Please note that the information provided in this article is of a general interest nature and intended as a basic outline only. You are well advised to contact a professional for advice specific to your circumstances. Nothing contained in this article should be seen or taken as the writer or the publisher providing legal or financial advice.
On Sunday (21.01.07) I spent a couple of very amusing hours teaching my youngest to beach cast his Christmas gift fishing rod. He’s only five and generally has a fairly high boredom threshold.
He made various heroic attempts to cast his bait of squid, reaching perhaps 10 to 15 metres from the shore. The remaining 140 abortive casts resulted in what I think is known in the angling business, as “spaghetti”. I have naturally developed an almost super human level of patience to deal with such disasters!
The sea was faily flat with very little drift but when you’re five what’s the fun in watching a bobbing float – you want to keep tugging the line over the surface and having another go. Especially when it’s 18 degrees and there's a low but glaring winter sun making spotting the little pimple of the float virtually impossible.
On Tuesday, the aptly named Sierra de las Nieves – Snow Mountains - the backdrop to the San Pedro de Alcantara stretch of the Costa del Sol - were dusted with a light covering of snow. An amazing sight with almost Alpine skies and about 4 degrees.
By Friday evening, on the way home on the N340– as we still insist on calling it – we passed overhead illuminate signs warning of the need to apply snow chain in the vicinity of the amazingly beautiful Andalucian town of Ronda – half an hour in land.
Finally by Saturday a near hurricane force storm with torrential horizontal rain downed a number of a neighbouring fruit and palm trees and the corrugated plastic roof of our “trastero” – our outside storage area - is now spiralling somewhere towards Bilbao!
Sunday (28.01.07) dawned windy with high rolling waves, bright sunshine and 17 degrees by midday.
Good, so that’s Winter over for another year!
The New Year in Spain has dawned and many publications aimed at potential buyers and sellers are full of a number of legislative changes that affect the overall cost of a purchase and sale of a Spanish property. Abogado colleagues have assured me that the net effect is intended to be good for the current “buyers” market.
On 6th November 2006 the Spanish Government approved various taxation reforms that came into force on 1st January 2007 and affect Personal Income Tax – most particularly Capital Gains Tax and Non-Resident’s Income Tax. It also adopted various new tax anti-avoidance rules.
The various net effects can be identified as follows:
For Non Spanish Residents:
For Spanish Residents:
- Capital Gains Tax (CGT) will be reduced from the current 35% to 18%. CGT is payable on the profits made from selling real estate in Spain. Such profit is the difference between the purchase and sales price less the taxes and costs related to the sale and purchase.
- Buyers Retention of 5% on the Sales price of a property sold by a non-resident has been be reduced from 5% to 3%. The purchaser of a property owned by a non-resident seller must make this retention from the sales price and pay it over to the Hacienda – the Tax Office – as an on account of the seller’s CGT liability.
- It should be noted that a non-resident seller of a Spanish property may have residual CGT liability under applicable rules in their own country of residence, subject to any relevant double taxation treaty between Spain and their tax residence.
- Capital Gains Tax will increase from the current 15% to 18%
Sociedades Patrimoniales and other Spanish property owning companies:
- This form of specially treated company is to be dissolved and the transitional provisions are fairly strict.
- The 15% CGT rate, currently enjoyed by this form of company, has been repealed.
- All Sociedades Limitadas (S.L.) – the general form of limited company in Spain - will be taxed at the generally applicable Corporation Tax rate on profits of 32.5% in 2007 dropping to 30% in 2008.
- Should the annual turnover of the S.L. be less than €8m then the S.L. is considered to be a small business and the tax rate on the first €120.202,42 of profits will be reduced to 27.5% in 2007 to 25% in 2008
- An alternative to the sale of a property owned by an S.L. it might be determined that a sale of the shares in the S.L. may be more appropriate. Under the current legislation the capital gain made by a non-resident shareholder is taxed at the rate of 35%. This is now reduced to 18%.
Non-resident Companies – Capital Gains Tax:
- In the case of a non-Spanish property-owning company the CGT due on its disposal of a Spanish property is as per the above entry for Non-resident individuals which reduces from 35% to 18%.
New Anti-avoidance rules:
Can be summarised as follows:
Companies based in tax havens will be deemed to have their tax residency in Spain where their main assets are situated in Spain or their main activity is conducted in Spain. There is an opportunity to rebut this presumption by the provision of proof to the contrary.
Non-Resident Income Tax
Companies which own property in Spain and which are based in countries that have no effective exchange of information with the Spanish tax authorities are now obliged to appoint a tax representative in Spain. Until now, it was only necessary to appoint such a representative where they were requested to do so by the tax authorities or where they engaged in certain proscribed activities. Capital gains made upon the transfer of shares in such companies, which have as their main asset Spanish real estate, shall now be taxed in Spain upon the fair market value of such Spanish real estate.
It is hoped that the above is of practical use and we’d be delighted to direct specific enquiries to The Rights Group network members, as appropriate.
Written by: Mark FR Wilkins
About the author:The Rights Group SL
0034 600 343 917
© The Rights Group SL 2007 (Marbella)
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