Spain's Socialist-led government has again made headlines after submitting an official proposal in Congress to tax home buyers from outside the EU 100 percent on the value of the Spanish property, an idea first proposed by Spanish Prime Minister Pedro Sánchez in January as a way of limiting "foreign speculation".
What has been confirmed now with the draft bill is that the 100 percent tax would apply to the taxable base of the property (the value of the property), which would effectively double its price for these buyers.
The legal text presented by the ruling Socialists clarifies that it would not double the property transfer tax (ITP, which is 6 to 11% of the property value depending on the region) as many had previously thought.
FACT CHECK: Yes, Spain's 100 percent tax doubles property price
Such a levy, one of several aimed at addressing Spain's housing crisis, would still need parliamentary approval before it could become a law.
Nevertheless, within Spain's legal, fiscal and property spheres, the reaction is one of alarm.
"The draft law is very clear: we are talking 100 percent of the highest rateable value," Spanish real estate expert Mark Stücklin, head of Spanish Property Insight, told The Local.
"Let's say that's the transaction price of a villa for €300,000€, in which case the tax would be €300,000, minus the ITP deduction. Crazy!"
"My reaction is that this would be so ineffective and counterproductive that the PSOE can't really be serious and it's more about trying to outflank Sumar (the Socialists' hard-left junior coalition partner) on the left, but it's getting harder to tell."
According to Mallorca-based lawyer Alejandro Del Campo of DMS Consulting, "a State Tax on property transfers which penalises non-residents makes no sense."
Del Campo, who has a large portfolio of foreign clients, has appealed in EU courts against several of the Spanish government’s discriminatory measures which target non-residents.
"The Court of Justice of the European Union has already condemned Spain for discriminating against non-residents with the Inheritance and Gift Tax," the lawyer told The Local, adding that Spanish authorities have also been forced to eliminate discriminating taxes against non-residents vis-à-vis the Wealth Tax and the Solidarity Tax.
It’s worth noting that many of the laws targeting non-residents predate Spain’s current housing crisis, suggesting that Spanish authorities have a longstanding habit of looking at these citizens as a way of filling public coffers.
For Del Campo, the 100 percent tax "would flagrantly violate EU law, specifically Article 63 TFEU, which prohibits any restriction on the free movement of capital not only between Member States but also between Member States and third countries."
In his eyes, only new builds would be safe from the price doubling, as "new properties are subject to VAT, and the Spanish legislator can't easily interfere with that".
Spain’s General Council of Economists (CGE) has also spoken out and said that the new supplementary tax on home purchases by non-EU non-residents is "madness," believing it could end up being resolved in court.
CGE met with Spain’s Registry of Economists and Tax Advisors (REAF) on Wednesday to discuss the Spanish government’s proposed new tax on non-EU non-resident property buyers.
The general consensus among these experts is that the problem isn't that wealthy foreigners are buying homes, but rather that there is a shortage of properties in certain areas.
They therefore doubt the effectiveness of such a "drastic" tax and warn that there are many areas in Spain with significant foreign populations and that therefore there should be some consensus on the issue.
For its part, Spain’s Registry of Economists and Tax Advisors (REAF) has called the so-called supertax “shocking” while highlighting that "it's the first time a tax has been established with a 100% tax rate, which raises questions about its potential confiscatory nature".
"When the time comes for someone who paid twice the value of their home to want to sell it, will they find someone to buy it? Will they lose money?," said REAF head Agustín Fernández.
He therefore considers that were the 100 percent tax to come into force, the subsequent sale of the property by non-resident would be "unviable", as the levy "penalises" investment by non-EU residents.
"We imagine the courts will ultimately rule on the tax’s confiscatory nature," Fernández concluded.
Comments (4)