Incoherent land information systems in Spain

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In Spain, it is often the case that entries recorded in the cadastre and the land register (register of deeds) are not identical and the two registries can often contradict the actual plots on the ground.

The reason for this is that the sources of the information differ: in the land register, only information contained in official documents is recorded (e.g. notary certified contracts or judicial decisions); however, the information in the cadastre is submitted and recorded by municipality officials or the tax office.

The function of the information also varies: in the land register, a private individual enters the information which he wishes to defend with the guarantee of the official register; in the cadastre, the administration prepares the information necessary for the calculation of taxes and the enforcement of its own demands.

This potential contradiction is not the only difference between the Spanish and other foreign land registers: another and very important difference in the Spanish land register is the mandatory recording of a building’s description, including details of the construction areas, with a notary certificate, while in other foreign land registers (like in Germany, for example), only the explicit size of the plot (without any description of the buildings) is recorded.  Significantly, this means that if alterations are made to the building, its altered condition must also be updated in the land register with a retrospective notary “New Works Declaration”. However, this is often not done, either through ignorance, a reluctance to pay the notary, tax and registry costs, or more usually because (new) building has not been granted.

Nearly all contracts of sale for property are dependent on the funding of the buyer.  This funding is usually granted by a bank, but always with the guarantee that it is recorded in the land register as a mortgage on the purchased property.  It is therefore very important that the information recorded in the land register does not conflict with reality because any information missing from the land register can mean that the financing bank will not cover the purchase price agreed for the property (this price is agreed irrespective of what is actually stated in the land register). Therefore, if you are intending to put a property on the market as a seller, it is advisable to find out all entries in the land register and cadastre and compare them with the actual plots.

Providing that the correct measurements are recorded in the cadastre, it is relatively simple to amend the land register.  With existing (or older) valid building permission and construction final approval documented by the municipality, things can move forward quickly.  It becomes difficult however when a building or part of a building exists which has not been recorded and for which there is no official approval.  Then only the lengthy and expensive route of gaining planning and building permission through an architect remains.

The situation is different when not only the factual information, but also the legal information recorded is incorrect: this often occurs in the case of inheritances which have not been formalised or when the buyer has not notarized the signed contract of sale.  Because only information contained in official documentation can be recorded in the land register, private contracts of sale cannot be registered.

Carlos Prieto Cid – Lawyer

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The European tax authorities strengthen their cooperation

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Over the years, we have seen from our office how the Spanish tax office has improved its channels of cooperation with other European tax agencies to the extent that they now share all kinds of information about their respective taxpayers.

This cooperation was limited so far to the prosecution of real estate registered in public inventories in Spain under the name of taxpayers of other countries who had debts in the stage of execution owed to their corresponding state treasury. The Spanish tax office acted as a debt collector to recover the foreign debt, which remained unpaid by the taxpayer, being resident or not, through an action against his property in Spain.

Now, cooperation between tax agencies is going ahead and is being developed in the framework of management or control processes initiated on the basis of data and indicators provided by foreign tax authorities.

The most common case is the experience of foreign retirees living in Spain, with rents, which are in principle tax free, but who are obligated to declare them due to the progressivity of taxes on personal income. Double taxation agreements between Spain and other countries declare as exempted from payment of tax on personal income in the State of residence the pensions paid from public funds of the other State. Starting from this premise, many foreign pensioners living in Spain considered unnecessary to comply with the obligation to provide an annual declaration of personal income. However, many of these retirees receive income from the rental of real estate or bank interests, which must be declared to the Spanish tax authorities. In addition, most of these retirees supplement their income paid out of funds created by the state with other pensions paid from private funds, which are generally much higher than the amount that is considered exempt. Due to the progressivity of the tax on personal income, the percentage that would correspond to the total income earned by a resident in Spain is the one to be applied to calculate the tax on these other private rents which are not exempted. As a result, the final amount of tax paid to the fiscal authorities may be much higher.

In these difficult times, the Spanish state has resorted to claiming the difference between the amount really paid and the ones that should have been paid. It also requires the respondents to perform their official duties. And all this thanks to the valuable cooperation it receives from foreign fiscal authorities, who once benefited from the pursuit of real estate in Spain to their countrymen.

Carlos Prieto Cid – Lawyer

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Residents in Spain are required to declare their assets abroad

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Spanish Royal Decree 1558/ 2012, published on 15 November 2012 introduces new reporting requirements for taxpayers residing in Spain: they should declare to the Spanish State tax authority rights and property, such as real estate, bank accounts, stocks, bonds and insurances, held or managed abroad.

This statement should be made exclusively by means of telematics through the Internet, transmitting it with an electronic signature produced when selecting a personal certificate installed in advance in the browser for this purpose. Application deadline is from 1st January to 31st March of the year following that to which the information relates, although the declaration for 2012 will take place during March and April 2013.

The information to be reported to the tax authorities on accounts in financial institutions located abroad includes the following items:
1. Company name or full name of the bank or savings bank and location
2. Full identification of accounts
3. Date of opening or cancellation, or, where appropriate, date of issuance and withdrawal of the permit leading to the liability of the concerned reporter.
4. And, logically, the balance of the accounts at 31 December, and the average balance for the last quarter of the year.

Anyway, no one is obliged to report on the status of the account, if the final balance on 31st December does not exceed, in total, EUR 50.000. The submission of this declaration in the following years will be only required when either of the joint balances of the accounts (the one at 31st December or the average one of the last quarter of the year) experiences an increase exceeding 20.000 euros.

A similar provision is established when the foreign assets are such as securities, stocks, mutual funds, life insurances or disability insurances and temporary or lifelong rents.

For real property located abroad, the information statement will contain the following data:
a. Identification of the property with a brief specification of its typology, as  will be defined by a future order of the competent Ministry.
b. Location of the real estate: country or territory in which it is situated, city, street and number.
c. Date of acquisition.
d. Cost of acquisition.

In the case of timesharing contracts or similar arrangements and in case of usufruct rights the reporter should also indicate the value of the property on the 31st December. The applicable quantitative liability limits are the same as in the previous cases.
This obligation to declare assets is accompanied by a closer cooperation and a increased mutual assistance between tax authorities. We are going to discuss about that in a future article.

Carlos Prieto Cid, Lawyer

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Buying property in Spain: a way to get a residence permit to non-EU citizens

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This announcement made by the government of Spain in mid-November has been widely reported in the media. This legal measure is under consideration and we really do not know how it will be finally configured.

The government’s intention is to give a new argument to attract prospective buyers of property in Spain, especially from countries such as Russia or China. For sellers of property in Spain, who have not been able to find a buyer for years, despite the constant reductions of the sale price, the measure can also be a new opportunity.

Carlos Prieto Cid, Lawyer

For more information read the following article (2011)

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If I change my residence to Spain, what should I do with my car?

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If you are used to walk around the urbanizations in the Spanish coast, you realize that there are plenty of cars with foreign number plates parked for months or even years at the entrance of the house of their owners. All these vehicles are in an irregular situation, which may cause a complaint and have as a result a significant administrative fine for smuggling.

The change of residence has very important consequences in daily life. One of them is the legal situation in which our car will be: a car registered in a foreign country can only circulate legally in Spain during several months. Beyond that deadline, we are required to register it in Spain, following the procedures provided for each case.

Due to the current economic situation the Spanish administration exhausts all possible ways to raise revenue. Nowadays we are detecting an unusual activity of the police inspection, chasing offenses with which the state previously was more tolerant. That’s why resident foreigners, who have maintained in Spain for years without any problems their old cars registered in their home country without worrying about legalizing them, are now very often facing heavy fines and administrative complaints because of this offense.

The vehicle legalization due to a change of residence is a very complicated process, in which different administrations are involved without any coordination between them. If our home country is not a member of the European Economic Community, as in the case of Switzerland or Russia, we must formalize import customs formalities before the car can be tested by the official stations of roadworthiness. In addition, if the vehicle was not marketed in the European Economic Community, we will not have the necessary certificate of conformity, and we will have to instruct an authorized inspector to report on its technical specifications. This requires high costs which, added to the administration fees and the necessary management costs, can make the legalization economically unviable, depending on the situation and the age of the vehicle. However, we can not forget that to unsubscribe a vehicle or to test its roadworthiness can only be made in the country of registration. That means that we should return to the country of origin with the vehicle, if we decide not to legalize it into Spain. In any case, if we are denounced, the fines or the risk to be prosecuted for smuggling can have a much higher cost.

Carlos Prieto Cid, Lawyer

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If I rent my holiday house in Spain, what kind of taxes should I pay?

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Most tourists who visit Spain choose for their accommodation a holiday flat or a holiday home. If we own a property in Spain and we want to rent it during the touristic season to others, we must know what taxes we are required to pay to the Spanish public finances.

The most common situation is that we rent a holiday home for a period of time not longer than three months. In this case, the income from the leasing of this property will always be considered property income and must be included in the annual declaration of our income tax. The expenses necessary to maintain the holiday home and for its promotion in the touristic market will be deductible from this declared revenues, but only if these expenses are billed in the time period in which the holiday house or apartment is leased to a third party. Nevertheless, we must not forget that even in periods when the holiday homes are not rented, they generate anyway revenues that must be declared according to the income tax regulations. That is because the Spanish tax laws regard as property income the mere possession of a property that is not used as regular residence, also when it is not leased. This fictitious revenue is the amount that results from applying a small percentage to the cadaster value of the property, a target value that established by public finance authorities under certain valuation rules. During these periods of time when the property is not rented, no deduction of expenses allowed.

Presenting an annual statement of the income tax of individuals to the Spanish Tax Office is mandatory for all owners of property in Spain, if this dwelling is not officially considered the regular residence. This means that all owners of a holiday home in Spain, whether resident or non-resident, whether or not renting it, are anyway required to file annually with this statement. Many foreign owners are not aware of this obligation. They think everything is solved, when paying the community tax (called IBI) and they oft forget to pay this compulsory income tax.
Despite all this, holiday house renting could be considered an economic activity and would have to be declared as such according to the income tax regulations when entered into under the following circumstances:

  •   There is at least one room dedicated exclusively for the management of the activity.
  •   There is at one full-time person hired to work in the development of the activity.

Everything we have said refers to income tax of individuals. With regard to the added value tax, the general rule is that renting of holiday home is considered tax-exempt as long as the landlord is not required to provide any of the services of the hotel industry, such as cleaning the dwelling and changing the bed linen and towels at least once a week. However, we must clarify that although we rent the house only for one week, the law does not consider as complementary services of the hotel industry both cleaning the inside of the apartment and changing its bed linen and towels at the time of the check-in and the check-out of the period hired by each tenant, as well as cleaning the common areas of the building and the technical assistance services for repairs and maintenance of plumbing, electrical, glass, blinds, locks and appliances.

Carlos Prieto Cid, Lawyer

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New legal requirements for holiday homes

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Our costs welcome millions of visitors during each season. Not all of them are owners of an apartment or a property or stay in a hotel. The majority of them decide to rent a holiday home during the stay. A new legislation fights against the black market on this sector and wants to guarantee the maintenance of our touristic brand.

The new legislation addresses to the touristic sector not (like in the past and without any great success) to the housing sector itself. This law considers a “vivienda de uso vacacional” those properties that are conceded by the owner, directly or indirectly, to other persons in exchange of a consideration. Because of this, every accommodation must have a “cédula de habitabilidad” and ensure that there is enough furniture and equipment according to the number of offered places for visitors. The “cédula de habitabilidad“ is a proof of flat’s habitability which is prepared by the architect and has to be proposed at local housing authority.

How to convert a house or an apartment into a „vivienda de uso vacacional“? The law simplifies this procedure by using the so-called „régimen de comunicación previa“. Hereby it is only necessary to display the intention to rent the flat at the local administration and without any delay it could be started with renting. In this display the owner declares the responsibility to ensure the necessary amount of above-named equipment. He also needs, besides the identity card, the „cédula de habitabilidad“, a confirmation of energy supply and an insurance contract with an adequate coverage.

In this point the municipality is getting involved. This means that it is possible that the community charges a certain fee which could be established in the financial regulation. It would be desirable that administration wouldn’t take advantage of this to generate new revenue. The law intends to secure the quality of the offered holiday homes and it doesn’t want to increase costs which could have the opposite effect namely a promotion of shadow economy. The success of this law depends on an easy handling without further costs as well as on a resolute control.

A holiday homes status as a “vivienda de uso vacacional” means that it could not be turned into a main or secondary residence. The owner has to register guests’ personal data and, in accordance to local security service, send them to the central administration of the police. The stay in a holiday home with this status could not last longer than three months.

Another question that should be answered is that it is not allowed to split the holiday homes. Some owners of larger estates usually rent single rooms to different persons. Or in some cases there are different segregated fully furnished apartments. In these case the law states that rent is only possible if there is an own „cédula de habitabilidad“ for each lodging. If there is none, the „régimen de apartamentos turisticos“ is applicable. For this it is necessary to show a reception with at least 10 square meters. Furthermore the minimum standards for hotels like weakly cleaning are to be maintained.

Carlos Prieto Cid, Lawyer

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The european order for payment procedure

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The tardiness of debtors is a well known and frequent problem for business players. Naturally this problem increases in times of crises. An instrument which is not used very often to enforce a debt is the European order payment procedure. When clients consult a lawyer they often believe that if a debtor moved into a foreign country and didn’t leave any asset in Spain there is no possibility to assert the claim. On these grounds they write off their receivables. But there is always a possibility to enforce the debts. It exists a especially easy method if the debtor lives in another country of the European Union.

The european order for payment procedure is legally regulated since 2006. The European regulation 1896/2006 of the counsel and the European Parliament is released in the Official Journal Nr. L 399  dated 30.12.2006. As usual in european procedural law this is a communication system between juridical authorities and parties based on a mutual confidence of the member states of the European Union. Part of this basis of trust is the belief that all courts of justice of the European Union’s member states are credible and that the systems of public communication particularly post are credible as well.

Furthermore laws like this always want to simplify the communication between the administration of justice and the party of the proceedings in the different cultures, tongues and countries. This would be done with publishing officially translated forms in the official journal of the European Union. Because of this further costs and interpretation issues could be avoided.

It should not be forgotten that this European law is directly applicable and there’s no need to transfer it into common law.

In any case this is a possible procedure to the creditor of recovering receivables. However the creditor is free to use the old fashioned way as well, if he prefers it. The european order for payment procedure pretends to be significantly easier and quicker and it avoids any procedure leading to a judgment as well as an allowance of existing deeds between the different countries.

The creditor only has to present the official form to the competent court of the originating country which has to fulfil different requirements and will be sent by the court without further analysis to the debtor to his new residence. The court only checks the compliance with the formalities.

If the court doesn’t accept the form there is the possibility to appeal against this decision at the same level of jurisdiction in accordance with the national law. If the court releases the default summons the debtors has two possibilities, either he fulfils the requirement or he oposes. If he does neither of them the court of the originating country releases an executory title which accepted in every country of the European Union.

Carlos Prieto Cid, Lawyer

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The donatio mortis causa

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The death is not predictable, but in certain cases we should be aware of the end, for example in cases of high age or severe disease. In Catalonia the law gives us an almost unknown possibility of partitioning our heritage and foreseeing its costs in advance.

This method is called donation mortis causa and it has many advantages compared to a common donation. The donation mortis causa is a kind of donation which could always be used if the object of the donation is real estate in Catalonia. It has many advantages in comparison to a common donation or the regular heritage. But you have to keep certain rules to ensure its acceptance by authorities.

Mainly it is a donation where the transfer of property at first does not occur but it takes effect in the moment of the donator’s death. The Spanish common law (that is the civil law of the regions of Spain with no own law, such as Catalonia) doesn’t really regard it as a donation: it is simply considered parallel to a legacy. But in Catalonia there is an own legal instrument which admits the donatio mortis causa under the following conditions:

  • Free revocability for the donator, which also means that the transfer of property at first doesn’t occur.
  • Its ineffectiveness if the donee predeceases, which means that the expectation is ineffective if the donee dies before the donator. In this case the property remains at the donator without any limitations.

The most important advantage in comparison to the common donation is a fiscal one. In case of the common donation the tax becomes due in the moment of the property transfer. In case of a donatio mortis causa the due date is not before the death of the donator.  And, on the other hand, the common donation is liable to the gift tax. At this kind of tax there is no amount of exemption allowed. But the donatio mortis causa is treated by authorities in the same way as a legacy, which means that it is liable to the inheritance tax. Here we can take profit of the legally alllowed amount of tax exemption.

But there are even more advantages in comparison to other possibilities of property transfers in the occasion of death, especially the simplicity of handling. It is neither necessary to define the successor exactly, nor to constitute who has to pay out for a certain legacy nor has the efficacy of the testament to be confirmed. This is especially important in cases of property transfers in case of heritage by foreigners. Here the law of the foreign country is always applicable. This is a point where foreign authorities come into play and make things more complicated. With the donatio mortis causa we avoid this in the moment of the formation of the contract and also in the moment of the enforcement of the property transfer as well. The title of ownership is created according to the rules to the lifetime of the donator. And for the enforcement  of the property transfer only the death certificate is needed (and no other documents else).

Carlos Prieto Cid, Lawyer

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Legalization of buildings outside the law

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Traditionally it has been possible in our country to legalize buildings outside the law through the mere passage of time. However, the Law 8/2011 has added new requirements when recording new buildings in the register of deeds, giving more legal security to the system.

When selling a property, the buyer usually requires financing. To obtain financing is not only very difficult nowadays, due to the current banking situation, but also virtually impossible if the buyer can not offer a mortgage to the bank that lends him the money. To make it possible for the bank to register the necessary property mortgage, the real value of the estate to be charged should be reflected in the register of deeds. This is only achieved when the elements that provide greater value to the property, that is, the existing buildings on it, are properly registered. To register these edifications, a notarial declaration of the new building is always been necessary and this document must be submitted to the register in order to be recorded, accompanied by many documents to control its urbanistic legality.

Despite this, there was always a back door to buildings that violated the law, which could end up sneaking in urban registration of the property, with the economic and financial consequences discussed above. The mere passage of time with no reaction of the relevant planning authorities, the municipalities, leads to the possibility of regularization of these illegal edifications. As the deadlines for the sanctioning procedures passed and the planning authorities could no longer prosecute these buildings, they could end regularized, if certain conditions were met. But in the present days, the last reform of the Land Act we mentioned above, has added a key requirement, prior to the possibility of recording the irregular building in the register of deeds: we should show a municipal certification defining the content of the situation outside the law of the building we intend to record.

Article 20.4 of the Act indicates that
“4 …. in the case of constructions, buildings and facilities for which no appropriate measures to restore legality involving urban demolition can be taken, because the relevant limitation period has passed, the registration record of the completion of the work shall be controlled by the following procedure:

  • a) the notary deeds with the statement of a new building can be recorded in the Land Registry if they are accompanied by a certificate issued by the City Council or by a competent technician, or a descriptive notarized certification of the property or a cadastral descriptive and graphic certification of the property, when these documents confirm the completion of the work in a specified date and the description coincides with the title. For this purpose, the Registrar shall verify if there is a notation in the Register of Deeds because of the initiation of an urban discipline procedure for the property subject of the construction, building and installation in question and that the site is non demanial or affected by easements for public use.
  • b) The registration entry will record the outside-the-law position of all or part of the construction, building and installation, in accordance with applicable urban management. It will be necessary to provide the administrative act by which the situation is declared outside management, with the proper delimitation of its contents.
  • c) The Registrar shall report to the City the respective entries in the cases included in previous issues, and such notification will be recorded in the inscription”

This new regulation, in force throughout the state, which requires prior to registration the provision of a municipal certificate on the content of urban illegality is coherent with the goal to be reached with the law of passing “registration measures designed to ensure and strengthen certainty in the real estate contracts and business, through the Land Registry” and “emphasizing on register protection measures which aim to prevent and prosecute in the future situations that occur today and that are impacting very negatively on investment in real estate, both domestically and internationally“.

Let us hope that eventually these legal measures have the desired effect and strengthen the security image as necessary to encourage property investment, especially by foreigners.

Carlos Prieto Cid, Lawyer

This article in German