Tax Guide for Foreigners Buying Property in Spain

Buying a home in Spain involves more than just the purchase price. As a foreign buyer, it’s essential to understand the taxes you’ll face at the time of purchase, while owning the property, and when selling in the future.

At Paramount Homes, we’ve prepared this practical guide to give you full clarity on your investment and help you avoid unpleasant fiscal surprises.

1. Taxes at the Time of Purchase

Resale Property: Transfer Tax (ITP)

• ITP (Transfer Tax): in Andalusia, between 7% and 10% depending on the property value.
• Example: property worth €250,000 → ITP of €17,500 – €25,000.

New Build Property: VAT + Stamp Duty (AJD)

• VAT (Value Added Tax): 10% of the purchase price.
• AJD (Stamp Duty): between 1% and 1.5%.
• Example: new-build property worth €300,000 → VAT of €30,000 + AJD of up to €4,500.

Paramount Homes tip: in some cases (e.g., additional parking spaces or commercial units), VAT can be 21%.

Recurring Taxes While Owning the Property

Once you own a property in Spain, you’ll need to pay annual local taxes:

→ IBI (Property Tax): set by the municipality, based on the cadastral value. Typically €200 – €1,000/year.
→Waste collection fee: €100 – €200/year.

Non-resident income tax:
→ Even if you don’t rent out your home, non-residents must pay tax based on the cadastral value.
→ General rate: 24% for non-EU residents and 19% for EU residents.

3. Taxes When Selling the Property

If you decide to sell your Spanish property in the future, you’ll face:

→ Plusvalía municipal (capital gains tax from the land): levied by the local town hall.
→ Capital gains tax (IRPF): non-residents pay 19% on the profit made.
→ The buyer must withhold 3% of the purchase price and pay it directly to the Spanish Tax Authority as an advance on the seller’s liability.

4. Taxes on Rental Income

Renting out your property generates additional tax obligations:

• Quarterly tax returns: must be filed every three months.
• Tax rate:
  • EU residents: 19% on net income (deductions allowed for expenses such as maintenance, community fees, and insurance).
  • Non-EU residents: 24% on gross income (no deductions allowed).

5. Practical Example

Purchase of a resale property in Marbella for €400,000:

• ITP (7%) → €28,000
• Notary & Land Registry → €1,200
• Lawyer’s fees → €4,000

Initial fiscal and legal costs: €33,200
If the foreign owner rents out the property and earns €20,000/year in rental income:
→ EU resident → pays 19% on net profit (after deducting expenses).
→ Non-EU resident → pays 24% on gross income → €4,800.

Frequently Asked Questions (FAQs)

Do foreigners pay more tax than Spanish nationals when buying property?
No. Purchase taxes (ITP, VAT, AJD) are the same for everyone. The main differences apply to ongoing taxation for non-residents.

Is it mandatory to file taxes in Spain if I don’t live there?
Yes. All foreign property owners must file an annual non-resident tax return, even if they don’t generate rental income.

Can I benefit from double taxation treaties?
Yes. Spain has agreements with many countries (such as the UK, Germany, France, and the US) to avoid double taxation on the same income.

Conclusion

Understanding Spanish taxation is essential for investing with confidence. By knowing the taxes associated with buying, owning, renting, and selling, you can plan ahead and avoid unpleasant surprises. Ensure you get legal and tax advice to enjoy your Costa del Sol property with complete peace of mind.