M&C International Corporate Lawyers
My name is Rafael Rodriguez-Merencio. As the lawyer who is going to give you some advice (and hopefully, some useful tips), in the following pages, I would like to give you a brief view of my CV and professional experience.
I graduated in Law from the University of Navarra in 1996. I then went to specialize in European Communities and Law. Wanting to know a bit more about other useful aspects of business and life apart from the legal aspects, and as related area, I gained experience in foreign trade after being selected and trained as an expert intern for the Government, travelling to Asia and Latin America in order to promote the export of Andalusian products (not real estate yet).
I then completed my academic CV with an MA in Political Science from the University of Bath in 1999, studying also at the Universities of Washington and Paris III (Sorbonne Nouvelle) and did an internship at UNESCO’s Headquarters at the same time; and an LLM at the University of London.
After coming back to Spain I started working as a Consultant for an offshore advisory Firm, in their offices in Gibraltar, London and Madrid, being then responsible for the operative office in Marbella, acquiring a deep knowledge of the offshore world.
Then I thought it could be probably time to move back to legal practice in Spain, and started working as the in-house lawyer of a holding group of companies related to the world of Costa del Sol luxury development, and getting to know, therefore, the other side of the Real Estate business: the point of view of the developer. After moving to the “bright side” working for a couple of Firms in the Costa del Sol area, I established the Firm I.C. Lawyers together with other partners.
I speak Spanish (of course), English and French, and our Firm can also deal with clients in Italian and Hungarian. We will be glad to answer your questions about legal aspects of the property purchase process in Spain in those languages.
Some tips on the process for purchasing your house in Spain
A house in a foreign country is always a big decision and a step forward in the property ladder.
You can choose to use it as your holiday home, rent it part time, or even move to live permanently and become a resident having the same rights as any other citizen.
In any case, it is useful to familiarize with the system of the county.
We will try to make things easy for you though some comments and tips in the form of Questions & Answers in order to give you understandable advices in order to avoid some of the pitfalls of purchasing a property in Spain. In the following 10 questions you will find advice on some of the issues and problems that the majority of prospective purchasers may find:
- How do I reserve the property I am interested in?
Usually, the developer will have a reservation contract with a small amount (around 6,000€) to be paid as reservation deposit. Also, normally, this deposit is non-refundable, as it establishes the Civil Code. In some occasions, when reserving through an agency, it is possible that the agent will configure the reservation contract with them (not with the developer) as subject to viewing, meaning that they will not pay the deposit to the developer until you are sure. It depends then on the arrangement with the developer to consider the property reserve in the meantime. In the case of a re-sale property, the owner will usually want a non-refundable deposit as well, and possibly a 10% deposit directly in the private purchase contract.
- What is the private purchase contract?
The private purchase contract is the legal binding document that the developer (or the vendor) has to give the purchaser for his/her revision, approval and finally, signature, and where all the conditions agreed by both parties will be included. It will mention the price, the description of the property, the payment terms, the completion date and notary where it will take place and the costs and expenses of the transaction. When it refers to an off-plan property, also includes general information about the development, the urban planning situation, the construction license, etc. In most cases, when the contract is drafted by the developer, it is not possible to amend or change any clause, except when the clauses can be considered abusive according to Law, and that is another reason why the role of your lawyer is very important.
In the case of a resale, both lawyers representing the vendor and the purchaser will agree I the terms and draft the contract. It is also usual that the lawyer will sign the contract on behalf of the purchaser as a verbal attorney, so the purchaser does not have to travel again just for that purpose.
- What is the NIE and why do I need it?
NIE stands for “número de identificación de extranjeros”, and is the identification number that you will be allocated by the Ministry of the Interior for all your relations with the Spanish government and different public offices. Mainly, and the principal purpose to apply for it and obtain it before completion is because this number is needed in order to pay the taxes associated to the purchase within a month after the deeds are signed at the notary. Otherwise, the tax cannot be paid, and a fine will be charged to the tax or duty that has to be paid. You will also need this number if you want to buy a car in the future (brand new or second hand), and for your annual income tax return.
- How do I obtain the NIE?
In order to obtain the NIE there are several ways, although only one procedure. It has to be granted by the Ministry of the interior, and it is usually done through the national police stations.
I will outline, form experience, the different ways to apply:
-In person, at the nearest national police station of where you are purchasing or staying at the moment of applying. You will need your original passport, a photocopy of it, 2 application forms duly completed and signed, and quite likely, but depending on the police station, documentary evidence of the reason for applying(namely, the reservation or purchaser contract). Also, depending on the police station, queues for applying can take several hours, even before they open at 9 a.m. just to get a number in the queue to be able to apply. There is no fees payable for the application. The number should be ready for collection between 15 to 30 days.
- In the nearest Spanish Embassy or Consulate in your country of residency. The documents that you will need are the same, but the Embassy or Consulate will charge a fee for dealing with the application. There is no security about the time frame for the number to be collected, so it could take longer than a month. Personal experience proves that there is uncertainty in when the numbers are ready, but it varies.
- Through a Power of Attorney (POA) authorising a third party to apply on your behalf. As a Law Firm we also provide that service and avoid you the queue hassle. In this case, also notarised copies of passports of the applicants will be needed.
- What is exactly the POA and how can I do it?
A Power of Attorney is a legal document to authorise another person/s to do something on your behalf, when you cannot attend those acts that require your personal presence and another person (the attorney) can substitute you.
The POA can be used to apply for the NIE on your behalf, as we indicated in the previous question, and also to go through the whole process and complete and sign the mortgage if you do not wish or cannot take the time to come to Spain for the date of completion.
The POA can be granted while you are in Spain or at another Public Notary or the Spanish Embassy in your country. The easiest and cheapest way is doing it in the presence of a notary in Spain while you are here. If it is done at a public Notary in your country it will need to be officially translated (or drafted in bilingual form) and will require the “The Hague Apostille” for its validity. If it is done through the Embassy or Consulate, then there is no requirement of the Apostille or translation, but it can take longer and arranging an appointment is sometimes difficult.
In any case, please never forget to take your passport with you when you go to the Notary, Embassy or Consulate.
- Can I open a bank account in Spain?
Yes, not only that you can, but you must do it. All you need is your passport and they will give you an account number immediately. Signing all the contracts at the bank can take up to 40 minutes, since they will want to know your needs and circumstances, and order cheque books, cards and Internet access. All main banks and savings banks have Internet banking and it will be very useful for you to be able to deal with your account when you are back in your home country.
Also, when applying for a mortgage, the bank will open an account directly for you where you will repay the mortgage instalments.
It will also be useful to pay by direct debit utility bills like electricity, water, telephone, as well as the annual council tax (IBI) and local garbage tax.
- What do I have to do for completion?
If you finally decide to come down to Spain for completion, please be patient. We believe it is important that you are prepared to expect a completely different experience to any other property purchase you have ever made before. We will do everything in our power to ensure a smooth transaction, but many things can happen in Spain that sometimes seems beyond belief. The vast majority of completions are concluded without a hitch, but as they say forewarned is forearmed or at least prepared. We always recommend that our clients allow at least one day either side of the proposed completion date before traveling to Spain. Certainly please don’t plan to travel to or from Spain on the completion date itself. Ideally you will allow three days at least between the travel dates.
When funds are required for completion, either you transfer the funds to your account (or the account opened by the bank for the mortgage, or you transfer the funds to your lawyer’s professional account, from where he will pay the developer or the vendor at completion.
- Is it very complicated to obtain a mortgage?
Interest rates are currently more favourable in Spain than other EU countries. We can recommend you very good mortgage brokers and deal directly with it. Mortgages for non-residents buying a holiday home can go up to70% or sometimes even 80% of purchase price. The average mortgage is between 4.25% and a variable interest of Euribor + 2% máximum.
- Which costs will I have to pay to complete?
We are going to summarise a list of costs (apart from the amounts to be paid as part of the price) for the transaction until completion:
- IVA: This is the VAT on the purchase price, when you are buying off-plan from a developer. Currently it is 7%. You will have to pay as part of the price, but it will appear separately in the contract. Equally, in the deed, the price is reflected without VAT and then the notary expresses that the price is subject to VAT and that this has been already paid to the developer who in return will have to pay it to the Tax Authority. When the transaction is subject to VAT the tax to be paid directly to the Government by the purchaser is the Stamp duty at 1% of purchase price.
- Transfer Tax: When purchasing from a vendor (individual or company) after the first transmission from the original developer, the tax to be paid is called transfer tax, and it is payable directly by the purchaser to the Tax Authority within 30 days of completion. The current Transfer Tax rate is 7%.
- Legal fees: A Law Firm charges in the region of 1% to 1.5% for explaining and dealing with all the process from start to completion. Arrangements for supplies, NIE, and POA could be charged separately.
WE CAN OFFER YOU A MORE COMPETITIVE RATE OF 0.75% PLUS A FLAT FEE FOR ARRANGING SUPPLIES. FOR SPECIAL FEE ARRANGEMENTS FOR CLIENTS RECOMMENDED FROM THIS SITE, PLEASE CONTACT US.
- Notary and Registry fees: The Notary and the Land Registry will invoice you for their services in the transaction (signature of deed and registration of property). Their fees will vary depending on the transaction value and the number of pages of the deed. The fees are not known until the process is finished and their invoices are issued, but approximately fees for both services will account for another 1% of the purchase price.
- Mortgage: If you are subscribing a mortgage, there will be additional costs:
- Opening commission: Usually banks charge 1% of the mortgage advance as opening fee.
- Stamp duty: It is 1% of the total mortgage responsibility, which is usually 1.8% of the mortgage amount.
- Mortgage broker: If you use a mortgage broker, they usually charge another 1% of the mortgage advance.
- Notary and Registry fees: There will also be fees from both the notary and Land Registry for the mortgage deed, and will be also approximately 1% (together) of the mortgage amount.
- This is a summary of the costs that the purchaser will face upon completion. Other taxes like “plusvalia” (a local tax calculated on the increase of the value of the property sold) and CGT (in the income tax return) are paid by the vendor.
- What will I pay after I own the house?
There are ongoing costs for owning a property in Spain, as in any other country of the world, and are reasonable and associated to the ownership and maintenance of the property.
These costs are:
- IBI: The “impuesto sobre bienes inmuebles” is a local tax calculated by the cadastral office on the basis of the value that the municipality decides that the land and the construction are worth (less than the market value). It is issued once a year and payable usually by mid September, although in some Town Halls it could changed if the tax is not dealt by the Provincial tax office.
- Garbage Tax: This tax is also issued by the municipality for the service of rubbish collection in your urbanization (although it does not mean that a local employee will collect it from your doorstep). It will be issued twice a year, per each natural semester.
- Income tax and Wealth Tax: These two taxes are state taxes. They are payable to the central government at the end of every natural year (before the 31st of December). For non-residents with no other income in the country (just the ownership of a real estate property), both taxes can be paid together in the same form. The calculation for the wealth tax is based on the purchase value (minus debts like mortgages) and according to a scale published every year. The income tax is based on the cadastral value. The tax rate is 25% of the 2% of the cadastral value. If there is any rental income, then the tax rate of 25% will be on that rental income.
I hope that all this information elaborated on practice and experience is useful for you in your decision of purchasing and enjoying your new home in Spain.
Nevertheless, the list does not intend to be comprehensive or exhaustive, since there are other issues and pitfalls that may occur in the process.
Therefore, we invite you to participate and send your questions to help us elaborate a more comprehensive service to help you understanding the conveyancing process in Spain. Questions to your answers will be updated once a week.
For any personal questions regarding your case or for more detailed legal advice, please do not hesitate to contact us.
And welcome to your online advice as a first step to own your home in Spain!
M&C International Corporate Lawyers
Av. Jose Banus, Urb Jardines del Puerto
29660 Puerto Banus-Marbella (Spain)
Tel.:+34 952 929181 - Fax:+34 952 907 515
www.iclawyers.com
