Legal Process for buying a business in Spain

Legal Checks

Legalities

Once you have chosen your business it is essential to arrange a full legal check with an English speaking lawyer to protect your own interests. This ensures that the seller is the legal owner of the business, and therefore has the right to sell.  Your lawyer will also provide you with a Nota Simple which confirms if there are any outstanding debts or loans against the business.
To purchase a business in Spain you must have a Spanish tax number or NIE (numero de identificacion extranjero), your lawyer can arrange this for you.



Option Contract (Opcion de Compra)

After both parties have agreed a price for the business and unless you are paying in full and in cash immediately, it is advisable to sign an Option Contract.
This contract will contain details such as the age and size of the building, the purchase price and date of completion, there will also be a description of the business.  In addition it will state which party is responsible for paying what.  Once this contract is signed the completion can be organised.
The deposit is payable when signing the Option Contract and the standard deposit is 10%.  This will be held in a bonded client account until the specified completion date.  This contract is legally binding and therefore your deposit will be lost if you withdraw from the purchase.  If however, the seller decides to withdraw, you are entitled to twice the value of your deposit as compensation.

Deeds of the Business (Escritura de compraventa)

On the completion date, the outstanding balance (purchase price minus deposit paid) and all fees must be paid by the buyer.  The buyer and the seller then sign the compraventa contract which is the equivalent to the Deeds of the business.  The purchaser is then issued with a copy of the public deed of conveyance (escritura) in the presence of a Public Notary who is the official required to witness the deed of sale.  The original signed escritura is always kept in the notary’s office.  A copy is passed on to the tax office and also to the property registry.  The keys will be handed over at this point.

Registration of the Property

In order to register the business in your name, you must provide proof of payment to the land registry office of the relevant purchase taxes.  After completion these taxes must be paid within a period of 30 days, this will be arranged by your bank if you have a mortgage or otherwise by your lawyer.  Late payment will result in a fine from the tax office.

Bank

As the owner of a Spanish property you must have an account at a local bank with sufficient funds to cover the normal running costs.  Standing orders will need to be set up for water and electricity bills etc.
It is advisable to take out a house insurance policy to cover any potential problems. This can be done with the bank or through an insurance company.

Fees to be Paid

Property Sales Tax

On resale properties (not a new build), the ITP tax to be paid is 7% of the purchase price.
For new properties, VAT (IVA) is applicable, which is 8% of the purchase price.  There is also an additional 1% tax to be paid, this is known as AJD (Actos Juridicos Documentados).

Plusvalia

Plusvalia is a tax levied by the local Town Hall which reflects the increase in value of the land since the last time it was sold.  The calculation is based on the particular area where the property is located, on the Catastral value of the surface area of the land (plot not buildings), and on the date of the previous title deed.
By law the seller is obliged to pay this tax but in the Balearic Islands it is common practice for the parties to negotiate on who is to assume this liability. If you are asked to pay this tax when buying a property, make sure you establish exactly how much it will be as it can vary substantially.

Retencion

The amount of 3% of the purchase price is to be paid by the buyer directly to the town hall if the seller is a non-resident.  This is to prevent the seller leaving the country without paying the appropriate taxes, and in these cases, the 3% will therefore be subtracted from the purchase price at completion of the sale.

Summary of Taxes and Fees

  • Property Sales Tax – 7%
  • Lawyer’s Fees – approx 1% of purchase price


It is recommended to allow 10% of the purchase price for taxes and fees.  The extra amount may be made up from Notary and Land Registry Fees, bank charges if you require a mortgage and architect’s fees if you would like a structural check of the property.

Running costs of the Property

There will be certain payments required throughout the year:
Water bills are paid every 2 months, electricity and telephone are usually paid monthly.
The community charges, if applicable are paid monthly, quarterly or every six months according to the particular community.
The rates and rubbish collection taxes are paid once a year, so too is the non-resident tax.

 

The information above is intended to give a general insight into the process of buying a property in Spain.   Each case is different and there are exceptions, it is therefore essential to seek legal advice and read all contracts thoroughly.