Useful Information

                                                    and LEGAL MATTERS by MªL. de Castro, Lawyer.
 

►CAPITAL GAINS TAX 

As a result of the incredible rise in Spanish property prices over the last few years, many property owners will realise a large profit when they decide to sell.  However this profit will be subject to capital gains tax and some forward planning may help to minimise your liability.

Important Capital Gains Tax Information 

Since January 2007 the rate of Capital Gains Tax on property sales in Spain has been equalised at 18% for both residents and non-residents. Before then, in most cases residents would typically only pay 15%, whilst non-residents paid a much higher rate of 35%. This change was demanded by the EU, as the previously unequal rates were felt to be a clear breach of the requirement for equal treatment of all EU citizens by member states. This aspect was confirmed in the official preamble, or introduction, to the law introducing the new universal 18% rate. It uses phrases such as “reasons of equality” and “unjustified differentiation”, thereby admitting that the higher rate paid by non-residents should not have been in place.

As an example, an owner who bought a property in 2003 for 180,000 Euros (including costs and indexation rate) and sold it last year for 340,000 Euros could easily have had a tax bill of 56,000 Euros, of which 32,000 Euros could now be claimed as a refund (less fees and IVA), all for very little effort on their part. The final position will still depend on the individual’s tax position in their country of residence, but there are potentially thousands who could benefit substantially.

Your profit is the difference between your buying price and selling price as declared at the notary.  This profit is then reduced according to the length of time you owned the property to give your taxable profit.

In 1996 the rules were changed.  Before 1996 the taxable profit was reduced by 11.11% for every year (after the first two) that you owned the property, with the result that after 10 years your profit would be zero.  So, if you purchased the property in 1986 or before you will have nothing to pay and if you purchased the property between 1986 and 1994 you receive partial exemption.

In 1996 this generous concession was replaced by a system based on an inflation correction factor which adjusts your original purchase price in line with inflation.  The inflation correction factor is obtained from the tax tables and multiplied by your purchase price to give an adjusted higher purchase price which is then subtracted from the selling price to give the corrected taxable profit.  This system reduces your taxable profit, but it will never reach zero and it is obviously not as favourable as the previous system.

To illustrate this with an example – if you purchased a property in 1991 for 15 million pesetas and sold it in 2001 for 45 million pesetas, you would have a profit of 30 million pesetas.  This is then reduced by 11.11% for every year (discounting the first two) until 1996.

As the first two years are discounted, this reduction will be 3 years x 11.11%, i.e. 33.33% giving an adjusted profit of 20 million pesetas.  For the period after 1996, this will be further reduced by applying the inflation correction factor.

Also your taxable profit can be further reduced by deducting any expenses incurred in the purchase and registration of the property and in improvements to the property, provided that these have proper building licences and documentation.

All the above adjustments to your taxable profit apply irrespective of residence, however a non-residents 'buyer' will be required to retain 5% of the purchase price and to lodge this with the tax office as a guarantee against the vendor’s tax liability.

HOW TO AVOID CAPITAL GAINS TAX

There are two important exemptions which apply to official residents of Spain. If you are 65 years old or over, you are not liable to pay capital gains tax on the sale of your principal home.  You will need to have lived in the property for 3 years and may be required to show Spanish income tax returns for up to 5 years.

The other important exemption is that if within 2 years you re-invest the full proceeds of the sale, not just the profit, in a new principal residence then you will avoid all capital gains tax.

Whilst Costa Luz Properties make every effort to ensure the accuracy of the information contained on these pages, they should not be considered to be, nor used as legal advice.  If you have any legal questions, please consult with a lawyer.

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► INHERITANCE TAX ISSUES FOR BRITISH EX-PATS IN SPAIN -   26 February 2007                               

With 75,000 UK pensioners currently living in Spain, the subject of Inheritance tax for British expatriates is one that needs to be given careful consideration, says Bank of Scotland International.

If you have, or are considering, retiring permanently to Spain it is vital to consider the implications of Spanish inheritance tax and law that applies in Spain, and assess how this may affect your future heirs and the value of your estate.

Many British expatriates who have moved to Spain believe that, upon their death, their assets would pass automatically to their spouse tax-free, or be disposed of in accordance with their wishes as outlined in their will. Another assumption many people make is that they will automatically avoid the issue of inheritance tax if they are living overseas.
However, this is not the case.

Confusingly, Spanish law dictates that, with regards to British property owners, British law should be applied in the event of death. However, British law states that if you are UK domiciled you are subject to inheritance tax on your worldwide assets.

As a general rule, if you are living overseas, the key factor behind inheritance tax is domicile, rather than residence. Your country of domicile is determined by where you were born and where your father was born.

The only way that you can lose UK domicile is to severe all of your ties with the UK and dispose of all of your UK assets. You cannot, however, lose your UK domicile until you have lived away from the UK for at least three years and even then you need to convince HM Revenue and Customers (HMRC) that you have acquired a new domicile with no intention of returning home. Another point to note is that if you lose UK domicile you need to acquire a new domicile in Spain.

Once you are domiciled in Spain, you will be subjected to Spanish inheritance tax on all of your assets. Under Spanish law, if a property is owned in joint names and one of the spouses was to die, the surviving spouse would inherit the remaining spouse's 50% share (this is also true of UK law.) The surviving spouse would be subjected to inheritance tax upon the other half of the property that they have inherited. Inheritance tax is Spain is charged at 7.65% to 34% upon a progressive basis. The 7.65% rate starts from €7,993.46 and 34% is triggered on amounts over €79,755.08.

This is different to the system in the UK in that if assets pass to the surviving spouse, who is also UK domiciled for inheritance tax purposes, there would be no charge to inheritance tax as this would be an exempt transfer. The tax in Spain must be paid within six months of the death (this is also true where UK inheritance tax is to be paid) but the property cannot be sold, or have the ownership details changed until the tax has been paid.

The important factor to note is that where there is both UK and Spanish liability to inheritance tax, one can be offset against the other. It is however, advisable to have a working structure and adequate financial arrangements in place.

Consequently, many solicitors advise British expatriates to write a will under Spanish law, stating that they wish to have their assets disposed of according to Spanish national law.

If UK domicile is still present, then British expatriates will still have to pay UK inheritance tax upon all of their assets at a rate of 40% on estates over £285,000.

In this respect, anyone buying property in Spain should seek qualified and independent legal and financial advice.

Tony Wilcox, Managing Director at Bank of Scotland International, said: "If you are planning to leave the UK to live temporarily or permanently overseas, you need to get expert tax and financial advice and have the right products and services in place."

Whilst Costa Luz Properties make every effort to ensure the accuracy of the information contained on these pages, they should not be considered to be, nor used as legal advice.  If you have any legal questions, please consult with a lawyer.

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► GENERAL TAX MATTERS IN SPAIN

On 6th November 2006 the Spanish Government approved various taxation reforms that came into force on 1st January 2007 and affect Personal Income Tax – most particularly Capital Gains Tax and Non-Resident’s Income Tax. It also adopted various new tax anti-avoidance rules.
The various net effects can be identified as follows:

For Non Spanish Residents:   
Capital Gains Tax (CGT) will be reduced from the current 35% to 18%.  CGT is payable on the profits made from selling real estate in Spain. Such profit is the difference between the purchase and sales price less the taxes and costs related to the sale and purchase.
Buyers Retention of 5% on the Sales price of a property sold by a non-resident has been be reduced from 5% to 3%. The purchaser of a property owned by a non-resident seller must make this retention from the sales price and pay it over to the Hacienda – the Tax Office – as an on account of the seller’s CGT liability.

   It should be noted that a non-resident seller of a Spanish property may have residual CGT liability under applicable rules in their own country of residence, subject to any relevant double taxation treaty between Spain and their tax residence.

For Spanish Residents:
Capital Gains Tax will increase from the current 15% to 18%.

Sociedades Patrimoniales and other Spanish property owning companies:
This form of specially treated company is to be dissolved and the transitional provisions are fairly strict.
The 15% CGT rate, currently enjoyed by this form of company, has been repealed.

All Sociedades Limitadas (S.L.)  – the general form of limited company in Spain - will be taxed at the generally applicable Corporation Tax rate on profits of 32.5% in 2007 dropping to 30% in 2008.
Should the annual turnover of the S.L. be less than €8m then the S.L. is considered to be a small business and the tax rate on the first €120.202,42 of profits will be reduced to 27.5% in 2007 to 25% in 2008.

An alternative to the sale of a property owned by an S.L. it might be determined that a sale of the shares in the S.L. may be more appropriate. Under the current legislation the capital gain made by a non-resident shareholder is taxed at the rate of 35%. This is now reduced to 18%.

Non-resident Companies – Capital Gains Tax:
In the case of a non-Spanish property-owning company the CGT due on its disposal of a Spanish property is as per the above entry for Non-resident individuals which reduces from 35% to 18%.

New Anti-avoidance rules can be summarised as follows:
Corporation Tax
Companies based in tax havens will be deemed to have their tax residency in Spain where their main assets are situated in Spain or their main activity is conducted in Spain. There is an opportunity to rebut this presumption by the provision of proof to the contrary.

Non-Resident Income Tax
Companies which own property in Spain and which are based in countries that have no effective exchange of information with the Spanish tax authorities are now obliged to appoint a tax representative in Spain. Until now, it was only necessary to appoint such a representative where they were requested to do so by the tax authorities or where they engaged in certain proscribed activities. Capital gains made upon the transfer of shares in such companies, which have as their main asset Spanish real estate, shall now be taxed in Spain upon the fair market value of such Spanish real estate.

It is hoped that the above is of practical use and we’d be delighted to direct specific enquiries to The Rights Group network members, as appropriate.

Whilst Costa Luz Properties make every effort to ensure the accuracy of the information contained on these pages, they should not be considered to be, nor used as legal advice.  If you have any legal questions, please consult with a lawyer.

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► MAKING A SPANISH WILL

If you are non-resident in Spain it is a good idea to make a Last Will & Testament to distribute your Spanish assets in the event of your death.

The Spanish Laws on Inheritance state that, on your death your estate will be shared amongst the heirs according to the rules of the country of origin from which you originate.

Your children will have a share of your Spanish property by virtue of the probate of your will in Spain; though if they do not wish to claim their legal share of the Inheritance, they can renounce their right to it in front of a Spanish Notary.  The estate will then be shared amongst whomever you may have designated in your Last Will.

British owners should note that although Spanish Law states that the ‘law of your own country’ applies in the event of your death;  British Law actually states that it is the law in the ‘country where the asset is situated’ (i.e. Spain) which determines the legal heirs.

If you have properties in more than one country, is advisable to have wills in each country in order to avoid complicated translations, certifications and procedures for your family after your death. Obviously, it is much simpler to keep the Spanish estate separate from any other assets and to rely on a local lawyer to handle the formalities. You can also make a secret will and have its envelope sealed and notarized. This can be registered in Madrid.

Should someone in your family die without you knowing whether there is a will or not, you can check with the ‘Registro Central de Actos de Última Voluntad’ to see if there is one.  They will also have the name of the Notary and the Office where it is filed.

Handwritten wills are not advisable as they must be certified as authentic before they can be executed. Spanish inheritance tax accrues six months after death. After this date penalties are incurred.

Unlike in Britain, there is no exemption from inheritance tax between husband and wife. A tax form must be completed and the taxes paid. In Spain it is the heir who is taxed and not the estate. Tax will be calculated on the relationship of the heir to the deceased, the amount of the inheritance he/she receives and any existing wealth.

All assets will be taxed – bank accounts, property, cars, golf shares etc. Property will usually be valued at the “valor catastral” – the value as calculated by the Town Hall, or rateable value.

Whilst as mentioned, Spain and many other countries apply the system of “forced inheritance” British nationals are exempt from this;  however if you make a Spanish will which conflicts with your national inheritance laws it will become null and void.  It is important to ensure your Spanish will does not conflict with any other that has been drawn up in another country.

Whilst Costa Luz Properties make every effort to ensure the accuracy of the information contained on these pages, they should not be considered to be, nor used as legal advice.  If you have any legal questions, please consult with a lawyer.
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►  STARTING A BUSINESS

As more and more Britons move to Spain to start a new life, the demand for quality products and services in all manner of industries is growing, leaving the market wide open for anyone wanting to start their own business in Spain.   

However, there are certain things to consider initially….

Before you start any business venture you will have looked at the market to make sure there is a demand for the product or service you are to provide. Bear in mind that the market here is very different to that in your home country. As an EU citizen you have every right to start a business in Spain, just as though you were at home, so once you have convinced yourself of the viability of your project, you can go ahead.

First, no matter what, is to visit the local police station to apply for your N.I.E. number. This is an identification number for foreigners and everyone must have one.  Just take along your passport and complete the required form. Your number must be collected in person and it will usually be ready within three to four weeks.

In Spain there are two levels at which a business must be registered.

At local level you need to register your business with the town hall and obtain an opening licence ‘Licencia de Apertura’ which will clearly define your business and the way in which it will trade.

At national level you must register with the ‘IVA’ office (which is the equivalent of VAT in the U.K.). It is a good idea to employ the services of a ‘Gestoria’ to do all the paper work for you.  If you choose one that is also a registered ‘Asesor’ then they will work out your annual taxes also.  Your tax will be paid to the ‘Agencia Tributaria’

The next step would be to decide on the format of your business, similar to in the UK with PLC and Ltd companies. You will need expert advice as to which type best suits your business.

‘Empresa Individual’ is equal to a sole trader with the business being run in one persons name only.

‘Sociedad Civil’ is a partnership where several individuals will come together to form a business.

‘Sociedad Limitada’ is a limited company with registered shareholders and a set minimum trading capital in the bank.

‘Sociedad Anonima’ is a larger company with a large minimum trading capital. This S.A. company also has shareholders.

All businesses are registered with the Social Security Office and as such will be liable for social security payments which vary according to the status of the business. Making these payments will entitle you to the benefits of the local health service such as doctors and hospitals. The payments will also contribute towards an old age pension, although contributions have to be paid for a minimum of 15 years to qualify.

A company employing people will also have to pay social security on their behalf. This stresses the fact that if you employ people you must have a proper written contract with them for mutual protection.

Finally, if you are buying an existing business in Spain it is vital that you examine every aspect of the business before signing anything or parting with your money. It is crucial that you ensure the company has no debts or tax liabilities that would be transferred with the business.

► NATIONAL PUBLIC HOLIDAYS – SPAIN
 

How Debt Consolidation Mortgage Loan Helps You

It is really tough for an individual to lead a happy life with huge amount of debt. If you have lots of debts, you are always worried about the harassment of collection agencies, their phone calls at your home and even at your work. You might think of filing bankruptcy to get rid of this situation, but before taking the final decision you should know the bad effects of bankruptcy. Bankruptcy hurts your credit negatively and it will be difficult for you to get further loans with poor or bad credit report. So if you think that you are in huge debt and find it tough to pay all your loans in full then debt consolidation is the best way that you can go for.

Debt consolidation mortgage loan service will help you to consolidate your credit cards, personal loans, student loans, medical bills and various other types of debts. There are certain qualifying criteria for mortgage loan which vary for different lenders. Most of them will require proof of at least three years of stable income to ascertain if you qualify for debt consolidation mortgage loan. So a good credit history is essential to fit for this loan. In addition, you may have some bad points against your credit history, still your lenders sometimes will consider if you have shown an effort to clear up your debts.

The reason of borrowing a debt consolidation mortgage loan is not only getting relief from creditors or collection agencies but also consolidating your bills into one monthly payment which is little lower than what you paid previously in order to release your financial stress. It will help to avoid filing bankruptcy and to stay as a credit worthy consumer. In this way your credit report will remain good which will help you to get further loans when required.

But you should make a research to find out a reputed debt consolidation loan company, because many of these companies may really be loan sharks. You should avoid these companies at all cost as they will place you under strict monthly payment terms and charge a higher rate of interest. While refinancing you might look for non-profit lenders who will be able to give you the best alternatives.

So go for a good debt consolidation mortgage loan company in order to keep yourself free from all the harassment of collection agencies, avoid bankruptcy, pay minimum amount of interest and maintain a creditworthy profile.

Written by George Leon (georgeleon@savedude.com) of Carson City, Nevada - 89701, USA.

Whilst Costa Luz Properties make every effort to ensure the accuracy of the information contained on these pages, they should not be considered to be, nor used as legal advice.  If you have any legal questions, please consult with a lawyer.

For Non Spanish Residents:

• Capital Gains Tax (CGT) will be reduced from the current 35% to 18%.  CGT is payable on the profits made from selling real estate in Spain. Such profit is the difference between the purchase and sales price less the taxes and costs related to the sale and purchase.
• Buyers Retention of 5% on the Sales price of a property sold by a non-resident has been be reduced from 5% to 3%. The purchaser of a property owned by a non-resident seller must make this retention from the sales price and pay it over to the Hacienda – the Tax Office – as an on account of the seller’s CGT liability.
• It should be noted that a non-resident seller of a Spanish property may have residual CGT liability under applicable rules in their own country of residence, subject to any relevant double taxation treaty between Spain and their tax residence.

For Spanish Residents: 

• Capital Gains Tax will increase from the current 15% to 18%

Sociedades Patrimoniales and other Spanish property owning companies:

• This form of specially treated company is to be dissolved and the transitional provisions are fairly strict.
• The 15% CGT rate, currently enjoyed by this form of company, has been repealed.
• All Sociedades Limitadas (S.L.)  – the general form of limited company in Spain - will be taxed at the generally applicable Corporation Tax rate on profits of 32.5% in 2007 dropping to 30% in 2008.
• Should the annual turnover of the S.L. be less than €8m then the S.L. is considered to be a small business and the tax rate on the first €120.202,42 of profits will be reduced to 27.5% in 2007 to 25% in 2008
• An alternative to the sale of a property owned by an S.L. it might be determined that a sale of the shares in the S.L. may be more appropriate. Under the current legislation the capital gain made by a non-resident shareholder is taxed at the rate of 35%. This is now reduced to 18%.

Non-resident Companies – Capital Gains Tax:

• In the case of a non-Spanish property-owning company the CGT due on its disposal of a Spanish property is as per the above entry for Non-resident individuals which reduces from 35% to 18%.

New Anti-avoidance rules:
 
Can be summarised as follows:
 
Corporation Tax
 
Companies based in tax havens will be deemed to have their tax residency in Spain where their main assets are situated in Spain or their main activity is conducted in Spain. There is an opportunity to rebut this presumption by the provision of proof to the contrary.
 
Non-Resident Income Tax
 
Companies which own property in Spain and which are based in countries that have no effective exchange of information with the Spanish tax authorities are now obliged to appoint a tax representative in Spain. Until now, it was only necessary to appoint such a representative where they were requested to do so by the tax authorities or where they engaged in certain proscribed activities. Capital gains made upon the transfer of shares in such companies, which have as their main asset Spanish real estate, shall now be taxed in Spain upon the fair market value of such Spanish real estate.
 
It is hoped that the above is of practical use and we’d be delighted to direct specific enquiries to The Rights Group network members, as appropriate.
 
© The Rights Group SL 2007 (Marbella)

LEGAL MATTERS written by María L. de Castro,  of Costa Luz Lawyers, Algeciras

Whilst la Sra. de Castro has almost the same name as ourselves, we are actually in no way connected.  These articles were brought to my attention some time ago when I consulted this lady professionally and I was given permission to print them here on the web-site.

We recommend that you always use a lawyer when buying property in Spain.  Whether you choose one yourself or whether you would prefer us to recommend one to you.  Either way, we hope that these articles will help you.

      Know Your Rights!

The Aval Bancario (Bank Guarantee) or Insurance Contract were both established by a 1968 Law to protect buyers in off plan developments.

Article. 1. - The developer must guarantee the return of the deposited amounts plus 6% of annual interest, through an insurance contract or by bank guarantee, in circumstances where the construction doesn’t start or doesn’t finish in the agreed time.
They also need to open a special bank account for your amounts (different from the general one of the developer) and have it expressly written in the contract.

Article. 2. - In those contracts where the parties agree on anticipated amounts the developer must expressly state:
a) That the developer will give back to the buyer all the advanced amounts plus the 6%, in circumstances where the construction fails to start or end within the agreed deadline, or the certificate of habitation is not granted.
b) Reference to the bank guarantee or insurance contract, this must indicate the name of the Bank or the Insurance Company.

You’ve completed on your property and now you begin to wonder if the construction has been carried out properly and whether you have legal basis for claims against building deffects in the future. The Answer is yes, and its legal basis is in the following provision of the General Building Act (Ley 38/1999, de 5 de noviembre, de Ordenación de la Edificación ) Click here to view this law in Spanish.

Ask your lawyer to claim for a good finish of your property, good power supply connections and for any major deffects you can rely on having up to ten years of legal guarantee.

The article in the General Building Act which specifies the legal action for different sorts of building defects is:

Article 17: Civil liability of the agents that intervene in the building process.
1. Despite their contractual liabilities, the individuals or companies that intervene in the building process will answer to owners and third purchasers for the entire building or for part of them, in case they have been divided, of the following material damages happened in the building within the established deadlines, counted from the reception date without reservation or from the rectifying moment:
 

     Know Your Rights!

There is a very important principle of contractual law in the Spanish Civil Code that states: ”The contracting parties can establish all the agreements, clauses and conditions that they may find necessary, provided they are not against the Law, the morals or the Public Order” .  It is called the “Autonomy of the will Principle”.

Taking that into account can help us to understand what the truth is in that “