Legal aspects of real estate investment in Spain
In this article we will explain the legal aspects of real estate investment in Spain. Although it is a rich and complex subject, we are going to highlight the most important elements when preparing the operation. But we can only recommend that the investor plan his operation with a law firm specializing in real estate investment in Spain.
What should be taken into account when planning real estate investment in Spain?
When planning a real estate investment in Spain, it is convenient to pay attention to various considerations:
First, there are the legal issues. In particular, the purchasing power and the legal protection of the operation. For this, a specialized legal advisor should be used, who will guide the investor from the choice of the property to its registration in the Property Registry. In this sense, it is also important to know the regulations applicable to the exploitation regime, as long as the property is not going to be personally used by the investor or his relatives.
Next, you must attend to questions of a contractual nature. These cover the validity of the contract, its terms and guarantees and the liability regime in case of non-compliance. A good contract can ensure the success of the investment, anticipating eventualities and even avoiding going through the Courts in case of conflict.
Finally, it is convenient to know the applicable tax regime, as well as the maintenance costs of the property. In this sense, it is important to study the existing legal investment structures in the country.
Who can invest in real estate in Spain?
Real estate investment in Spain does not require any administrative authorization. This implies that any natural or legal person with the capacity to act can acquire or manage real estate in the territory.
There is only one precision: investments of great value, as well as those whose amount comes from tax havens are subject to a declaration regime, in accordance with RD 664/1999. Such declaration is made before the Investment Registry of the Ministry of Economy and Finance. It must be processed prior to the investment when the fund comes from a tax haven, and later in the case of high value acquisitions.
We refer to investments worth more than one and a half million euros or three million euros, depending on the case. Therefore, in both cases it would be advisable to have the advice of a lawyer with experience in Real Estate before starting the operation.
When should the investment be made?
It is a common practice in real estate investment in Spain that the purchase price is paid in two stages:
First, a signal is delivered, known as an earnest. It is a proof of purchase commitment. The earnest money is entered into the sale contract by means of a clause, which will determine whether it is a confirmatory, penal or penitential deposit. The amount of the deposit will also be indicated, which is usually between 5 and 15% of the price of the operation.
Although the effects of each type of deposit differ, they roughly assume that if the buyer desists from the operation, the seller will have the right to keep the amount of the deposit. When it is the seller who desists from the operation, he must return double the amount to the buyer.
Generally, the penalty of the earnest money will not prevent the adoption of legal action. These can be aimed at forcing the fulfillment of the contract, to resolve it (which is the least frequent) or to claim compensation for damages.
The deposit contract itself will indicate the moment in which the sale will be completed, becoming a public deed and the keys being handed over. It will be at this time when the rest of the price must be paid.
Keep in mind that to carry out this procedure personally, you may need a visa. Question that leads us to the next question.
Can the operation be processed remotely?
Yes. Real estate investment in Spain may require moving to the territory. This will not present problems when the investor comes from a Member State of the European Union or in cases where an Agreement or Convention waives the obligation to apply for a visa.
However, in other cases it may be necessary to obtain a visa to enter the territory, which will require proving certain requirements (such as sufficient financial means).
To avoid this procedure, a representative in the State can be authorized to manage the investment on behalf of the investor. It will only be necessary to grant powers of attorney, which can be done in the State of origin and subsequently legalized in Spain.
In this sense, it should be noted that if the investment is greater than € 500,000, the investor will have the right to obtain the Golden Visa. The Golden Visa or visa for investors is a special residence and work permit, designed to promote the attraction of capital.
Lawyers specialized in Real Estate or immigration can help foreign investors to obtain this permit without having to travel. Since the investment must be accredited, the most frequent is that the lawyer hired in Spanish territory is in charge of closing the operation and later processing the visa. This will allow the investor to reside and work in Spain for a period of two years, renewable for periods of the same duration.
It should be noted that if the investor is not interested in moving to Spain, he can grant broader powers so that his lawyer can manage his property portfolio.
How do you manage a sale in Spain?
The real estate investment process in Spain is relatively simple. First, a market study must be carried out, although it is best to delegate this task to a specialist based in Spain.
Once the opportunities are located, the investment infrastructure must be prepared. As we have said, all natural or legal persons can invest in our territory. However, an ad hoc structure is frequently set up to manage the real estate portfolio in Spain.
In this sense, the most frequent options are:
1.- Establish a capital company (S.A. or S.L). They can have a special leasing regime, and if they are not engaged in a real activity they can be used as equity companies.
2.- Establish a Public Limited Investment Company in the Real Estate Market (SOCIMI). They are analogous to the Real Estate Investment Trust, aimed at investors who are going to use their real estate portfolio for leasing.
It is convenient to contrast the advantages and disadvantages of each option with a lawyer specializing in real estate investment in Spain. Only in this way can a tailor-made structure be designed for the investor.
How much money should I have available before starting my real estate investment?
Finally, real estate investment in Spain has certain costs. Some of them will depend on the investment model. For example, maintenance associated with leases or operations.
Others are more predictable, such as those derived from the applicable tax regime. For example, the acquisition taxes will depend on whether the seller is an individual or a company.
In the first case, the Patrimonial Transfer Tax will be applied, which has a cost of 10% on the value of the operation. And in the second case, VAT (10% for homes and 21% for other properties) and the Tax on Documented Legal Acts (between 1 and 2.5% of the value of the operation) must be applied.
The regime applicable to the holding and exploitation of the real estate portfolio will depend directly on the selected legal structure. Wealth Tax and IBI will always be applied to tenure. Regarding the exploitation, the Non-Resident Income Tax or the Corporation Tax may be applied.
Finally, additional costs will have to be considered, such as notarial costs (elevation of the contract to a public deed) or registration (registration in the Property Registry).
Given that the issue exceeds the space we have available, our recommendation is that the investor consult with a lawyer based in Spanish territory before starting their investment.
Contact us, and our lawyers specializing in Real Estate Law will study your specific case. We Have:
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