Purchasing property in Mallorca is a tempting investment for many. However, before taking the plunge, it is essential to familiarize yourself with the applicable taxes. These vary depending on the type of property, the transaction model, and the seller's status.

The most important taxes when buying property

When buying property in Mallorca, several taxes are usually payable. These are essential for proper financial planning and avoiding unexpected costs. The most important taxes include:

1. Real Estate Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP): 

The Real Estate Transfer Tax is the most important tax when purchasing a used property. Its amount varies regionally and is calculated on the property's purchase price. In Mallorca, the tax rate is X percent. It is important to find out the current rate, as it can change. The assessment basis is usually the price agreed in the purchase contract or the market value determined by the administration, whichever is higher.

2. Value Added Tax (Impuesto sobre el Valor Añadido – IVA) and Stamp Duty / Notarization Tax (Actos Jurídicos Documentados – AJD):

When purchasing a new property, VAT is charged instead of real estate transfer tax. The standard VAT rate is 10% of the purchase price. In addition to VAT, stamp duty is levied, which is typically between 1.2% and 1.5% of the purchase price (Balearic Islands). This tax is levied on notarial deeds that establish ownership.

3. Municipal Capital Gains Tax (Plusvalía Municipal):

The Plusvalía Municipal is paid by the seller and taxes the increase in value of the land on which the property is located during the period of ownership. The calculation is based on the number of years the property has been owned and the land's cadastral value. This tax is levied by the municipality, and the amount varies depending on local legislation.

Additional Costs and Fees

In addition to taxes, there are other costs that must be considered when purchasing a property:

1. Notary Fees:

The notary fees are charged for the notarization of the purchase agreement. Their amount depends on the value of the property and is set by law.

2. Registration Fees in the Land Register:

The registration fees for registering the change of ownership in the land register must also be taken into account. These fees are a percentage of the value of the property.

3. Legal Fees:

It is advisable to consult a lawyer to review the legal aspects of the purchase. Legal fees are negotiable.

4. Real Estate Agent's Commission:

If a real estate agent is involved, broker's commissions will apply, which are usually paid by the seller or buyer.

Tax Aspects of Real Estate Sales

Taxes also apply when selling real estate. These are just as relevant for sellers as taxes are for buyers, as they influence the profitability of the transaction.

1. Income Tax (Impuesto sobre la Renta de las Personas Físicas – IRPF):

The profit from the sale, i.e., the difference between the selling price and the purchase price, is subject to income tax. The tax rate depends on the seller's individual income.

2. Municipal Capital Gains Tax (Plusvalía Municipal):

As already mentioned, the seller must pay the Plusvalía Municipal.

3. Non-Residents:

Non-residents are generally required to withhold a portion of the sales price as capital gains tax when selling real estate. The current rate is X percent of the sales price.

Important information for prospective buyers and real estate agents

To ensure that all tax aspects are handled correctly, the following points should be observed:

1. Expert advice:

It is advisable to seek advice from tax advisors and lawyers to fulfill all tax obligations and minimize financial risks.

2. Documentation:

All relevant documents such as purchase agreements, invoices, and payment receipts should be carefully retained.

3. Update:

Tax regulations can change, so it is important to regularly check the latest laws.

4. Careful Planning:

Detailed financial planning is essential to account for applicable taxes and avoid unexpected costs.

5. Property Inspection:

Before purchasing, the property should be inspected for potential encumbrances and legal issues.

Conclusion

The tax aspects of buying and selling real estate in Mallorca are complex. A thorough review of relevant taxes and seeking expert advice are crucial for a successful transaction. Through careful planning and compliance with current laws, both buyers and sellers can protect their financial interests.