The reintroduction of Spanish Wealth Tax

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A few months ago, US President Barack Obama announced to Congress: ”This is not class warfare, it’s math.” If the crisis leads to a fall in revenue for public authorities, spending must either be cut or taxes increased.

If we assume that governments cannot cut back on social services because the social rights they have achieved should not be touched due to the crisis, then new tax increases become necessary. Instead of raising existing taxes, the former Spanish government had preferred to try to maintain the level of revenue it needs by reintroducing a recently-abolished tax: the IMPUESTO DE PATRIMONIO, or Wealth Tax.  This tax was never actually abolished, although the full rate was indeed scrapped in 2009 with a 100% rebate. The government has therefore simply done away with this rebate in order to reintroduce Wealth Tax.

The tax applies from 18 September 2011, although the concession is scheduled to increase once more in 2013. This means that Wealth Tax declarations need only be submitted for the years 2011 and 2012 (due on 31 December each year). It is important to remember that non-residents are also obliged to pay this tax. Declarations must be submitted to the tax office each year together with the income tax declaration.

The most important changes to the rules on Wealth Tax introduced in the Real Decreto-ley 13/2011 are the following:

1. Tax allowance on residences: the maximum rate for tax exemptions on the value of the own residence (for residents) has been raised to €300,000 (previously €150,253.03).

2. General tax allowance: unless the autonomous communities rule otherwise, the general tax threshold is €700,000.-

Whether these new rules and the reintroduction of the tax will have any real impact or affect public authorities’ revenues is debatable. It appears that the Socialist Party intended to make political capital through the reintroduction of a ‘tax on the rich’ (elections took place in a short time after de tax reform and they were a spectacular failure for the Socialist Party anyway ), but the real impact of the tax’s reintroduction will not be able to solve the difficult situation surrounding the public finances.

Carlos Prieto Cid, Lawyer

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International Judicial Assistance

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The increasing internationalization of economic activity and therefore of our society is causing a widespread outbreak of international issues in daily life and therefore also in the life of the local court proceedings. It is nowadays very common that in a judicial procedure one or both parties are domiciled abroad, or that it is necessary to obtain judicial evidence beyond our borders along the process.

When the lawyer has to formalise a power of attorney or an affidavit to certificate the validity of foreign law, or when a judicial warrant is necessary for a notification to the parties abroad or for evidentiary purposes in another country, all stages of judicial proceedings may have an international element that complicates the whole procedure or, in extreme situations, makes it virtually impossible to implement.

In Europe, cooperation between member states on justice and internal security is one of the three pillars of the European Union, along with the economic community and the common foreign and security policy. Moreover, since the entry into force of the Amsterdam Treaty, the Community provisions can be applied to each of the areas concerning police and judicial cooperation as contained in Title VI of the European Union Treaty, although this “communitarisation” of the rules for police and judicial cooperation has to be agreed unanimously by the Council and ratified by all Member States.

Although common European justice has never come to be developed as much as the economic and monetary union or inter-governmental coordination on foreign policy and security policy, in recent years developments in this area have become more popular and it is no longer so strange that the courts use these resources to carry out their daily activities. However, we find many difficulties to achieve that court officials use the European way of judicial cooperation effectively. The principle underlying the European regulations of these matters of judicial cooperation is to enable judicial officers of the member states to cooperate with each other using simple pre-established protocols, provided that, ex officio or at request, that international action is considered necessary by the judge. However, without proper coordination between lawyers experienced in international litigation and the attorneys and the court officials involved, today the international judicial cooperation would be very inefficient, because the existing protocols are not always known or respected by the court officials, what provokes an avoidable waste of time and resources during the process.

If we find such a lot of inefficiencies in the framework of the European Union, what could be said about the problems caused by international judicial assistance outside the scope of European cooperation? Therefore, the procedural experience of international law firms with European or global orientation, such as the ones joining the network EUROJURIS INTERNATIONAL can be of great help when planning international processes, not just for the parties involved, who can enjoy a much more efficient service of representation in court, but also for other lawyers, who are eventually in these situations and can count on their support and specialist external advice to avoid being caught in unexpected procedural problems when entering the complex field of judicial processes initiated in their own country, but that require the processing of incidents abroad.

Carlos Prieto Cid, Lawyer

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Income Tax for foreign property owners

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Foreign nationals who are not registered for tax in Spain but own property in the country must submit a tax declaration for their income tax to the state tax office every year. This involves the so-called Impuesto de la Renta de No Residentes (Income Tax for Non-residents).

Many property owners do not understand why they must declare and pay tax in Spain even though they earn no income here because they only come here for holidays and therefore neither work nor are involved in any economic activities or receive interest from banks on financial investments. There is usually no rental income from property either. Despite this, in Spain (much like in other European countries), simply owning a property is regarded as income, even when the property is not let or leased out. The state tax system assumes that a profit is made from the property even if it is not rented out, it is not the own home or if the property is not dedicated to economic activity, which for non-residents can never be the case.

How is this fictitious return calculated? Spanish law stipulates that income earned from the simple possession of a property equates to a certain percentage of its cadastral value. This percentage is either 2% or 1.1%, depending on the year in which the Spanish Land Registry (or rather, the respective municipality), updated its property values. The Land Registry (Catastro) is a national register of properties, answerable to the Spanish tax office, which gives the authorities information about these properties (owners, size, use, year of construction, boundaries, etc.). The information stored at the Land Registry can be submitted by Land Registry officials themselves, the municipalities or the owners of the property. One of the most important pieces of information on every property is in fact the cadastral value. This value is dependent on many other objective details and here on the coast can generally be a lot lower than the market price that we would set for the property.

Despite this, this objective value is decisive for almost all authorities and provides the basis for many taxes, including income tax for non-residents. This percentage of the cadastral value is therefore the basis for income tax for non-residents, which is currently 24%. Every year, the owners must pay the resulting sum by 31 December the following year. This means that foreigners who own a property in 2011 must submit their tax declaration to the tax office and pay the tax by 31 December, 2012. In 2008, the tax office changed the forms for this declaration, which caused problems for many foreigners who did not hear about this amendment in time. Until then, Form 214 was used, but now Form 210 must be completed. The change was a consequence of recent tax reforms, which saw the abolition of property tax. However, the tax for non-residents was retained because it is regarded as a form of income tax rather than a property tax.

Otherwise, for non-residents there are only the local rates, the so-called IBI, which are paid as a municipal tax that every municipality demands from property owners each year and which is calculated and demanded by the local authority itself.

Carlos Prieto Cid, Lawyer

This article in german

Save taxes by planning your inheritance

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After years giving advice to foreign residents with property in Spain, we can offer our experience to those with a little forethought who want to save their loved ones a lot of problems and, above all, a lot of money, by planning the inheritance. A good tax planning can significantly reduce expenses and taxes payable by the heirs. This is true in all cases, but especially when dealing with a legacy of non-residents, that is, assets in Spain who are or have to be registered to the name of people without tax residence.

If you have property in Spain (real estate or personal property, such as deposits in banks or cars) you must expect that your descendants or the people you have appointed in a will as heirs, will have to arrange various legalizations after your death to officially become ownerships of the inherited assets (so that the heirs of these estates can actually take profit of them, that is, sell them or obtain a mortgage). Each of these instruments is taxed. If we want to avoid problems to our heirs, we can plan a few things so that our heirs can simplify everything at the moment of the acceptance of inheritance.

A possibility is to try to transfer the property during our life to save taxes: but we must be sure which taxes are also to be paid in the case of a free transfer or a donation of real estate, to avoid that this transfer of ownership in lifetime does result more expensive than the acceptance of inheritance in case of death. In a purchase contract, there is another tax, but it can have also as a result a very significant amount. As a rule, in case of non-residents who have purchased the property many years ago, the sales tax can be cheaper than the gift or inheritance, but each case must be examined separately.

For non-residents it is a typical procedure to pass the net property to the younger during the life of the older ones. We recommend to formalize a transfer of bare ownership, because despite the age of the parents it is a bit cheaper anyway than to sell the whole property (nuda proprietas or bare ownership plus usufruct) and much cheaper than a gift or an inheritance of the object (pay attention: we are talking exclusively about non-resident: for the resident, thanks to the recent tax reforms, the inheritance is seen as the best mode of transmission as a rule). If we formalize a sale of the bare ownership to the eventual heir, the taxable return for the transfer (that means the purchase price declared in the deed), is the value of this bare ownership, actually the result of the full value of the property minus the value of the usufruct, because the older ones just maintain this usufruct on and what the purchaser gets then is only the bare ownership (ownership without usufruct). We save taxes because the value of the usufruct is deducted, although this value is usually very low due to the age. The usufruct, which is not transferred in this moment, can be deleted after the death of the parents without tax costs.

In any case, it is highly recommended to get advice from a lawyer, as only he can provide proper advice and legal assistance when translating the will of the parties in the legal and technical language, formalizing the definitive agreements, preparing the deed of the notary and foreseeing the fiscal implications of the business. We want to reiterate that the role of lawyer and notary in Spain is totally disconnected (unlike in other countries). Here in Spain, the notary must never represent the interests of a party, even consultation is not allowed. He is only one official, who certifies the businesses that are already negotiated, accepted and formalized and who controls that all required taxes are properly paid by the parties. For this very reason, the involvement of a lawyer is so important, because he represents only your interests and gives you independent advice.

Carlos Prieto Cid, Lawyer

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The role of the lawyer in the sale of property

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In the glorious years of the housing bubble, when everything was easily bought, lawyers played an essential role in advising buyers to purchase property with all guarantees. Now that everything is being sold, our role is still essential to prevent a sale from being frustrated by legal reasons.

An ordinary person takes only very few times during his life the decision to buy or sell a property. However, there seems to be no awareness in the society that, before making this fundamental decision is wise to consult with an attorney. All the contrary, the general idea is that one should only go to a lawyer to solve legal problems and not, as it should be, to try to avoid them. That is why we lawyers often find customers that come to our office once they have already signed a contract, thinking that with a magic wand we can resolve a problematic situation, which would never have happened if they had consulted us on time.

Among the professionals involved in the decision making of a real estate purchase contract, the lawyer is the only one who can give advice with the warranty that this is only his role and that is why he gets paid, with the absolute independence of the one who knows that is going to collect his fees whether the operation is performed or not. In short, the lawyer is the only professional who can calmly tell his customer: do not sign! That’s why taking advice from a lawyer before signing a contract for purchase and sale of real estate is essential and the sooner you come to him, the better.

In real estate market intermediaries tend to avoid the intervention of lawyers, because they think it increases the costs of the transaction and therefore it reduces their room for maneuver. But the reality is quite the opposite: the costs of our intervention are very profitable. We can actually give many examples of real estate transactions that would have failed if there had not been an immediate intervention of lawyers. The most common problems that we solve are:

• problems with the matrimonial regime applicable
• a necessary formalization of an acceptance of inheritance,
• buildings awaiting a declaration of new construction (even if they have been legal built, but not registered)
• fiscal and money laundering control problems specific to non-resident sellers or non-resident buyers,
• special powers necessary to formalize the operation, when the contract parties cannot be present at the formalization of the purchase contract…

But the range of possibilities is enormous and each of these issues can cripple sales management until making it impossible, especially at the present time, because of the lack of buyers and the oversupply of housing available to the market. Furthermore, experience in international operations with nonresident buyers or nonresident sellers is at the moment crucial, as the housing market mainly offers its stock to potential foreign buyers from countries increasing their capacity and interest in purchasing property in Spain (Russians, Swiss, Indian, Chinese, etc.)…

The failure of a real estate transaction means for the real estate brokers involved an effective cost in time, dedication, displacements and risk analysis, and these costs have no compensation if the operation is not actually performed. The causes of such a failure are often legal issues that only an attorney skilled in the art would have foreseen early enough to provide possible solutions and avoid the loss of the buyer. Or, if not feasible any of the proposed solutions, the lawyer could advise to abandon the operation on time, before incurring further unnecessary costs. Working with real estate agents or other intermediaries in the housing market is an important opportunity for business and the synergies it generates are very helpful both for lawyers and for the agencies involved, providing their common customer the benefit to be able to buy or to sell with guarantees and to mature his decision with all the necessary information.

Carlos Prieto Cid, Lawyer

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Tarraco Iuris consolidates its presence in the web 2.0

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Tarraco Iuris SL, our international legal services firm based in Tarragona, founded in 1994, started in 2012 the implementation of a new communication plan that definitely strengthens its presence in the world of online social networks. With the addition of a special website for mobile smartphones, the creation of a corporate blog on legal issues and the implementation of a strategic plan 2.0, the firm will increase proximity to its customers and partners throughout Europe.

Integration with Social Media

We are aware of the growing importance of presence and  business strategies within the Social Media, as an essential framework of entertainment and professional relations, and according to that,Tarraco Iuris SL has taken up the challenge and has finished in the month of January 2012 the renovation of its corporate websites and its advertising pages inserted in different social networks. You can find, follow and contact us in:

– LinkedIn: http://www.linkedin.com/company/tarraco-iuris-lawyers-firm
– Xing: https://www.xing.com/companies/tarracoiurislawyersfirm
– Facebook: http://www.facebook.com/tarracoiuris
– Twitter: https://twitter.com/#! /TarracoIuris
– Google Plus: https://plus.google.com/u/0/100733886806765902220

Smartphone Web

Since a large mass of potential customers are using smart phones as the preferred instrument for web browsing, the company has developed special pages for smartphones with the same contents as the current corporate website for desktop computers and tablets.

You can visit it in six different languages in http://m.tarracoiuris-advocats.com

Company blog

The need for customers living outside Spain to obtain intelligible and practical information on legal matters related to real estate investment and asset management, creation of companies by foreigners and, in general, everything related to civil contracts, has encouraged us to publish monthly in our new corporate blog an article about legal information of interest to lawyers and non resident businessmen. It is published at the beginning of each month in two languages:

– Blog in English: https://blog.tarracoiuris.com/en
– Blog in German: https://blog.tarracoiuris.com/de

We invite all our partners and customers to interact with Tarraco Iuris in different social networks and in our blog, and also to send us comments and suggestions on the participation of the firm in the digital environment 2.0.

Yours sincerely,

Carlos Prieto Cid, Lawyer

Tarraco Iuris SL
https://tarracoiuris-advocats.com

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Spain reported to the European Court of Justice because of the tax discrimination against foreigners

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The European commission has brought the Kingdom of Spain to the Court of the European Union on 27.10.2011, because the Spanish tax regulations generally  discriminate foreigners with no official residence when acquiring properties in Spain through an inheritance or a gift; they have to pay much more tax on an inheritance or a gift acceptance than the residents.

The European Commission had requested Spain to amend its provisions on inheritance and gift tax, which allow for a higher tax burden on non-residents and foreign assets.  The commission sent Spain a reasoned opinion on 5 May 2010 (IP/10/513).  Spanish legislation was amended, but was considered still not compatible with EU law.  The commission has therefore decided to send Spain a complementary reasoned opinion, in which it requests further amendments to be made in order to achieve full compliance with EU law. As can be seen from the European Commission’s request in February 2011, provisions in the various Comunidades Autonomas (Spanish regions with their own legislative powers) are incompatible with the free movement of workers and capital under the terms of the Treaty on the Functioning of the European Union.  The commission’s request was sent in the form of a complementary reasoned opinion.  The Kingdom of Spain had two months to send the Commission a satisfactory response, but the Commission has finally decided to bring Spain to the European Court of Justice.

Since the founding of the Single Market, the European Union has protected the so-called “four freedoms”: the free movement of goods, capital, services and people.  This means that in principle, trade between member states is therefore free from any restrictions, and EU citizens can enjoy the free movement of workers and right of residence.   It also guarantees that any businessperson residing in an EU member state may also offer and provide their services in other member states, and that the transfer of any amount of funds and securities is not only permitted between member states, but also between member states and countries outside the EU.  However, the exercising of the latter, the free movement of capital, can be affected when the regulations on capital tax within the EU (and even within member states) differ so greatly.  This also applies to regulations on inheritance tax.  In Spain, inheritance and gift tax is regulated both at national level and by the autonomous communities.  In practice, regulations set by the autonomous communities mean that tax is considerably lower than under national regulations.  If a gift or inheritance does not come under the jurisdiction of an autonomous community, only national regulations apply.  This is particularly the case if the recipient of the inheritance or gift lives abroad or it involves foreign assets.  Taxes on non-residents and foreign assets are accordingly higher.  The European Commission views this as a breach of the freedom of movement of workers and capital, which are guaranteed under the terms of the Treaty on the Functioning of the European Union (Articles 45 and 63 respectively).

Carlos Prieto Cid, Lawyer

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The risks of giving power of attorney

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The event often arises when we would like to sell our Spanish holiday home or freehold apartment but we are unable to be there at the time of the required notarial certification of the contract of sale because we are only there occasionally on holiday.  A common solution in such cases is to authorise someone to represent us in the notarial proceedings.

InSpain, the transfer of a property only becomes valid once the person giving the authorisation has notarially submitted a letter of attorney.

Simple handwritten authorisation is not sufficient as there must be a notarial letter of attorney for such transfers, i.e. one prepared by a notary to make it legally valid and enable it to be entered in the land register.

This letter of attorney must be signed in the presence of a notary to allow them at that moment to verify our identity and legal status in their capacity as a representative of the state.  They are also obliged to inform us of the risks of giving power of attorney.

This formality is a guarantee for the person granting power of attorney, but it can also pose a risk because the document being officially issued by the notary is really a key with which the authorised person can do anything which is written in it when exercising the power of attorney.  Later, with the letter of attorney in their hand, they can act without the knowledge of the person giving the power of attorney, or even against their will, because the validity of the letter of attorney does not depend on the actual wishes of the person giving power of attorney, but on the officially declared wording of the certified wishes which is contained exclusively in the notarial declaration of authorisation.  This gives the third party, who is conducting business with the authorised person in good faith, the guarantee and security that the transactions are as far as possible valid, irrespective of what the person giving the authorisation might think, and Spanish law therefore does not provide any opportunity to restrict authorisation in the internal relationship, provided the letter of attorney is not notarially revoked.  It is therefore recommended that power of attorney should only be given for the benefit of a person we completely trust or that the authorised person is preferably a lawyer whose area of expertise is continually monitored by a relevant authority, such as the Colegio de Abogados (Bar Association).

It is also possible for a lawyer to simply represent us during the notarial sale without documented and express power of attorney, with the person represented confirming the legal transaction afterwards in the presence of the notary.  However, this approach attracts additional costs and can also have further drawbacks.  The transfer to the buyer is provisionally invalid, i.e. the transfer is not valid until the notarial confirmation has been entered in the land register.  This always presents difficulties if the buyer of the property has to bankroll the purchase price and requires a loan guaranteed by a mortgage, for example.  In such cases, the sale cannot take place because the mortgage only counts as a guarantee if it is entered in the land register.

Carlos Prieto Cid, Lawyer

Buying property without risk

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Before buying a property in Spain or signing a contract agreeing the sale of a property, it is important to be aware that, without the necessary guarantees, this signature can represent a major risk. The cost of consulting a lawyer is very small compared with the substantial costs arising from any possible legal proceedings resulting from a legal dispute. However, legal disputes are very easy to avoid if you receive the correct advice beforehand.

The services of a lawyer during a transfer of ownership can cover the following:

Prior inspection of the property:
– Register details: ownership, description, liabilities and tax liabilities
– Cadastre details: description, cadastral value
– Tax details of the property: outstanding tax
– Urban planning details of the property: valuation, planning, liabilities, legality of new building
– Horizontal ownership details: debts, special taxes and duties
– Condition of the building: implementation and monitoring during the preparation of a survey report
– Property value: implementation and monitoring during the preparation of a valuation report

Regulation of register, cadastre, tax and planning details

Financing and tax analysis of the project

Foundation and registration of a company with the tax office

Registration of natural persons with the tax office

Supervision of mortgage financing

Preparation and legalisation of documents
– Arrangement of power of attorney
– Application for apostilles
– Request for simple and certified translations

Drafting and verification of the private contract of sale, option contract, service contract etc.
– Drafting and negotiation
– Verification
– Guidance when signing the contract or signing in the name of the client by means of the power of attorney

Drafting and verification of certificates (for purchase, mortgage, acceptance of inheritance, building project etc.) together with the notary.
– Preparation and verification of documents necessary for issuing the certificate
– Drafting of the proposal and verification of the certificate text drawn up by the notary, based on the project
– Guidance when signing the contract or signing in the name of the client by means of the power of attorney

Processing of tax declarations and payment of tax

Entry into land register

Contracting party’s change of contracts with energy/water suppliers and phone companies etc.

Guidance in negotiating with the following persons/organisations:
– Seller/buyer
– Estate agent
– Builders
– Chief architect and technical architect
– Notary
– Registry officials
– Valuer
– Surveyor
– Bank
– Insurance company
– Property management
– Tax office
– Local council and other public authorities

Carlos Prieto Cid, Lawyer

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