the regulations and customs applicable to sales and rentals. It is essential to know how earnest money contracts work and under what circumstances a sales contract can be voided.

Likewise, not only the conditions of termination of a lease are relevant, but also the distribution of charges and the rights and obligations of the parties.

Contact us, and our lawyers specializing in Real Estate Law will study your specific case. We Have:

Law firm in Barcelona
Law firm in Madrid
Law firm in Reus