Plusvalia. Municipal Capital Gain Tax. What is it?

What is Plusvalia tax?

The plusvalía is a local (municipal) tax charged by the town hall on properties when they are sold. Commonly known as the “Plusvalia” which literally translates as "gain") on the growth in the value of urban land (excluding the buildings). It is calculated on the rateable value of property and the number of years that have passed since the property was last changed hands. The objective is to tax the increase in the value of the land on which the property stands, some of which is due to improvements to the area carried out by the local government and the community at large.

The base for this tax is the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) of the property. The amount due in tax will depend on how long the seller has owned the property: the longer the period, the higher the amount of tax. The tax rate varies depending upon the size of the local population and the length of ownership. For a town of more than 100,000 inhabitants the minimum tax rate is 20 per cent and the maximum 30 percent, with the town hall fixing a rate within this. 

Unfortunately, there is a not a provision in the Law to exempt sales when they are made at loss, so any sell will bring along a "Plusvalia" bill. 

Who pays the plusvalia tax in Spain? 
In theory the vendor, though both parties are free to negotiate who pays it. 

During the boom, when vendors had all the negotiating power, it was reasonably common for buyers to agree to pay it, especially in areas like Andalucia. After the boom turned to bust, any vendor lucky enough to find a buyer is going to have to pay the plusvalía. 

How do you pay the plusvalia tax in Spain?

You have 30 days from the date of sale to pay the plusvalia to the Town hall.

But the buyer will always be insisting on withholding funds to pay the plusvalía on your behalf, as the new owner would become liable for the plusvalía in the event of non-payment (i.e. if a non- resident does a runner without paying). Also, if the plusvalía tax does not get paid, the new owner will have problems to register his title deed. So, the old days´habit of leaving the plusvalía unpaid, have already vanished !


Not everything is lost, anyway. Any “Plusvalia” tax paid is allowed as a cost of disposal in calculating the mainstream capital gains tax when selling.



Javier Herrera Llamas

Policy for integration of immigrants in Spain. All in review...

Rajoy's government seeks to unify the criteria in Spain in relation to the integration of immigrants.
Currently the requirements for access to different services by non-EU foreigners vary considerable depending what administrations are you dealing with.

The government noted that the non-EU integration has been developed so far by the state, communities and local governments in the matter exerting competition  with lack of coordination in is Security, health, integration programs, etc.. and in many cases causing conflict of interest. This have caused a divergence of the conditions of access of non-EU citizens to the various services and also in the conditions which must allow for remain in the country.

The goal of the Government is to establish a common criteria for all public administrations setting a legal framework for the development of a national policy and thus framing criteria for a national integration policy.

Thus, the Council of Ministers has decided to reform the Inimigration act in order to define common criteria of integration of immigrants and to determine the scope of each of the public administrations.

The most important items that have been made public are the following:

1.- A single work permit.
2.- Complete definition of who will be granting the working permits and how they will be processed in a way that ensures that all administration take part in the process, but is still friendly with the applicant.


All this must be put in relation with the avowed purpose of facilitating investment in Spain for the acquisition of property or for business reasons and to provide a simple and effective way to acquire residence in these cases. What still remains to be determined in detail.

So we will still have to wait and see those principles converted into specific rules.

In the meantime, always we can follow the well stablished routes to acquire residence, that will remain in force until changes come in force.

Javier Herrera Llamas

Energy Performance Certificate (EPC) – New legislation now in force

From the 1^st June, 2013, new legislation came into force for all owners wishing to sell or rent their properties, forcing them to obtain a Energy Perfomance Certificate in order to be able to complete the sale or rental agreement. 

This regulation comes as a consecuence of  current European legislation regarding the efficiency of all buildings with regard to energy consumption.

The Energy Performance Certificate is issued once the construction elements and installations of a property have been assessed and graded. The study of these characteristics will place the property into one of seven categories, from A, the most energy efficient, to G, the least.

So let´s try to answer some FAQs:

WHY IS IT REQUIRED? The energy efficiency certificate is an informative document for future owners and tenants of the property, allowing them to see how and where the consumption reflected in electricity, gas and water bills is generated. It also includes a number of recommendations on how the property can consume less energy, be more “green” and consequently reduce costs.

WHO NEEDS TO GET AN ENERGY CERTIFICATE? All property owners wishing to sell or to rent their properties must have an EPC.

CAN I SELL OR RENT MY PROPERTY WITHOUT AN ENERGY CERTIFICATE? No. The certificate must be included in the documentation which the owner has to make available to the buyer or tenant. Therefore, an original copy of the certificate must be available before the transaction can be closed.

WHO CAN ISSUE AN ENERGY CERTIFICATE? Energy efficiency certificates can be issued by a qualified and registered Architect, Quantity Surveyor Engineer or Technical Engineer.

WHAT DOES THE TECHNICIAN NEED FROM THE OWNER? The corresponding technician will visit the property to note the general characteristics of the rooms, to take measurements of all areas, and note materials, systems and installations used. He will need the registry details of the property and if you have floor plans, all the better, but not essential. With this information, he will be able to draw up the report and issue the certificate.

HOW MUCH DOES IT COST? The market determines the cost of the energy certificate, i.e. there are no official tariffs laid out. Basicly, it will be very highly dependant on the surface of the built area of the property. 

WHEN DOES THE CERTIFICATE HAVE TO BE RENEWED? The energy certificate is valid for a maximum period of 10 years. However, it is suggested that you renew the certificate to update it (and the category label) if you have made energy efficiency improvements to the home.

IS THE ENERGY CERTIFICATE NEEDED FOR ALL BUILDINGS? No. Dwellings that are exempt are those which are used for less than 4 months a year or during a limited period where energy consumption is less than 25% of that which would be consumed within a period of twelve months. Certain buildings and properties with specific characteristics are also exempt, so we highly recommend you to consult beforehand when you plan to sell or lease your property. 

Javier Herrera Llamas

2013. Time to invest in Property?

1st term of the year has been a very busy time, and shown a firm revival of the sales on property in Malaga from investors.

I was really puzzled about this, as it seemed hardly compatible with the housing crisis.

So I decided to look outside of Spain to be able to understand what was going on. 

I found that BNP Parisbas Real Estate, part of the French bank, listed ten good reasons for investing in Spanish property today, in a new guide to investing in Spain, aimed at foreign investors.

The main reason they give is prices, which have fallen to their lowest level since the crash began, and now represent a “unique opportunity,” they argue. 


Prices have fallen faster than rents, driving up rental yields on prime property. Forecasting that prime property prices will recover within the next 5 years, they conclude this is the time to invest.
The other factors they mention include Spain’s structural reforms, infrastructure, strategic position as a gateway to Europe from Latin America and Africa, world-class corporations and a well-trained workforce.

Also, Price Waterhose Cooper (PwC) & Urban Land Institute  issued a  report ‘Tendencias del mercado inmobiliario europeo 2013’ . They suggest investors to be alert to opportunities that may arise in connection with the sale of repossed properties in Spain. 

They also recommend to keep an eye open for secondary Spanish cities´ opportunities, and find partners  that can provide valuable information about where the real bargains lie, what assets should be considered and which ones are to be avoided, and what properties are about to come out to the market.

So, I come to the conclusion that we're getting closer to find  points where supply and demand are balanced. Don´t you think so?

Javier Herrera Llamas

New steps to increase the control over Spanish residents owning assets outside Spain.

Spain launches new national office for international taxation

The Spanish Official State Gazette (BOE) published a resolution last Friday creating a new National Office for International Taxation (ONFI), which is expected to enter into force on 1st April.


As announced in November by the State Secretary for the Treasury, Miguel Ferre, this new specialised unit will assume responsibility for producing a centralised plan of action and establishing uniform action criteria for the entire Spanish Tax Office in terms of international taxation.


The ONFI, based in Madrid, will functionally operate under the Department of Inspection, with approximately 50 people, initially, exclusively engaged in activities related to international taxation. It will be responsible for scheduling, promoting and coordinating the inspection activity related to international taxation carried out by the Spanish Tax Office’s specialised, central and regional units.

At the moment, the prevention of international tax fraud is the subject of growing attention, as is evidenced by the establishment of international cooperation standards backed by the G-20, the initiative on taxable base erosion and offshore profiting, and the recent EU Action Plan to strengthen the fight against fraud and tax evasion.

By launching the ONFI, the Spanish Tax Office is strengthening its resources for combating international tax fraud, in line with the priorities being set by the European Union and the OECD.

The activity to be carried out by the new office will be focused on international related-party transactions, or fixed transfer prices between entities belonging to multinational groups, and the correct taxation in Spain of income obtained by non-residents. It will also have a team specialised in economical-financial valuations of tax relevance (intangible assets, company valuations, unlisted securities, etc.).

This new unit will, certainly, have under it´s main duties, to investigate & check the correct use of the new rules for tax reporting for Spanish residents owning assets outside Spain worth over €50,000.



Javier Herrera Llamas

Time to revise your fiscal strategy if you are Spanish resident with assets outside Spain.

New Asset Reporting Law puts you under scrutiny if you are you resident in Spain, and you do own any assets outside Spain worth over €50,000, since you are subject to the Tax Authority new rules on tax reporting, designed to to strengthen action to prevent and combat fraud. 
Being Spanish resident, or if you live in Spain more than 183 days in Spain (even if you have not obtained residence permit) you will be taxed for your worldwide income. This is not new at all. 
But, the bad news is that now you will need to declare them before 30th April 2013 under a new reporting requirement. Failure to do so, or doing it unproperly, would have very costly consequences.

Reporting obligation

Reporting must be done on a new official form by the end of the first trimester each year, although the deadline has been extended for reporting assets held as at 31st December 2012, so that your first deadline is 30th April 2013. For future years, the deadline will be 31st March for the previous 31st December.

Assets to be declared

If you own any of the following assets outside Spain, valued at €50,000 or more, you need to declare them. You can find here a non - exhaustive list of assets that should be stated:

• Accounts held with financial institutions 
• All types of immovable property (real estate) and rights over such property 
• Shares and securities 
• Life insurance policies 
• Temporary or lifetime income generated from the lending of money, rights or other assets (including property) to foreign entities. 

You need to declare these assets if you are the owner, the beneficiary, or an authorised signatory. This includes assets held by a trust or fiduciary.
If the value of your total assets in each class is less than €50,000, you are not obliged to report.

Once you have reported the assets the first time, you do not need to report them again each year if the value of all your reportable assets increased by less than €20,000. Where their value has risen by €20,000 or more, you will need to report them again by the next annual deadline.

Information to be reported

The value to be reported for accounts with financial institutions, shares, securities, life

insurance policies and other assets is that at 31st December.

In the case of accounts with financial institutions, you also need to report the average balance over the last three months of the year. This category includes all types of bank accounts and deposits, including credit accounts, in all currencies, regardless of whether you have the right to withdraw the funds or not.
For immovable property, the value is the cost of acquisition. You also need to provide information on the type of property, its location, and date of acquisition.

Consequences of not reporting

If you fail to report any assets as required by the new law, the costs will be very high once discovered. The undeclared income arising from the asset will be deemed to arise in the last tax year which is not statute barred – four years in most cases. This effectively abolishes the statute of limitations.

You would have to pay all of the following: 

• Income tax at the income tax scale rates where the top rate is over 50% (so up to 52%, or 54% in Andalucía and 56% in Cataluña; even if the income would normally be taxed under the savings income regime). 
• Late payment interest for the last four years. 
• Penalties, which can be as high as 150% of the total tax due on the asset. 
• A fine of €5,000 per each piece of unreported data, with a minimum of €10,000. 

If the tax defrauded exceeds €120,000, it would be even considered a criminal offence. 

When you submit your declaration form by 30th April, you need to be sure you have filled it in correctly and included all the overseas assets that you should have, with the right values. Any mistakes or omissions, even accidental, could prove very costly.

So, clearly it is the time to revise your fiscal strategy if you are Spanish resident or you are planning to be.


Javier Herrera Llamas

Buying property =Residence in Spain?. Looking into details…

Recently the Spanish government announced its intention to offer resident visas to wealthy overseas investors spending a minimum €160,000 on a property purchase.

The measure is expected to imitate agreements already established in Portugal and Ireland. Jaime Garcia-Legaz, Secretary of State for Trade, insisted that the law change is necessary to reduce Spain’s unsold housing stock.  He told a conference in Madrid: “In coming weeks, we will start to reform the law regarding foreigners to reactivate demand abroad and contribute toward reducing housing stock.” The Prime Minister Mariano Rajoy stressed that the plan has not yet been finalized, but added that Spain ‘‘needs to sell these homes’’ and that getting them off the market could help revive the nation’s devastated construction industry.

The reason for that is quite simple: Spain has more than 700,000 unsold houses following the collapse of its real estate market in 2008 and demand from the recession-hit domestic market is stagnant. In the mean time, Spain is in the midst of a double-dip recession with 25 percent unemployment, though Rajoy said he believes Spain has managed to avoid a financial implosion and will start growing again in late 2013 and in 2014.

This is not something completely new in Spain. 

In fact, if you own a property in Spain you are granted a multiple entry visa permit allowing you to visit Spain more up to 90 days each 6 months. 

If that is not enough, you can today apply for a non lucrative residence permit. This allows the foreign national to reside in Spain, without carrying out labour activities, provided always that you can show a yearly income of more than 25.560,52 € per year, and other 6.390,13 € per year per each member of the family.

Is, anyway, not enough to show that the applicant has financial resources to live in Spain without working, but also will require: 1) not being found in Spanish territory illegally, 2) no criminal record in Spain and in the former countries where has resided for the past five years, 3) not listed as objectionable in the territorial space of countries with which Spain has signed an agreement to this effect, 4) Having a public or private insurance with a concerted health insurer authorized to operate in Spain, 5) not being previously deportated from Spain or any other EU country. and 6) not having any of the diseases that may have serious public health implications .

So, as you can see the proposal is not such a big change !!!.

Legislation can take some months to pass through the Spanish parliament. However, the Prime Minister has insisted that this programme will be accelerated to help deal with the problems within the Spanish economy.

The details of the Law has not yet being made public, so very little information is existing.  but we can make some well founded guessing

Will the Visas Apply to a family?

At this stage we still don't know but it is likely that close family members may be included.

Is it limited to Russia and China?

We expect not. Since Russia and China were expressly mentioned in the initial brief,  but the intention is to cover most countries that are not on the Spanish governments' list of high risk countries for terrorism.

Will the visas allow to work?

There are no details at this stage. And quite probably will not. However the measure could pave the way for buyers to eventually obtain a Spanish passport and then be eligible to work anywhere within the 27 EU states.

Will the visas grant access to schools and hospitals?

We expect it will not be a general opening of the public welfase system, but will be allowed for residents contributing to the Spanish welfare system. And quite probably, some form of medical insurance still may be necessary.

Will the visas allow residency elsewhere in Europe?

This is likely to meet some disapproval with other member states within the EU. But the legal aspects of this within the EU framework could be complicated and may have to allow freedom of movement. We will have to await further details

Can you take a mortgage?

We expect that the visas will only be granted to investors bringing a minimum of €160,000 investment into the country. Borrowing the money from a Spanish bank doesn't really achieve the aims of the government. A likely no on this.

Conclusion:

With the Spanish property market at bottom prices, with clear signs of prices being recovering for 2014 – 2015, I think is a very good time for those interested in setting residence in Spain to start looking into some properties to buy in 2013. 

Do not hesitate to ask any question you may have on this. We'll help you confirm to all the legal formalities, prepare the documents and submit them to the Spanish embassy, and to the federal body in charge of these issues (Gobierno de España, Ministerio del Interior). Our competence in this area will significantly reduce the waiting time and risk of problems. 

Javier Herrera Llamas