Real Estate Law in Mallorca

Buying and selling property in Mallorca and the Balearics

Acquiring property in Mallorca, whether as a main or second home, as an investment or as a business asset, carries tax and legal consequences that need to be examined before the deposit contract is signed and, in any event, before completion before the notary. At Lex·on we act for buyers and sellers at every stage, from negotiating the terms through to settling the taxes due.

The Mallorcan property market is markedly international: a high proportion of buyers are foreign nationals or non-residents in Spain, which adds complexity in matters of tax, financing and applicable law. Our experience in this segment allows us to advise efficiently and with an eye on the outcome.

Taxes on a purchase

Depending on the nature of the transaction and the parties involved, a property transfer attracts the following principal taxes:

• Transfer tax (ITP): applies to sales between private individuals. The general Balearic rate is 8%, rising for values above certain thresholds.
• VAT and stamp duty: apply where the seller is a business or professional and the transaction is not VAT-exempt. On the first transfer of a newly built property the rate is 10%, or 4% for subsidised housing.
• Municipal capital gains tax (IIVTNU): charges the increase in the value of urban land since the previous transfer. It falls to the seller.
• Income tax: the seller's capital gain is taxed under personal income tax if resident, or under non-resident income tax if not, at 19% for EU and EEA residents and 24% otherwise.

Property taxation for non-residents

Non-resident buyers and sellers face a regime of their own, distinct from the one applying to residents. The most significant features are these.

The 3% withholding on the price

Where the seller is not resident in Spain, the buyer must withhold 3% of the price stated in the deed and pay it to the Spanish tax authorities on form 211, on account of the seller's non-resident income tax. The obligation applies whether or not the seller makes a gain on the transaction, and failure to comply makes the buyer liable for the tax.

Taxation of non-residents' property income

A non-resident owning property in Spain must file periodic returns for the income arising: either deemed income where the property is not let, or the actual rental income where it is. We advise on meeting these obligations, on the deductible expenses available and on the rates applicable under the relevant double tax treaty.

Obtaining a NIE

The foreigner identification number (NIE) is indispensable in order to sign a Spanish deed, open a bank account and pay taxes. We advise on obtaining it and handle the application before the National Police or the Spanish consulates abroad.

For a fuller analysis, see our article: Buying property in Spain as a non-resident.

Property due diligence

Before committing to a purchase, particularly where the transaction is substantial or complex, due diligence is essential in order to identify the legal, planning and tax risks involved.

Legal and land registry review

We verify title, charges, encumbrances and mortgages recorded at the Land Registry, together with any provisional entries, conditions subsequent or rights of pre-emption that could affect the transaction.

Planning and licensing review

We check how the land is classified for planning purposes, whether the building matches the licence granted, whether any enforcement file is open and the state of the utility connections. For property in Mallorca we also examine any constraints arising from coastal protection rules or from areas of special environmental value.

Tax due diligence

On acquisitions of assets or of property-holding companies, we review the potential tax exposure: outstanding local property tax, tax debts of the seller, verification procedures already under way, and the valuation of the assets for income and wealth tax purposes.