In uncertain times like the current ones, it is essential to make good decisions when investing, as it is also important, once the type of investment to be made has been decided, to make sure of the legality of the operation, of the real situation of the asset in which you want to invest and the most efficient vehicle from which to make that investment.
If you are a foreigner thinking of investing in a property in the Balearic Islands, from addwill we are below summarizing the basic questions to take into account when investing in property in the Balearic Islands.
In the first place, for a person who does not have Spanish nationality to be able to purchase a property, they will need, in order to operate in Spain, to obtain a Foreigner Identification Number (NIE) for tax purposes.
It can be requested at the Spanish consulates in each country or at the national immigration police in Spain, by appointment.
Once the NIE has been obtained, a bank account can be opened in Spain for the payment or collection of the purchase-sale and the bank will carry out the money laundering filter. In case of sale, the buyer will withhold 3% of the price to enter it in the Tax Agency, related to the income tax of non-residents.
Real estate Due diligence
In the case of real estate investment, it is essential that before committing contractually the legal and urban situation of the property is reviewed, fundamentally through the analysis of two documents:
- Simple registry note: It is requested in the property registry. They are public data that everyone can access and therefore have effects against third parties. It will analyze the ownership of the property, charges that they may have (loans, embargoes, prohibition of disposition, usufructs, rights of use and habitation, etc…).
- Urban planning file: It is requested at the Town Hall where the property is located. It includes the urban situation of the property, limitation of licenses, habitability uses, buildability, planning situation, etc.
In addition, there are two important aspects to review before formalizing any commitment,
- Real market value of the property: In order to analyze whether the purchase-sale price is equal to the market value, or at least, to the value obtained through the valuation tools provided by the Balearic Islands Tax Agency itself, which will be the minimum tax value to declare regardless of whether the agreed transmission value is lower.
- Statement of spills and debts with the community of owners: To avoid having to take over the debts of the previous owner, or assuming expenses for spills that we had not planned, it is important to find out the situation through the Community of Owners.
Before signing, a decision must be made about the vehicle from which to make the investment, because depending on the use that you want to give the property, between private use, annual or tourist lease or for reform and subsequent sale of the property, it may be more efficient that is acquired personally or through a company, Spanish or foreign.
If, after analyzing the previous points, it is clear that everything is in agreement with the client and, once the vehicle from which the investment will be made has been decided, the purchase commitment can be made or a purchase offer can be made. For this, it is necessary that the prior advice is carried out by a specialist in real estate law.
There are several types of contracts to be signed prior to the formalization in public deed of the purchase-sale of real estate:
- Reservation contract or signal
It is a contract in which the parties undertake to buy and sell and its specifications will be regulated in the next type of contract they sign, or deposit contract or purchase-sale contract.
- Earnest money contract
It is not a contract in itself, but an agreement clause between the parties in which they agree to deliver a property and to receive and pay the price within a set period, with penalties in case of non-compliance by any of the parties.
There are different types of pledges:
- Confirmatory pledges
The purchasing party is committing itself to the purchase-sale (or sale, as the case may be) of the property. Serving the amount delivered as deposit, advance payment or advance payment of the agreed price. The parties agree on a “penalty” in case of withdrawal by any of the parties.
- Penitential pledges
The pledges suppose a “promise” of sale, which allows both the seller and the buyer to withdraw from the sale. Of course, the withdrawal has consequences.
If you are a seller and finally do not want to sell, you will have to return double the amount received as pledges. If you are a buyer and finally decide that you do not want to buy, you will lose the money given as a deposit.
Opting for one or the other implies different rights and obligations, which is why it is so important to have prior advice from an expert in real estate law.
- Private purchase-sale contract
It is already a firm sale, and mandatory compliance. An amount of money is delivered on account of the price and the date of elevation of the contract of sale to the public is set, date on which the payment of the remaining amount will be made and possession of the property will be delivered, as well as of the other obligations that the parties want to agree on.
In all of them they must remember:
- The object of the purchase, that is, the property that is acquired
- The price for which it is acquired
- The term and method of payment
- The date of elevation to public to be able to access the registration in the registry of the property of the purchase-sale.
In any case, it should be noted that whatever their form, the contracts are fully binding for the parties, with the consequences and penalties that this generates, so prior legal advice is of vital importance.
At addwill, we have an office in Ibiza from where we can provide you with legal and tax advice on your real estate investments in the Balearic Islands.
For this we have a team of lawyers specialized in the legal review of purchase-sale operations that provide total security to the transaction, so that real estate operations are carried out with full legal and fiscal guarantees.
You can contact us by clicking here.