Mallorca and the Balearic Islands are among the most active property markets in Spain for international buyers. German, British, French, Swedish, Dutch and other nationals acquire property on the islands every year as a home, a second residence or an investment. The purchase process for a non-resident in Spain, however, has tax and procedural features that are best understood in advance if surprises are to be avoided.
First step: obtaining the NIE
The foreigner identification number (NIE) is the personal tax identifier required for any legal or economic transaction in Spain: signing a public deed, opening a bank account, paying taxes or applying for finance. Without a NIE the transaction cannot be completed before a notary.
The NIE can be applied for in person at a National Police station in Spain, at the Spanish consulate in the country of residence, or through an attorney holding specific powers of attorney. Processing times vary: in Spain it can be arranged within a few weeks; from abroad the process may take considerably longer depending on the consulate. We recommend starting this step as soon as there is a serious intention to buy.
Taxes on purchase for the non-resident buyer
The taxes borne by the buyer of a property are the same whether or not the buyer is resident in Spain. The relevant variable is whether the seller is a private individual (not acting as a business) or a business or company:
Transfer tax on a sale between private individuals
Where the seller is a private individual, the buyer pays transfer tax. In the Balearic Islands the applicable rates are:
- 8% on the band up to 400,000 euros.
- 9% on the band from 400,001 to 600,000 euros.
- 10% on the band from 600,001 to 1,000,000 euros.
- 12% on the band above 1,000,000 euros.
The taxable base is the reference value of the property set by the Spanish Cadastre for the current year, or the price stated in the deed if higher than the reference value. It is important to check the cadastral reference value before signing in order to estimate the tax cost correctly.
VAT and stamp duty (new build or business seller)
Where the seller is a property developer or another business and the transfer is not exempt from VAT (as in the case of a first transfer of a new build), the buyer pays 10% VAT (4% for subsidised housing) plus 1.2% stamp duty in the Balearic Islands.
The 3% withholding: the obligation that most often comes as a surprise
This is probably the tax obligation that most surprises foreign buyers, particularly where the seller is also a non-resident. Where the seller of a property is not resident in Spain, the buyer is required by law to withhold 3% of the price stated in the deed and pay it directly to the Spanish tax authorities using form 211, as a payment on account of the seller's non-resident income tax.
This obligation applies whether or not the seller makes a capital gain, and whether or not the buyer is also a non-resident. Failure to comply makes the buyer secondarily liable for the seller's non-resident income tax up to the amount of the withholding not made.
The non-resident seller, for their part, is entitled to claim a refund of any excess of the withholding over the non-resident income tax actually due, by filing form 210.
Taxes borne by the non-resident seller
Non-resident income tax on the capital gain
A non-resident selling property in Spain is taxed under non-resident income tax on the capital gain obtained (the difference between the transfer value and the acquisition value, duly adjusted). The applicable rate is:
- 19% for residents of the European Union, the European Economic Area or Switzerland.
- 24% for residents of other countries.
The double tax treaty in force between Spain and the seller's country of residence may alter these rates or allocate taxing rights exclusively to one of the two states.
Municipal capital gains tax
The tax on the increase in value of urban land (commonly known as municipal capital gains tax) charges the increase in the value of urban land since the last transfer. It falls to the seller to pay it to the town council of the municipality where the property is located. In the Balearic Islands the tax is administered by the town council of each municipality (Palma, Manacor, Calvià and so on).
Since the Constitutional Court judgment of November 2021 and the subsequent legislative reform, the taxpayer may choose between the objective method (based on the cadastral value and the coefficients approved by the town council) and the real method (based on the difference between the transfer value and the acquisition value of the land), applying whichever is more favourable.
Ongoing tax obligations of the non-resident owner
Once the property has been acquired, the non-resident owner is subject to various tax obligations in Spain:
- Deemed property income (form 210): if the property is not let, the non-resident must declare annually deemed income equal to 1.1% of the cadastral value (or 2% if the cadastral value has not been revised in the last 10 years).
- Rental income (form 210): if the property is let, the non-resident must declare the gross income quarterly (EU residents may deduct expenses; non-EU residents are taxed on gross income).
- Property tax (IBI): an annual municipal tax payable by any owner regardless of tax residence.
- Form 720: the information return on assets and rights held abroad. It does not apply to the Spanish property itself, but it does become relevant if the foreign buyer holds assets outside Spain and acquires Spanish tax residence.
At Lex·on we advise international buyers and sellers on the acquisition of property in Mallorca and the Balearic Islands, including the tax treatment applicable to non-residents, from Palma de Mallorca and Manacor. If you are considering buying or selling a home on the islands, we can review the transaction before signing.
Source: article 25.2 of the consolidated text of the Non-Resident Income Tax Act, approved by Royal Legislative Decree 5/2004, of 5 March; consolidated text of the Local Finance Act, approved by Royal Legislative Decree 2/2004, of 5 March; and Balearic regional legislation on transfer tax.
© Lexon Advisory, S.L.U. All rights reserved. The total or partial reproduction of this content, by any means or procedure, without the express written authorisation of its owner is prohibited. Any unauthorised use will constitute an infringement of intellectual property rights under applicable law.
This article is for information purposes only and reflects the administrative position in force on the date of publication. It does not constitute legal or tax advice and does not replace an individual analysis of each case.