SPAIN Law and Practice Contributed by: Marta González-Llera, Toni Barios, Jorge del Castillo and Rafael Baena, Cases & Lacambra
8. Tax 8.1 VAT and Sales Tax
and group guarantees and letters of credit are commonly used. 7.6 Liens or Encumbrances in the Event of Non-payment Under the Spanish Civil Code, the contractor is entitled to terminate the works agreement or claim its compulsory performance (ie, the pend - ing payment), including the payment of damages (Article 1,124 Spanish Civil Code). In the case of default of payment, the contrac - tor shall not take direct legal action against the works; however, it may initiate a court case and request a precautionary measure claim to encumbrance the property. 7.7 Requirements Before Use or Inhabitation The contractor should comply with some legal provisions; depending on the location of the property and its use, the following licences/cer - tificates must be obtained: • if the property has a residential use, a final works certificate is required as well as, in most cases, a first-occupation licence or self- declaration to verify that the property may be used for residential purposes; • some regions establish the need for a certifi - cate of occupancy ( cédula de habitabilidad ), or a formal architectural declaration stat - ing the compliance of the property with the requirements to obtain such a certificate to allow its transfer; and • if the property is intended for professional use, it shall also be necessary to obtain an activity and opening licence, and some other permits may be required, depending on the type of activity considered.
See 2.10 Taxes Applicable to a Transaction for the tax implications arising from the transfer of real estate. 8.2 Mitigation of Tax Liability Subject to certain requirements, the transfer of real estate companies with a large real estate portfolio engaged in economic activities cannot be subject to stamp duty. 8.3 Municipal Taxes Only the owning of real estate is subject to real estate tax (IBI). This local tax is paid annually by the owner to the city council where the asset is located. The final tax liability is calculated from the cadastral value of the asset. 8.4 Income Tax Withholding for Foreign Investors Income tax for foreign investors depends on whether the asset is owned directly by an indi - vidual or through a company. If the asset is directly owned by a foreign com - pany or individual without a permanent estab - lishment in Spain, income derived from rent is subject to a general non-resident income tax of 24% in Spain. Should the investor be an EU/EEA tax resident, the applicable rate shall be reduced to 19% and certain expenses could be deducted (eg, depreciation of 3%). In the case of a transfer by a foreign company or individual without a permanent establishment in Spain, the capital gain derived from the transfer will be subject to a 19% tax rate. The purchas - er must withhold 3% of the purchase price on account of the non-resident income tax to be paid by the seller.
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