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  • Writer's picturePeace of Mind PM

Steps to Buying a Property in Spain for non-residents

One important thing to keep in mind before investing in real estate in Spain as non-resident is that you will need a NIE (Foreigners' Identity Number) to open a bank account and to sign the deed contract.

If you wish to obtain bank financing to purchase the property, there are many banks with a wide range of financing options for foreigners. The procedures to obtain financing can take several weeks or even months, so a good idea is to start looking at different banks and rates at an early stage of the buying process. From Peace of Mind we can also recommend mortgage brokers who can help you find the best rate.

Having a bank account in Spain is essential in order to stablish the direct debit for the expenses related to the property such as all the utilities (gas, water, electricity), Wi-Fi, community fees, etc. Normally all these utilities cannot be charged to a foreign account nor can they be hired without a NIE.

Once the administrative part is taken care of and you find the property that meets your expectations, these are the next steps every Buyer needs to know about:

Step 1: Formal Offer and Reservation contract

Formulate a written offer for the property and, in some cases, put down a good faith deposit, a way of showing a real interest for purchasing the property. This deposit is held by the real estate agency and the amount varies depending on the property price.

If the Seller does not accept the offer, either the money is transferred back to the Buyer or a negotiation process starts to find a price in which both parties meet.

If the offer is accepted and signed by the Seller, then it becomes a reservation agreement and the property is taken off the market. In the reservation agreement the conditions and time lines for the sale are stablished. With the acceptance of the offer, the Agency will transfer the deposit amount to the Seller.

Prior to signing the arras contract, a due diligence check will be carried out. The Buyer will have to provide pay rolls, tax returns, deeds of sale of properties, etc. or any document that certifies the legal origin of the funds.

In this step all the property documentation is reviewed: An updated simple note (nota simple) from the Land Registry to verify who the owner is and if there is any mortgage or tax pending on the property. The note also establishes the registered surface area and the boundaries of the property. Before verifying the information in the simple note, the main document to check, we recommend not to make any reservation payment or sign any type of commitment.

Certificate of being up to date with debts to the community of owners. Check the last minutes of the community of owners, these minutes reflect the agreements taken by the community since it was formed and we can check if there are important debts to face, debtors, or any other issues such as legal proceedings pending. This can give us a full picture of the current situation of the community. We will also check that the seller is up to date with the payment of the Property Tax (IBI).

Step 2: The Private Arras Contract (Contrato de arras)

This is the agreement between both parties (Buyer and Seller) stablishing the conditions of the sale: description of the property, purchase price agreed, date of deed, payment structure, etc.

With the Arras Contract signed, the Buyer will have to make a down payment to the Seller’s bank account. This amount usually represents 10% of the agreed purchase price. The amount already transferred to the agency as reservation will be part of this 10%.

The most commonly used type of Arras contract is Arras penitenciales or double rate deposit which means that if the Buyer decides to back out of the purchase, he will lose the down payment amount. If the one that desist is the Seller, he must return to the Buyer double the amount given as down payment as compensation.

Step 3: Completion of the Public Deed of Conveyance (Escritura de compraventa)

The property is officially transmitted to the Buyer at the signature of the Deed of Conveyance (Escritura de compraventa). This is done before a Notary, a public official who is required to witness the deed of sale and attest that the parties have agreed the transaction. Right before signing, notaries request up-to-date Land Registry information about the property, to verify that there are no last-minute encumbrances or foreclosure entries.

The most common payment for the pending amount is a bank check and, in case of pending mortgage on the property, the Buyer will pay with 2 bank cheques:

  • One with the outstanding mortgage amount, which is received by an authorized representative of the bank. In case no bank representative goes to sign the cancelation deed, the Notary must include in the purchase deed that the buyer gave a bank cheque with the amount to pay the pending mortgage on the property at the time of the Sale.

  • For the Seller with the rest of the amount after deducting what was paid in arras and paid to cancel the mortgage.

The Buyer is then issued with the Public Deed of Conveyance from the notary, who certifies the property transfer. Form the notary’s office a copy of the Public Deed is sent electronically to the Spanish Tax Office and to the Land Registry to record the new owner right away.


On purchase:

  • Buying a resale property from a private individual

Transfer Tax or Impuesto sobre Transmisiones Patrimoniales(ITP) applies. The general rate varies from region to region, it’s between 6% (as in Madrid) and 10% (as in Catalonia).

  • Buying a new build property from a developer

VAT (IVA, Impuesto sobre Valor Añadido) and Stamp Duty (AJD, Actos Jurídicos Documentados) apply. VAT and Stamp Duty apply for residential properties never previously occupied and building plots of land.

At the time of writing VAT is 10% of the purchase price for new residential properties and 21% for plots. Stamp Duty is a percentage of the purchase price and it varies from region to region between 0.5% and 1.5% (in Madrid its 0,75%).

  • Solicitor’s Fees. Though it is not obligatory to seek legal assistance when purchasing a property, it is recommended to do so. The fees can vary depending on the complexity of the transaction and the legal situation of each property.

  • Notary Public’s Fees and Land Registry Fees. The fees vary depending on the purchase price and complexity of the deed.

After purchase:

Local Taxes or Impuesto Sobre Bienes Inmuebles (IBI). Local taxes are calculated on the cadastral value (valor catastral) of the land assigned by the Spanish Tax Office. It depends on the square meters of the property and the value of the land and the value of the edification.

Community Fees. Community fees are applicable for apartment buildings or in houses within a community of neighbors, not for a detached house. These fees are paid monthly and include expenses such as door man service, lift maintenance, cleaning, gardening, etc.). If there is a need to do an exceptional maintenance work the community fees may increase for an amount of time and this is called a derrama.

Non-resident Income Tax or Impuesto sobre la Renta de No-Residentes (IRNR). This tax is paid by owners who are not tax residents in Spain and varies depending on the use:

  • The property is for personal use and it’s not rented out: There is an annual income tax even if the property does not generate any income. The tax rate is generally 2% of the cadastral value of the property (much lower than the commercial value). The rates are: 19% for EU residents and 24% for non-EU residents. Although it varies, this tax is approximately 0.2% of the property value.

  • The property is rented and taxes are paid for the periods during which it is rented: The base for the applicable tax rate is the income received from the rent. EU residents can deduct different costs such as property management and property maintenance costs. The rates is: 19% for EU residents with no other source of taxable income in Spain and 24% for non-EU residents

Wealth Tax for Non-residents (Patrimonio). Property owners in Spain (residents and non-residents alike) have to pay an annual wealth tax based on the net value of their assets in Spain after any deductions that may apply.

This is a brief explanation of the phases and costs involved when a non-resident buys a property in Madrid, nevertheless we highly advise our clients to hire an expert tax lawyer that can guide them with their unique personal situation.

An always keep in mind, throughout the entire purchase process, that each market is different and cultural customs may be vary to those you are used to in your own country, it’s the best way to avoid surprises and to enjoy the whole buying process.

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