Foreigners could avoid Spain's 100% tax by buying new builds

There has been anger and confusion following the Spanish government's decision to move forward with a proposal to tax new non-EU non-resident home buyers 100 percent on the value of Spanish property, an idea first proposed by Spanish Prime Minister Pedro Sánchez in January as a way of limiting "foreign speculation" in the property market.

However, after experts have consulted the legal text, it has emerged that there may be a way for some of these foreigners to avoid Spain's 100 percent tax: by buying a new build property.

Despite widespread confusion online, the draft text clarifies that the proposal is not to double the property transfer tax (ITP, which is 6 to 11 percent of the property value depending on the region) as many had previously thought or hoped.

Rather, the draft bill is that the 100 percent tax would apply to the taxable base of the property (the value of the property, in other words), which would effectively double the price for these buyers. The Local has spoken to property experts and reported on this in detail to avoid doubts, which you can read about here and via the link below.

The measure will affect 'second hand' properties in Spain but not new builds directly from developers, something that could price people out while allowing wealthier foreigners to bypass the proposal.

The price of new build housing in Spain is 44 percent more than second-hand housing on average and 10 percent more than the high it reached during the property bubble, according to a report by valuation firm Tinsa.

FACT CHECK: Yes, Spain's 100 percent tax on non-EU, non-residents doubles property price

The tax is essentially a surcharge that doubles the original price but is not without its loopholes: the tax will not affect non-resident non-EU nationals who buy housing directly from a developer. Nor, although only in some cases, will it affect sales when both seller and purchaser are entrepreneurs or professionals.

The distinction is due to VAT rules in Spain. This means that 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," Mallorca-based lawyer Alejandro Del Campo of DMS Consulting tells The Local.

Spain's Register of Tax Advisor Economists (REAF) has presented its first assessment of the proposals, and explains that the new tax does indeed contain a legal loophole. Raquel Jurado, a technician in REAF's research department, told Spanish daily El País that "as VAT cannot be touched, because it is aligned, all sales that are taxed by it will be outside the complementary tax."

Similarly, Jurado states that transactions in which the seller is a businessman, entrepreneur or professional should not be affected by the new tax either. "If the property is sold by an entrepreneur who is not a developer, the transaction would be subject to VAT in theory, but exempt in practice. And if it were bought by another businessman, this exemption could be waived in order to pay VAT and thus avoid the supplementary tax," she says.

It's worth noting that, despite the alarm caused by the proposed measure, the proposal is exactly that for now: a proposal. It will still need parliamentary approval before it becomes law, something far from certain in the complicated Congressional arithmetic of Spanish politics. Sánchez has in the past been accused of performative politics in terms of property market measures, such as with the decision to axe the golden visa.

"When the time comes when someone who has paid double the value of their property wants to sell, will they find someone to buy it? Will they lose money?" Fernández stated, also stressing that the measure "penalises" investment by non-resident non-EU foreigners.