Mallorca, known for its stunning beaches, Mediterranean charm, and vibrant lifestyle, has long been a hotspot for international property buyers. While owning a home in this idyllic location offers numerous lifestyle and investment benefits, navigating Spain’s tax system is essential to ensure compliance and optimize costs. Here, we outline the key tax considerations for overseas buyers looking to purchase residential properties in Mallorca.
1. Taxes at the Point of Purchase
Overseas buyers must account for various taxes payable during the property acquisition process in Spain:
Real Estate Transfer Tax (RETT)
If the property is a resale (previously owned), buyers are subject to the Impuesto sobre Transmisiones Patrimoniales (ITP). In the Balearic Islands, this tax follows a progressive scale:
- 8% on the first €400,000 of the property’s value.
- 9% from €400,001 to €600,000.
- 10% from €600,001 to €1,000,000.
- 12% from €1,000,000 to €2,000,000.
- 13% for any value exceeding €2,000,000.
VAT (IVA) and Stamp Duty (AJD)
If purchasing a newly built property directly from a developer:
- 10% VAT (Value-Added Tax) applies to the purchase price.
- 1.5% Stamp Duty (Actos Jurídicos Documentados, AJD) is charged separately.
2. Annual Taxes on Property Ownership
Once the property is purchased, ongoing taxes apply to its ownership:
Property Tax (IBI)
The Impuesto sobre Bienes Inmuebles (IBI) is a municipal tax based on the cadastral value of the property (not the market value). Rates typically range between 0.4% and 1.1% of the cadastral value, depending on the municipality.
Wealth Tax (Impuesto sobre el Patrimonio)
Non-residents owning property in Spain may be liable for Spain’s Wealth Tax, calculated on the net value of their Spanish assets.
- A tax-free allowance of €3million is available for individuals (in the Balearic Islands).
- Rates range from 0.28% to 3.45% for assets exceeding this threshold.
In the Balearic Islands, this tax can significantly impact high-value property owners.
Non-Resident Income Tax (IRNR)
Non-residents who own property in Mallorca are required to pay Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes, IRNR). Even if the property is not rented out, a deemed rental income tax is calculated as:
- 1.1% of the cadastral value, taxed at 24% for non-EU residents or 19% for EU/EEA residents.
If the property is rented out, the tax is calculated based on actual rental income, with deductions for EU/EEA residents.
3. Taxes on Sale or Transfer of Property
Selling property in Mallorca also triggers specific tax obligations:
Capital Gains Tax (CGT)
Capital Gains Tax applies to the profit earned from the sale of property.
- Rates range from 19% to 28% depending on the amount of the gain.
- Non-resident sellers may be subject to a 3% withholding tax on the sale price, which is offset against the final tax due.
Plusvalía Municipal
This municipal tax applies to the increase in the property’s cadastral value over the period of ownership. Rates vary by municipality and depend on the duration of ownership.
4. Key Planning Tips for Overseas Buyers
- Engage Professional Advice: The Spanish tax system can be complex, and professional guidance ensures compliance while identifying potential tax-saving opportunities.
- Consider Residency Options: Becoming a tax resident in Spain may affect your tax obligations, particularly regarding Wealth Tax and rental income.
- Review Double Taxation Treaties: Spain has treaties with many countries to prevent double taxation, which can reduce the tax burden for overseas buyers.
Conclusion
Purchasing a property in Mallorca is a significant financial commitment that requires careful tax planning. Understanding the applicable taxes at every stage—purchase, ownership, and sale—can help overseas buyers avoid surprises and ensure compliance with Spanish tax law.
Whether you are seeking a vacation home or a long-term investment, working with experienced tax advisors and legal professionals will provide peace of mind and maximize the value of your property in Mallorca.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute legal or tax advice. Tax rates and regulations mentioned are subject to change, and their application can vary depending on individual circumstances. We strongly recommend consulting with qualified legal and tax professionals to obtain personalized advice tailored to your specific situation.
