All questions

Real estate ownership

i Planning

In Spain, the autonomous regions have exclusive competence for planning matters (except for some very basic aspects that lie in the hands of the central government). Spain has 19 different regional jurisdictions and, as a consequence of their differing needs, geography and economic development, some regions have a more liberal approach than others.

While regulatory power lies with the regions, its implementation is handed over to the municipalities (although the most important matters are subject to control by the regions). This requires the cooperation of a number of administrations and other parties, including local authorities (who ultimately decide if and under what conditions land can be developed), regional authorities (who play a supervisory role) and, to a lesser extent, the central government authorities (who legislate and supervise matters such as main roads, harbours, coastal areas, aviation liens and airports). Because of the different authorities and pieces of legislation involved, planning matters in Spain are complex (particularly the purchase of land for subsequent development) and should be carefully addressed with a planning expert.

ii Environment

For a piece of land to be declared polluted, the contamination detected must exceed the parameters set out by Royal Decree 9/2005, which vary depending on land use (e.g., industrial and residential). The competent authority to declare soil polluted is the environmental department of the regional government where the site is located.

Whenever a piece of land is formally declared polluted, the polluter will be ordered to carry out the cleaning and remedial activities required for the decontamination of the site; if several polluters are involved, they will be jointly and severally liable. As a general rule, in the absence of the polluter, the obligation to carry out cleaning and remedial activities falls on the owner and thereafter on the possessor of the site.

Finally, if an activity classified as potentially polluting (as listed in Annex I to Royal Decree 9/2005) has been carried out on a piece of land, the circumstances must be declared by the owner in the public deed of transfer and thereafter be recorded with the Land Registry.

This information will only be removed from the Land Registry on completion of the remedial activities and subsequent validation of the decontamination works by the relevant regional government.

iii TaxValue added tax and transfer tax

As a general rule, the first transfer of non-residential properties by sellers in the course of their business activity is subject to value added tax (VAT) at a rate of 21 per cent; first transfer of residential properties is subject to VAT at a rate of 10 per cent.

Second and subsequent transfers of built and finished properties by sellers in the course of their business activity are, however, technically subject to but exempt from VAT, and thus subject to transfer tax at a rate that ranges between 2 and 11 per cent of the purchase price (depending on the autonomous region where the property is located and the tax benefits applicable). The VAT exemption can be waived by the parties when the seller and the buyer are VAT registered and the purchaser is entitled to a total or partial VAT credit allowance. If the exemption is waived, VAT (not transfer tax) will be levied on the transfer.

Meeting the requirements to waive the VAT exemption is critical, as input VAT incurred upon the acquisition of real estate is, generally, fully deductible. This is not the case with transfer tax, which is a sunk cost for the acquirer.

If the VAT exemption is waived, the reverse charge mechanism would apply, and the acquirer of property would be considered to be the VAT taxpayer having the obligations to charge itself the VAT derived from the acquisition and to directly declare the VAT arising from the acquisition of the property (thus generally resulting in a neutral scenario, as output and input VAT will be compensated in the VAT return).

Stamp duty

Stamp duty is levied upon execution of the transfer notarial deed if the transfer of real estate is subject to and not exempt from VAT, in which case stamp duty will be levied at a rate of between 0.25 and 2 per cent, depending on the autonomous region in which the real estate is located. If the transfer is subject to but exempt from VAT and the exemption is waived, stamp duty will be levied at a rate between 0.25 and 3 per cent, depending on the autonomous region in which the real estate is located.

Stamp duty is paid by the acquirer. Stamp duty is also paid on many other transactions, including the creation of mortgages and certain other charges in the Land Registry, at a rate that ranges between 0.25 and 1.5 per cent.

Real estate tax

Real estate tax (RET) is a municipal tax levied annually on owners of Spanish real estate. This tax is based on the cadastral value of the real estate assigned to each property based on the data and information existing in the cadastre. The cadastral value is updated every 10 years and adjusted to the current market value. RET will only be due if the cadastral value of the real estate is assessed and formally notified to the taxpayers.

The RET rate for urban real estate depends on the relevant municipality regulations and ranges between 0.4 and 1.1 per cent of the cadastral value.

iv Finance and security

Spanish law sets forth a wide range of security packages similar to those used in other jurisdictions (e.g., mortgages, pledges of the bank accounts held by the borrower to administer the income generated by the property, pledges of receivables held or to be held by the borrower, such as the lease rent, insurance compensations, VAT refund rights and pledges over the borrower's shares).

Mortgages are the preferred and most commonly used security interest. They enjoy significant privileges and can be granted over any type of real estate. The mortgagee may enforce the collateral to the exclusion of most other creditors following relatively simple and expeditious foreclosure proceedings. A mortgage can secure all kinds of payment obligations, including, in particular, principal, interest, default interest and fees in respect of loans and credit facilities. In the case of insolvency of the borrower, the lender is not able to foreclose on the mortgage (provided the assets are needed for the activity of the borrower) until one year after the date that the insolvency was declared or the date a composition agreement with the creditors was approved.

To be valid and enforceable, a mortgage must be formalised in a notarial public deed and recorded with the relevant Land Registry. This triggers the obligation to pay notarial and registry fees, as well as the obligation to pay stamp duty at a rate ranging between 0.25 and 1.5 per cent of the maximum amount secured by the mortgage (typically 120 to 140 per cent of the loan principal).

v Licences

Although requirements vary across municipalities, and it is becoming more and more common for the authorities to simplify the requirements by enhancing the use of sworn declarations to start constructing or operating real estate, usually the licences and permits required to construct and operate commercial properties are as follows:

  1. a works and activity licence, which must be obtained prior to starting construction works;
  2. a first occupancy licence, which verifies that the construction complies with the terms authorised by the works licences; and
  3. operating licences, which will verify that the use carried out in the building complies with the relevant zoning regulations, as well as health and safety and environmental matters.

Other permits and licences may be required by the regional governments depending on the activity to be carried out. For instance, some regions require a commercial licence for an operator to open a large retail scheme (i.e., those exceeding a minimum sales surface area foreseen in the relevant legislation) or a tourism authorisation in the case of hotels.