Property buying procedure
1. The phases of the purchase process

A) Negotiation and agreement
Once the purchaser has shown interest in acquiring a property, the negotiation process with the seller begins with the aim of agreeing on the terms of the transaction.
Once an agreement is reached the parties confirm it in writing and the task of drawing up a contract begins.

B) The private contract and deposit payment
This first private document is not mandatory and sometimes the parties may prefer to sign the public deed of sale directly. However, in most cases it is advisable to sign a prior private agreement that can be drawn up with the help of the agency's legal service or by the legal representatives of clients with the aim of closing the deal legally for the peace of mind and security of the parties until the public deed can be signed before a notary public.
There are three main types of contract:
- Private purchase contract
The purchase contract is that by which one party agrees to deliver the property and the other to pay a certain price for it. The purchaser may pay the seller a certain amount of money on signature of the private contract on account of the purchase price. This payment is known under a variety of names: down payment, good faith deposit, earnest money...
Infringement of this contract by either party entitles the other to choose between demanding the fulfilment of the contract on its own terms or unilateral termination of the same with the right to compensation for loss and damage.
- Earnest money contract
The so-called 'earnest money contract' is actually a sales contract in which a 'pledge agreement' is included under which a certain part of the price (generally 10%), defined as a security deposit, is handed over.
The definition of this amount as a security deposit (arras penetenciales in Spanish) enables either party to freely withdraw from the contract. If it is the purchaser who withdraws, the amount paid as security deposit may be retained by the seller. On the other hand, if the seller withdraws the purchaser will be entitled to receive double the amount paid as the security deposit: the original deposit plus the same amount again as a penalty.
Another type of bond, which we will call the purchase deposit (arras penales in Spanish), is conceived as a penalty clause. Its effects are half way between the earnest money contract and the security deposit: in the event of infringement the noncompliant party must pay the other party a fixed penalty, but the compliant party, in addition to receiving the amount of the penalty, may opt to demand compliance or to unilaterally terminate the contract.
- Purchase option contract
The purchase option contract is a contract under which the selling party grants the purchaser the right to decide whether or not to enter into a purchase contract within a certain time and under certain conditions.
If the purchaser decides not to exercise the option, the amount paid as the option premium will be forfeited. If the granter-seller refuses to sell on the agreed terms the grantee-purchaser may choose between demanding fulfilment of the contract on its own terms or requesting termination of the same with the right to compensation for loss and damage.
A private contract can take place remotely, by digital means or by postal mail. All the negotiated terms, the price, the deadline for signature before a notary public, a description of the dwelling including furniture and appliances, the responsibilities and the expenses deriving from the transaction are included in the document.

C) The sale-purchase deed
Final signature of the deed of sale takes place before a notary public of Ibiza in the presence of all parties or their legal representatives. Payment of the full agreed price, from which the down payment is deducted, takes place at this time. Purchasers have the right to choose the notary since they bear the costs deriving from formalisation of the title deed.
The rights and duties of ownership of the property covered by the agreement are transferred to the purchaser on signature of the deed.

2. DUE DIILGENCE (legal checks)

Before signing the deed of sale before a notary, and even before signature of a private contract, the purchaser should check certain aspects of the legal standing of the dwelling.
We always advise out clients to use the services of an independent legal counsel to make these checks, especially if the purchase involves complex legal aspects.
- Checking the title deed. The purchaser should ask the seller to provide the title deed of the property, generally a public instrument signed before a notary public.
- Consult the Real Property Registry. In order to ensure that the property is registered in the name of the seller and is free of encumbrances or liabilities, in other words, that the property has no liens or mortgages.
- Consult the Land Registry. It is also advisable to check the data in the Spanish Land Registry (known as the Catastro) of the property you intend to purchase (ownership, area, identification of the property, location, etc.) by obtaining the appropriate descriptive and graphic Land Registry certification.
- Planning charges. If the property is a building erected on recently developed land, this land, and consequently the dwelling, may be subject to urban planning charges. This aspect can be checked by consulting the Real Property Registry of the relevant town or city council.
- Building Permission. The purchaser should check that the building has the required municipal building permission certifying that the building is legal (issued by the competent town or city council).
- Certificate of occupancy and first occupation license. The certificate of occupancy and the first occupation license are administrative documents showing, respectively, that the dwelling meets the requirements of the currently applicable legislation for buildings for human occupation and has met the conditions set forth in the building permission.
- Energy Performance Certificate. Any housing intended for sale, whether newly built or for resale, must have this certificate which accredits the energy efficiency rating of the building.
- Check payment of the property tax. The purchaser should check with the municipal council that there is no outstanding payment of this tax pending from previous years.
- Check that there are no current leases or rental agreements.
- Proprietors association contributions. The purchaser should check that the seller is paid up with respect to the proprietors association if the dwelling is part of a condominium governed by the horizontal property regulations.
- Statutes of the proprietors association statutes. If the dwelling is part of a condominium governed by the horizontal property regulations the purchaser should examine the statutes of the proprietors association in case there are rules that could restrict the uses to which the property can be put. At all events the terms and conditions for contribution to the common expenses and maintenance of the building should be checked.

3. Costs arising from the purchase

Buying a home has tax repercussions because it is subject to payment of Property Conveyance Tax or Value Added Tax depending on the type of property in question, in addition to the payment of a municipal capital gains tax, without forgetting the impact of the sale of a dwelling on personal income tax.

Property Conveyance Tax.
When the property is a used dwelling the purchaser has to pay the Property Conveyance Tax (Impuesto de Transmisiones Patrimoniales or ITP in Spanish). This tax is calculated on the basis of the declared sale price reflected in the title deed or the private purchase contract unless the value of the property according to the Tax Department is higher, in which case the price calculated by the tax authorities will be applied.
This tax must be paid in the Tax Office of the district in which the property is located, regardless of the place where the public sale-purchase instrument or title deed is formalised. The deadline for payment of this tax is 30 business days from the date of execution of the title deed.
In the Balearic Islands the rate is between 8% and 10% of the taxable base depending on the value of the conveyed property.
• Up to € 400,000 8%
• Over € 400,000 9%
• Over € 600,000 10%
• Over € 1,000,000 11%
Parking spaces not included in the title deed: maximum two per household are taxed at 8% up to € 30,000 and 9% in excess of this figure.

The Value Added Tax (VAT).
If the dwelling is newly built - in other words this is a first occupancy conveyed to the purchaser by the developer or builder - the Property Conveyance Tax is not applicable, but the following two taxes must be paid:
1. Value Added Tax (VAT)
• 10% for housing.
• 21% for land, commercial premises, storage rooms and garages.
2. Stamp Duty (Impuesto de Actos Jurídicos Documentados or AJD in Spanish)
In general, whenever purchase of a property is subject to VAT, the purchaser must also pay the other tax at 1.2% of the purchase price. VAT is paid to the seller together with the purchase price and the seller must pay it in to the Tax Agency. Stamp Duty is payable by the purchaser within 30 business days from the signature date of the title deed by the self-assessment procedure.

Municipal Capital Gains Tax (plusvalía municipal in Spanish).
This is a municipal tax paid every time an urban property is conveyed (house, garage, business premise, storage facility, etc.) in the municipality or urban property where the dwelling is located. It is levied on the increase in the value of urban land during the time the seller has owned the house or urban property in question up to a maximum of twenty years, after which the tax is no longer applicable.
It is calculated on the value of the land on which the property is built according to the Land Registry, and the amount to be paid will be higher the longer the seller has owned the property (up to the twenty-year threshold mentioned above). The rate is set by each municipality and ranges from a minimum of 5% to a maximum of 30%.
The law states that it is the seller who must pay this tax in the case of sale of a dwelling.

Property Tax.
Finally, even though we are now talking about a tax not associated with the sale-purchase of a property but with ownership of the same, the home owner should keep in mind that there is a municipal property tax (Impuesto de Bienes Inmuebles or IBI in Spanish) calculated on the basis of the value estimated by the Land Registry. This tax accrues on 1st January of each calendar year, which means that the property is a taxable entity and will its owner on said date will be liable for the tax. In other words, the owner on 1st January must pay the tax even though the property is sold during the same year at a later date.
Moreover, the property conveyed is liable for all unpaid IBI levies from previous years. This means that the municipality can attach the acquired property to recover the amount of any outstanding amounts accrued by previous owners.

Other expenses of the purchase
• Mortgage costs. Property valuation (approximately € 500) and costs associated with the mortgage itself. The latter vary but are approximately 1% of the loan principal.
• Attorney fees. About 1%.
• Notary fees. Usually approximately 0.5% of the purchase price, to be paid by the purchaser.
• Real Property Registry. Paid by the purchaser, around 1%.
• Banking expenses. Depends on the bank and the form of payment.
• Agency fees. Paid by the seller unless otherwise agreed. The agent's commission varies between 3% and 6% of the purchase price (excluding VAT), although the standard in Ibiza is 5%.

4. Procedures subsequent to the signing of the deed

The purchaser acquires ownership of the property in question on execution of the public deed before a notary without any further requirement or procedure. Subsequently, however, there are certain public authority requirements to take care of such as paying taxes, filing the title deed in public records, notification of the change of ownership of the property, etc.

Registration with the Real Property Registry. Immediately after signature of the public title deed the notary will send an attested copy by electronic means for registration in the appropriate Real Property Registry.
Once the digital copy of the instrument is received, the Real Property Registry will open the submission entry, which will be valid for 60 days. Opening of the submission entry in the registry on the same day as signature of the title deed entails the obligation of the purchaser(s) to register the dwelling in their own name and with the same status with respect to existing encumbrances that existed at the time of signature.
Payment of taxes. Signature of the title deed gives rise to the obligation of the purchaser to pay the associated taxes: the Property Conveyance Tax (in the case of a second-hand dwelling) or the VAT and Stamp Duty (for new buildings).
Change of ownership in the Land Registry. The purchaser must notify the Land Registry of the change of ownership of the property within two months from signature of the title deed.
Notification of the Council. The purchaser is obliged to notify the competent municipal council of conveyance of the property by submitting a non-attested copy of the title deed to enable the council to levy the capital gains tax (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana in Spanish).
At present, in most cases this notification is handled directly by the notary office by electronic means.

5. Summary of the responsibilities of the purchaser

The following is a summary of the information required for adequate preparation of the purchaser prior to signature of the title deed. Do not forget that there are professional offices that can guide the purchaser through the stages of the purchase process.

Documents required for signing before the notary
• Original of the personal ID card or passport
• Original of the NIE (foreign resident/work permit, only for resident foreigners)
The NIE is the fiscal ID for foreign residents who engage in economic activity in Spain. It must be presented to the notary and is necessary to pay taxes. To obtain an NIE you must submit an application accompanied by an attested copy of your passport to the appropriate National Police Force station. The processing period is usually two or three weeks.

• Bank cheque or proof of bank transfers. According to the payment conditions.
On this point, foreigners who are making their first purchase in Spain are often required to open an account at a local bank.

• Receipts for any payments already made
• Changed utility contracts: electric power, water, telephone, etc.

Costs arising from signature of the title deed
Total expenses for the purchaser can range between 10% and 13% of the purchase price and include the following:
• Taxes. ITP 8-10% or 10% VAT
• Real Property Registry. 1%
• Mortgage costs. 1%
• Attorney/consultancy fees 1%
• Notary fees. 0.5%
• Banking expenses. Depends on the bank and the form of payment.


Money Laundering Act
Due to the provisions of Act 10/2010 on prevention of money laundering and terrorist financing, we recommend that purchasers prepare the documentation and means of payment well in advance.
Both the banks and notaries may require the submission of extensive documentation in order to properly account for the origin of the funds.

6. Summary of the responsibilities of the seller

The following is a summary of the information required for adequate preparation of the seller prior to signature of the title deed.

Documents required for signing before the notary
• Original of the personal ID card or passport
• Original of the NIE (foreign resident/work permit, only for resident foreigners)
• The original of the title deed
• In the case of newly built constructions, the New Building Registration Deed
• Municipal building permit
• Municipal certification of end of works
• Certificate of occupancy
• Energy performance certificate
• Last receipt of the IBI
• Most recent utility invoices: electric power, water, telephone, etc.
• Information on the mortgage, if any

Costs arising from signature of the title deed
• Taxes
In conveyance of a property the seller must pay personal income tax in respect of capital gains by 30th June of the year following the conveyance. The gain or loss is calculated as the difference between the acquisition value and the current conveyance value.
If the seller is a resident the rate is 21% on gains up to 6,000 euros, 25% on gains between 6,001 and 24,000 euros and 27% in excess of 24,000.01 euros.
If the seller is non-resident, the tax is a flat rate of 21% on the capital gain from the sale of the property. It should not be forgotten that in this case the purchaser (whether resident or not) is obliged to withhold 3% of the agreed consideration and to be paid to the Tax Agency within one month of the purchase date.
• Agency fee. Generally 5% plus VAT
• Municipal Capital Gains Tax
• Attorney Fees
• Mortgage cancellation fees, if any

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