The Announcement of Tax Increases for non-EU Property Buyers.

Reassurance and Perspectives for International Investors.

Recently, the Spanish government, led by Pedro Sánchez, announced its intention to introduce an extraordinary increase in taxes for non-EU non-resident property buyers. This announcement has raised concerns within the real estate sector and among international investors.

However, it is essential to analyze this proposal critically and realistically to understand its actual impact and feasibility.

1. The Law Prohibits Favoring Residents Over Non-Residents in Tax Matters

Article 63 of the Treaty on the Functioning of the European Union (TFEU) ensures the free movement of capital between EU Member States and between these and third countries:

1. Within the framework of the provisions of this chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.

2. Within the framework of the provisions of this chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.

This means that restrictions imposing fiscal discrimination between residents and non-residents are not allowed. The European Court of Justice has previously invalidated similar Spanish regulations, making this proposal legally questionable.

2. VAT on New Builds Is Harmonized Across the EU

Newly built properties are subject to VAT, a tax harmonized throughout the European Union. This means the Spanish government cannot unilaterally modify this tax, ensuring that new properties will not be affected by this announcement.

3. Transfer Tax on Second-Hand Properties Is Managed by Regional Governments

The Property Transfer Tax (ITP), which applies to the purchase of second-hand properties, is delegated to Spain’s Autonomous Communities. Many of these regions are governed by opposition parties that have pledged to reduce this tax. This limits the central government’s ability to enforce tax increases in this area.

4. This Is a Political Announcement, with No Parliamentary Process Initiated

This announcement should be seen as a political move, as the parliamentary process to implement it has not yet begun. Such a process could take between 4 and 6 months, during which the proposal could be modified or even discarded. Announcements like this are often “trial balloons” to gauge market reactions

Recommendations for Investors

• Stay Calm: Avoid making rushed decisions based on political announcements that lack firm legislative backing.
• Seek Professional Advice: Engaging with legal and tax experts who can provide tailored guidance is essential to safeguard your interests.

The Spanish government’s announcement should be interpreted within a political and economic context that limits its immediate feasibility. For now, there is no reason for alarm, as European legislation and internal processes provide a robust framework of security for investors.

At Fuster & Associates, we continue to closely monitor this situation to provide you with up-to-date information and expert advice. Your investment in Spain is in safe hands, contact us.

We want to help you navigate all the legal complexities that comes to buying or selling a house in Spain, but this article is legal information and should not be seen as legal advice.