Tax Guide FOR PROPERTY IN ORIHUELA COSTA AND SPAIN

Who pays taxes? When are taxes paid? What other costs must be faced when buying, selling, or owning a home in Orihuela Costa (Spain)? We have prepared this information in the simplest and most accessible way for you, so that you can analyze it when you are ready to consider Orihuela Costa your home.

Table of Contents:

01. TAX AND PURCHASE EXPENSES OF A PROPERTY IN ORIHUELA COSTA, SPAIN

Today, we will focus on detailing all the purchase costs that a buyer must face when acquiring an apartment, townhouse, or villa in Orihuela Costa.

It's important to note that any property price seen, whether in a brochure, online, or elsewhere, represents the net price for the seller. Taxes and purchasing costs must be calculated on the price agreed with the seller.

The main difference lies in the acquisition of a new home directly from the developer or the purchase of a second-hand home.

Properties acquired from developers are subject to Value Added Tax (VAT), which is generally 10%, as well as the Tax on Documented Legal Acts (AJD), which is usually 1.2%. These taxes are added to the agreed purchase price. VAT is paid on the day of signing before the notary.

Second-hand properties are only subject to the property transfer tax (7%). The transfer tax can be paid up to 30 days after the notary.

So, for the moment, we can already see a significant tax difference if purchasing from a developer or a private individual who lived in a house. In a €2M purchase, the difference is exactly €100,000!

It is crucial to note that, sometimes, private owners may be registered as developers and sell a home applying Value Added Tax (VAT). The determination of whether a home is subject to VAT lies in whether it is new or has been completely renovated, as well as whether it has been previously inhabited and if the owner is registered as a developer.

Finally, we wish to add an additional explanation about the acquisition of a Spanish company that owns a single asset, which is a property. It is common to mistake thinking that when acquiring the shares of such a company, no transfer taxes apply. In reality, when buying shares of a Spanish company, other taxes are applied, and in some cases even none, but always provided that the company is in operation. According to the law, if you are acquiring a company that only has one asset, a property, and is not conducting real commercial activity or employing staff, such a transaction is equated to the purchase of a property itself and, therefore, the same taxes must be applied as when buying a property. The Tax Agency has very simple methods to identify when these companies change owners.

What are the other costs of buying a property in Orihuela Costa, Spain? 

The remaining costs are the same for both new and second-hand properties and include:

Lawyer's Fees

For a straightforward transaction, lawyer's fees are 1% (+VAT) of the purchase price. If the purchase is at a high price or you are a regular client, some law firms may slightly adjust the fees. Sometimes clients prefer not to use lawyers, to reduce their property acquisition costs in Orihuela Costa, as it is not mandatory to use a lawyer.

It is important to clarify that Mevilla is a registered API (Real Estate Agent) that can perform some tasks related to the buying and selling of a house, such as drafting contracts, reviewing documentation, ensuring the legality of the transaction, and protecting the interests of the buyer or seller.

Notary and Registration Fees

Notary and registration fees in the purchase of a home can vary according to various factors, such as the value of the property, the geographical location, and the rates applied by the professionals involved. Generally, these expenses include:

Notary Fees: These are the fees charged by the notary for their intervention in the public deed of sale. The cost can vary depending on the price of the home and the rates set by the notary. Additionally, in some cases, other notarial services such as obtaining certificates or managing mortgages may be included.

Property Registration Fees: These are the fees paid to the property registry to register the sale and changes of ownership in the property. These fees are usually proportional to the price of the home and can vary by geographical location.

It is important to note that these expenses are usually borne by the buyer, although in some cases they can be negotiated between the parties or established by mutual agreement. Additionally, it is advisable to request a detailed estimate of these expenses before proceeding with the purchase of the home to avoid surprises and ensure you have the necessary funds.

Bank Commissions for Transferring Funds to the Seller or Issuing Bank Drafts

Most transactions at the notary are carried out using bank drafts instead of transfers, and banks usually charge a commission for issuing these drafts or making large transfers. This commission can vary significantly depending on the amount of the payment, the bank used, and the client's profile. It is advisable to research this aspect when opening a bank account in Orihuela Costa.

Mortgage Commissions

If you opt to acquire a property in Orihuela Costa through bank financing, you might be pleasantly surprised to learn that your only expense will be the property appraisal. This fee ranges from €300 to over €2,000, depending on the size and value of the property. The other costs and taxes associated are covered by the bank.

Technical Inspection

It is not essential, but it is wise to consider it when buying a second-hand home. Conducting a technical inspection allows you to verify the current state of installations, such as air conditioning, heating systems, and other relevant aspects of the property. The costs for this service can vary between €300 and over €2,000, depending on the size of the home and the extent of the work required.

02. PROPERTY TAXES FOR OWNERS IN ORIHUELA COSTA, SPAIN

This blog will analyze the taxes that must be paid annually after purchasing a property in Orihuela Costa, Spain.

Sometimes the information can be misleading, so we want to break it down to make it easier. All these taxes and costs are paid annually. They are calculated based on the purchase price, the location of the property (municipality), and its cadastral size and value.

To make it easier, we will divide it into two different parts. Firstly, taxes related to the property owner, and secondly, taxes related to the property itself.

TAXES RELATED TO THE OWNER OF A PROPERTY IN ORIHUELA COSTA. 

NON-RESIDENT TAXES

Only non-residents in Spain have to pay this tax. If you are a resident, you do not have to pay this tax. This tax must be paid, whether you rent your property or not. Just having a property in Spain as a non-resident means you have to pay it annually. I have seen many clients who do not pay it, sometimes because they are not even aware of it. The tax authorities do not track these tax payments, so you can go quite a while without paying it. What they do, is check whether you have paid the non-resident tax or not, the day you go to sell your property. So theoretically, you can leave it for later, although that payment will also be increased with interests and other costs for not paying on time.

WEALTH TAX

In the Valencian Community, the wealth tax is a levy that taxes the net value of the assets and rights of individuals and legal entities. Although this tax is managed at the state level, each autonomous community has the ability to establish its own regulations and tax rates.

In the Valencian Community, the wealth tax is applied from a certain threshold of net wealth, which may vary from one year to another and is subject to changes in regional legislation. The tax rates may also vary depending on the amount of net wealth owned.

It is important to consult with a tax advisor or the local tax administration to get up-to-date information on the requirements and applicable rates for the wealth tax in the Valencian Community. This will ensure that all tax obligations related to wealth are properly met. The tax applies to net wealth exceeding 3 million euros.

Only the net purchase amount is considered. The amount to be paid depends on whether you are a resident, non-resident, or if a company is purchasing. (NOTE: IN THE CASE OF A RESIDENT, ALL THEIR ASSETS WORLDWIDE WILL BE CONSIDERED, AND FOR A NON-RESIDENT -INCLUDING A COMPANY IF THE MAJORITY OF ITS ASSETS ARE REAL ESTATE IN SPAIN- ASSETS IN SPAIN WILL BE CONSIDERED). A tax allowance of 700,000 euros per person applies. (IF YOU ARE A FISCAL RESIDENT IN SPAIN)

In summary, the wealth tax is applicable to assets exceeding 3 million euros. This tax follows a progressive structure, and the brackets are as follows:

Taxable base

From	To	Applicable Rate
0 euros	167,129.45 euros	0.2%
167,129.45 euros	334,252.88 euros	0.3%
334,252.88 euros	668,499.75 euros	0.5%
668,499.75 euros	1,336,999.51 euros	0.9%
1,336,999.51 euros	2,673,999.01 euros	1.3%
2,673,999.01 euros	5,347,998.03 euros	1.7%
5,347,998.03 euros	10,695,996.06 euros	2.1%
10,695,996.06 euros	Onwards	3.5%

You can also request a quick estimate by clicking here and filling in the basic details about your intended purchase.

Would you like to understand the criteria that the Tax Agency uses to determine whether you can be considered a fiscal resident or non-resident in Spain? And what the implications might be for you?

TAXES AND EXPENSES RELATED TO THE PROPERTY YOU OWN IN ORIHUELA COSTA. 

IBI (PROPERTY TAX)

This is the Spanish municipal property tax, which is paid annually, like other taxes. Normally, this tax ranges from €1,000 to €10,000 but can be lower or higher, depending on the property. It depends on the cadastral value of the property and the municipality.

TAXES AND EXPENSES RELATED TO THE PROPERTY YOU OWN IN ORIHUELA COSTA. IBI (PROPERTY TAX)

This is the Spanish municipal property tax, which is paid annually, like other taxes. Normally, this tax ranges from €1,000 to €10,000 but can be lower or higher, depending on the property. It depends on the cadastral value of the property and the municipality.

GARBAGE FEE

Tax on the garbage collection of the property, but it is a very small amount, usually less than 300 euros per year.

COMMUNITY FEES

Typically, community fees range from 200 euros to 1,000 euros, with some exceptions. It is not a tax, but a cost directly related to the property that you are obligated to pay. Non-payment can even lead to the foreclosure of the property (after a long time). Villas and plots usually also form part of a community. Sometimes it is possible to find properties that are not yet part of any community and therefore do not have these expenses.

OTHER PERMANENT EXPENSES

Electricity and water are paid monthly with a permanent contract. A fixed minimum amount must be paid. Even if no consumption occurs, although the main part of the bill is directly related to the consumption that is made.

We hope you now have a better understanding of the taxes you have to pay in Orihuela Costa after purchasing a property here.

Are you thinking of selling your property? Or perhaps buying one? It has never been easier to get in touch, just click here, and we will be delighted to assist you in the most professional way.

Tax on the garbage collection of the property, but it is a very small amount, usually less than 300 euros per year.

COMMUNITY FEES

Typically, community fees range from 200 euros to 1,000 euros, with some exceptions. It is not a tax, but a cost directly related to the property that you are obligated to pay. Non-payment can even lead to the foreclosure of the property (after a long time). Villas and plots usually also form part of a community. Sometimes it is possible to find properties that are not yet part of any community and therefore do not have these expenses.

OTHER PERMANENT EXPENSES

Electricity and water are paid monthly with a permanent contract. A fixed minimum amount must be paid. Even if no consumption occurs, although the main part of the bill is directly related to the consumption that is made.

We hope you now have a better understanding of the taxes you have to pay in Orihuela Costa after purchasing a property here.

Are you thinking of selling your property? Or perhaps buying one? It has never been easier to get in touch, just click here, and we will be delighted to assist you in the most professional way.

03. TAXES TO CONSIDER WHEN BUYING LAND IN ORIHUELA COSTA, SPAIN

If you are considering purchasing a plot in Orihuela Costa, Spain, it is important to consider the taxes associated with this transaction. In addition to the purchase price, there are various taxes that must be considered:

1. Property Transfer Tax (ITP): This tax applies to the purchase of second-hand land and varies by autonomous community. In the Valencian Community, where Orihuela Costa is located, the general rate ranges between 10% and 11% (if the property is valued at more than 1 million euros) of the property value.
2. Value Added Tax (VAT): If the plot is new and acquired directly from the real estate developer, it will be subject to VAT instead of ITP. The standard VAT rate in Spain is 21%, but in the case of purchasing land for housing construction, a reduced rate of 10% applies.
3. Property Tax (IBI): Once you own the plot, you will be subject to the annual IBI, which is a municipal tax based on the cadastral value of the land.

Mevilla, as a specialist in real estate transactions, will help you fully understand the taxes and costs associated with purchasing a plot in Orihuela Costa, as well as ensure compliance with all local and national tax obligations.

Are the taxes different if you buy a plot versus buying a villa or apartment in Orihuela Costa, Spain?

You'd be surprised! We have already discussed the taxes when buying villas and apartments, and one would normally think it would be a similar case, but it is not. This is where many clients fail to find the correct information in advance and many deals fail, when clients back out upon learning.

And it's very simple, so, once and for all, Mevilla is here to make your life easier! The complication lies in that the sales taxes on the plot are different depending on who owns it. It also depends on who the buyer is. If you are a professional investor, as we assume, we will not go into details about the differences, since you surely have enough lawyers and advisors! Still, we will not talk about it, as this information is for new foreign buyers in Orihuela Costa.

So, when you buy a plot for individual villas in Orihuela Costa, before making an offer or booking a visit, ask your agent if the owner is a Spanish company or a private individual. If the agent does not know the answer, it is not a good sign, but you can always ask us! The difference can be substantial.

If the owner is an individual, the transfer tax will be 7%. If the owner is a Spanish company, 21% VAT + 1.2% tax on legal acts documented will be applied. The difference between the two cases is 15.2%. If the plot costs one million euros, it's 152,000 € more. If the price is three million euros, it could be 456,000 € more in taxes, depending on who the owner is. You can read more about it in detail on the blog about taxes on purchases and costs when buying a property in Orihuela Costa.

04. TAXES FOR NON-RESIDENTS AND FISCAL RESIDENTS IN ORIHUELA COSTA

Differences between taxes for non-residents and fiscal residents in Costa Blanca and how to know if you are a fiscal resident or not.

Acquiring real estate in Orihuela Costa entails annual tax obligations for any individual, whether it is their first or second residence, and these obligations vary depending on whether the buyer is a fiscal resident in Spain or not. Various factors determine fiscal residency, which in turn determines the tax burden. Unfortunately, many clients do not have access to the necessary information, especially before making the transaction, which can result in unpleasant tax surprises later.

Most of our clients who buy second homes in Orihuela Costa are likely to be considered non-residents or non-fiscal residents of Spain. However, do you know exactly what taxes you have to pay as such? Moreover, could you be considered a fiscal resident of Spain without even knowing it? And what implications might this have for you? Let’s delve into it!

Firstly, as a non-fiscal resident who owns a property in Orihuela Costa, you still have obligations to the tax office each year, which are:

NON-RESIDENT TAX

Even if you do not rent out your property, you are still subject to this tax. Even though you are not generating income, the tax authorities consider that you still benefit from owning a property in Spain. Therefore, you are obligated to pay income tax. If you decide to rent it out, you must pay the income tax corresponding to the rental. The general rate is 24%, but for residents of the EU, Iceland, and Norway, the rate is reduced to 19%.

WEALTH TAX

As we mentioned earlier, the Wealth Tax will vary depending on the autonomous community. At the national level, there are some important considerations:

• Exemption up to 300,000 euros for the taxpayer's main residence.
• A minimum exemption of 700,000 euros for both resident and non-resident taxpayers.
• Obligation to file the return for taxpayers whose tax liability results in a payment or, in the case of no tax to pay, if the value of the assets and rights exceeds 2,000,000 euros.
• Exemption for family businesses (business or professional) and shares in entities that are classified as family businesses.

Considering the above, the first thing we should do is sum up the value of all our assets and rights. From this amount, we would subtract up to €300,000 for the main residence (or the value of the house if it is lower) and any debts we have. Since the exemption threshold is €700,000, we would calculate the taxable base by subtracting the €700,000 exemption from the net assets. This taxable base would then have various tax rates applied per bracket, and any corresponding bonuses or reductions would be applied.

In the case of marriages under community property regimes, shared assets should be divided by two, and deductions and minimums would be applied to that amount. For example, if there is a house valued at €400,000 in a community property regime, the value to be declared by each spouse for the house would be €200,000, which would be exempt since it does not reach the €300,000.

SPANISH MUNICIPAL PROPERTY TAX

The tax is based on the cadastral value of the property, and the rate varies depending on the region.

What happens if you suddenly become a tax resident of Spain, and how can it happen?

If you have resided in Spain for six months (183 days) or more within a calendar year, or if your main vital interests are in Spain (for example, if your family resides permanently in Spain or if your main business and source of income are in the country), you can be considered a Spanish resident for tax purposes. Meeting any of the mentioned requirements should be sufficient to be classified as such.

Even if you have exceeded the 183 days of residence in Spain, but the country where you earn most of your income, or the country where your spouse and minor children reside and attend school is not Spain, you could demonstrate that you are not a fiscal resident in Spain. Therefore, not everything is completely black or white.

AND WHAT EFFECT CAN BECOMING A FISCAL RESIDENT OF SPAIN HAVE?

You will no longer have the obligation to pay the Spanish tax for non-residents. However, you will still be subject to the wealth tax and the municipal property tax. As a Spanish resident, you will need to pay income tax on your global income (discounting what you have already paid in other countries). In addition, you must declare all your assets abroad that exceed €50,000 in value. It is important to note that the Spanish income tax varies from 19% to 47% on annual incomes exceeding €300,000, increasing progressively.

Therefore, it is advisable to be cautious in this regard, especially if you are considering the possibility of acquiring a property in Orihuela Costa and spending a considerable amount of time here. This is general information and there are other aspects to consider; the situation can be somewhat complex and there are exceptions such as the Beckham Law. Therefore, to ensure a correct understanding of your particular situation, it is always advisable to consult with a professional advisor, preferably in advance.

And if you are interested in buying a property in Orihuela Costa and its surroundings, it has never been easier to get in touch! You can check our website for all the contact details or send us an email by clicking here.

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05. TAXES AND EXPENSES OF A SELLER WHEN SELLING A PROPERTY IN ORIHUELA COSTA

Want to sell a property in Orihuela Costa and not sure what your expenses will be? It is highly recommended to research this in advance. Before putting your property on the market, sometimes even before buying a property, especially if it is an investment, so you will have all the cards upfront!

Here is the complete list of taxes and expenses you must pay when selling a property in Orihuela Costa:

Visit the expense guide for buying and selling a home

• Capital gains tax
• Income tax
• Real estate agency fees
• Lawyer's fees
• Mortgage cancellation expenses
• 3% retention of the sale price

How is a property sold in Spain?

The process begins with listing your property for sale in Orihuela Costa, followed by choosing the right real estate agents if you decide to do so. Concurrently, it is highly recommended to start researching all the costs and taxes associated with the sale and to estimate the income tax. For this purpose, you will need to hire a lawyer to represent you in the sales process. This information can be useful in setting the final sale price at which the property will be marketed. It is advisable to ensure that the property is correctly positioned on the Internet, always at the same sale price by all the people you appoint to handle the sale of the property.

After receiving an offer for your property and closing the negotiation process, a reservation or a private sales contract should be prepared (it is recommended to use a lawyer at this stage) with the first deposit payment you will receive. This is usually non-refundable unless some irregularity with the property is subsequently found.

The rest of the payment is made at the notary's office simultaneously with the signing of the deeds. The notary event takes place about 2 months after the signing of the reservation/private purchase contract under ordinary circumstances. If there is a mortgage on the property, it will be canceled simultaneously on the same day as the notary. The buyer's funds deducted from the purchase price will cancel it. Unless you prefer to cancel it in advance, but there is no particular reason to do so. During the sale, it is important to be aware of all the taxes and expenses to be paid. These are described in this blog and involve monitoring changes in the property's utility contracts, such as water and electricity bills, new tax domiciliations to the buyer, etc. A lawyer can assist you with this. Good luck. And if you want to use an excellent real estate agent to sell your property in Orihuela Costa, contact us!