Spanish government remarks about non-EU buyers: what now?
Last week the Spanish Prime Minister Pedro Sanchez announced plans to introduce a 100% tax on properties purchased by non-EU purchasers.
It was mentioned briefly as part of a 3.5-hour speech including a new package of 12 measures to protect the property market in Spain from people who ‘speculate’ on property and contribute to the housing crisis in some areas of the country.
Then, this weekend, whilst we are still trying to understand what this might mean, Mr Sanchez mentioned – in a somewhat off-the-cuff manner at a rally - that there could be a blanket ban on non-EU buyers.
With Spain our favourite place for both holiday homes and relocation it has inevitably caused the sort of noise and alarm this political flag-waving was designed to.
There is also a lot of confusion and speculation about the tax proposal. “The announcement is vague with little detail and has no timeline. What tax does it refer to? Transfer tax, non-resident tax or a new tax?” says Alex Radford of My Lawyer in Spain.
Many stories have been suggesting it is a done deal, which has also been misleading. It is far from it, and there are several reasons why imposing a punitive tax on non-resident non-buyers across Spain is going to face opposition on several fronts.
Why it may never happen: legal obstacles
This tax proposal may not be passed through the Spanish Congress for several reasons.
The Left-wing government is a minority coalition, is not especially popular and has struggled to get other legislation through Congress. There will be a lot of opposition to this complicated proposal. But there are two most important legal reasons which prevent it happening, according to Vicente Garcia of Legal Iuris.
“For new properties, the tax is 10% VAT and needs the approval of the Parliament to go ahead – which is complicated".
“For resale properties the transfer tax [ITP] is set and controlled by each region, so any change he would like to make could be abolished. Valencia, Murcia, Andalucia and Madrid are governed by the PP – [the opposition party, the Partido Popular] who oppose such a policy.”
The purchase transfer tax, equivalent to the UK’s stamp duty, varies from 6.5 to 12 per cent, depending on region. Some legal experts are questioning whether such discriminatory tax policy goes against a clause about fair taxation in the Spanish constitution, and possibly EU law.
Writing in Spanish Property Insight, Raymundo Larraín Nesbitt, a Marbella based abogado points out that Spain previously attempted to restrict inheritance tax breaks to Spanish nationals. “This policy was challenged in Brussels on grounds of discrimination against EU citizens and was ultimately overturned by the European Court of Justice (ECJ) in a landmark 2014 ruling.”
Spain, as an EU member is bound by principles of non-discrimination in trade and investment. Says Paul Payne of MASA International: “While the proposal targets non-EU buyers, it could face legal challenges for violating international agreements or being seen as unfairly restrictive.”
There are also logistical challenges. Enforcing a policy of this nature would be a bureaucratic nightmare across the 17 autonomous communities, each with its own regulations and tax structures creating widespread confusion and resistance.
Why it might not happen: economic resistance
Spain needs foreign investment. It relies heavily on tourism – 13% of its GDP - and the real estate industry.
Buyers from the UK, Scandinavia, North America, Latin America and Asia contribute significantly to the Spanish economy. Norwegians especially contribute significantly to the economy, spending several months a year in southern Spain.
By turning these investors away it would be highly counter-productive.
These non-EU owners also support local businesses, create jobs and generate tax revenue. “Instead of protecting the local market, it could trigger a sharp decline in property sales, reduce foreign investment, and harm the wider economy,” says Payne.
Aside from resistance within the industry, there would likely be a backlash from many local people, especially as many realise that deterring non-EU buyers is not the answer to Spain’s housing problems.
Not the solution to problems in Spain
Taxing - or even banning - foreigners is an obvious way to make a government look as if they are doing something to address the issues of both over-tourism and housing shortages in parts of Spain.
Yet it is also wrong-headed. In the cities, Spain has not built enough affordable housing stock and it’s an issue that dogs the government, keenly felt in Barcelona.
The impact of too many Airbnb apartments in the cities is nothing to do with the urbanisations of holiday apartments being built on the costas but has been conflated in this ‘anti foreign investors’ sentiment.
Owners can earn more money from a series of short-term lets to holidaymakers than long-term tenancies to locals but many of these owners are Spanish – few are British.
Local renters and buyers should not be priced out of their own city, but cities have to build more housing and introduce localised restrictions on foreign investors.
New construction quotas and new long-term rental rules have pushed developers to stop building in Barcelona and landlords to steer clear of long-term rentals. Tourism is a huge cash cow in Spain but the government needs to manage it. Restricting how many cruise ships stop each week at Barcelona or Palma is not enough.
The typical British buyer has rarely chosen Spain to speculate on property. Aside from anything, the purchase costs and income tax on rental income are high, eating into the bottom line.
Most holiday home owners do not Airbnb their places, preferring to avoid the hassle and let family and friends stay or benefit from peak holiday months and rent out their homes during the lucrative peak summer weeks.
Since Covid, a much higher percentage of Britons – just like a growing number of Americans - are planning a permanent move to Spain, becoming Spanish tax residents and contributing to the local economy year-round. The official numbers even show this; yet Pedro Sanchez seems to have no understanding of this (or chooses to ignore it).
So what now?
Nothing has changed yet.
Even if a tax increase, or a modified form of it, did become legislation it is going to take months. It takes one to two months to purchase a property in Spain, typically, so there is plenty of time to buy this spring or summer.
If this were to become law, British buyers would be able to rent a property in Spain, become resident and subsequently buy a property without paying this tax. To become resident they could get a Non-Lucrative Visa or a Digital Nomad Visa.
And anyone with an EU partner eg Irish, would not need to pay the tax.
Holiday home buyers may even be able to set up a Spanish company which would own the property, again avoiding the tax.
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