5 things to consider when buying pre-owned property from a company or bank in Spain

Although house sales in Spain have slowed down in recent months due to the new mortgage law and the general economic decline, the last quarter of the year is usually a good time to buy a home. And if you buy a flat from a company, it is important that you take into account aspects such as making sure that the seller is the company's representative or knowing what taxes you will have to pay.

The law firm Ático Jurídico details the key aspects below:

Check that the seller is the representative of the company

The Spanish law assigns the representation of a company to the administrator according to how it is determined in the statutes. But the company can also grant powers of representation to an “apoderado”.

The advice offered by the law firm is that before signing the private purchase contract, the buyer should review the company's articles of association, the deed of appointment of administrator or power of attorney, to verify that the company is validly represented. It is also possible to request a note from the mercantile registry to verify that the administrator is still in office.

Check that the partners agree to sell

In order to sell a house considered an essential asset, it is necessary that the partners have agreed on it in a general meeting. This applies to housing whose value exceeds 25% of the value of the assets included in the last balance sheet approved by the mercantile company, a requirement introduced in the Law of Capital Companies after the reform of 2014. In addition, regardless of the quantitative value and even if the value does not exceed 25% of the total assets of the company, the property may be considered an essential asset to be sold.

Ático Jurídico recommends that before signing, you should ask the company or the selling entity for a certificate stating that the property to be transferred is not an essential asset.

Delivery of a deposit to the company

Signing a private sales contract and delivering a certain amount of money as a penitential deposit is quite common in Spain, although it does not guarantee that the operation will be carried out. The selling company can sell the property to another person, but in exchange, it must return twice the deposit money to the buyer. If the company does not return twice the deposit amount and becomes insolvent, the buyer could lose the property and the money, having to claim the return of the amounts delivered against an insolvent company.

Ático Jurídico points out that it is possible to avoid this risk by directly formalizing the sale before a notary. If this option is not possible, the buyer can find out in the commercial register if the selling company is solvent or has other goods. It would also be possible to sign the private contract leaving a cheque for the amount of the deposit on deposit at the notary's office where the signing of the official sales document is to be carried out.

The deed of real ownership of the selling company

This means that those partners with more than 25% participation in the selling company must be identified to formalise the sale. Companies created after 2010, when the Prevention of Money Laundering Act came into force, already incorporate the deed of real ownership in their articles of association. If the selling company was founded before this date, it will be necessary to present the deed, which must be formalised before a notary. This deed of real ownership is easily obtained in the notary's office.

Taxes to be paid

The first tax a buyer will have to pay for the purchase of a property in Spain is the VAT of 10% if the house is newly built. If the buyer is acquiring a commercial property or a new office, the VAT rate is 21%.

But if the property is pre-owned, the transfer will be exempt from VAT and then you will have to pay the Property Transfer Tax.

However, if the buyer is a businessman or professional in the exercise of his activity and has the right to total or partial deduction of VAT, it is possible to waive the exemption from this tax. This means that you must pay VAT instead of TPO, and in this way the tax can then be deducted, explains Ático Jurídico. If the buyer has to pay VAT, he himself will be responsible for paying the amount to the Spanish tax office (La Hacienda), not the seller.

If the buyer has the right to deduct VAT, in the declaration that he presents he will enter on the one hand VAT amount of the purchase, and on the other hand this amount will be deducted, thus neutralising this tax.