Real Estate Purchase in Spain: Reduced 2% ITP Tax Rate

The property transfer tax can be one of the most important expenses in a real estate transaction, so it is important to understand its tax implications to avoid unpleasant surprises in the future.

When it comes to a property on the Costa del Sol, the amount that must be paid is governed by the Junta de Andalucía and can be quite high since the general rate is set at 7%, but there is a reduced rate of 2% that can be very interesting if certain requirements are met, such as including the property in the company's circulating assets. In this post, we will explain how this tax works in Andalusia and what needs to be done to qualify for the reduced rate.

In Andalusia, individuals or legal entities that acquire a property to be used for their economic activity and include it in their circulating assets can qualify for the reduced rate of 2% of the Property Transfer Tax (ITP). This applies to companies that acquire properties for subsequent sale or rental, or for use as employee residences. It is important to meet the established requirements in order to qualify for this reduced rate of ITP.

What are the requirements to qualify for the reduced rate of 2% of ITP?

The requirements to qualify for the reduced rate of 2% of ITP in Andalusia by including a real estate property in a company's circulating assets are as follows:

• The individual or legal entity acquiring the property must incorporate it into their circulating assets.
• The acquired property must be transferred within five years of its acquisition with the delivery of possession and provided that this transfer is subject to the Property Transfer and Stamp Duty Tax.

It is important to note that non-compliance with any of these requirements may lead the Administration to demand payment of the corresponding tax, as well as possible sanctions.

How is compliance with the above requirements certified?

The taxpayer must certify that they are registered in the corresponding section:

• Group 833, subgroup 833.2 (Building promotion).
• Group 861, subgroup 861.1 (Housing rental).

The taxpayer must state in the public document formalizing the transfer their intention to incorporate the property into their circulating assets. This is without prejudice to the administrative verification that may be carried out.

Once these requirements are met, the tax rate that must be applied to the transfer of the property is 2%.

These types of procedures can be confusing and lead to errors, so it is very important to properly manage them from the beginning, being clear about the process even before formalizing the purchase and sale transaction.

However, it is crucial when making an investment, as the difference in cost for a property worth €750,000 can represent a difference of €45,000, which would completely change the profitability of the transaction.

If you are about to buy a property on the Costa del Sol and want to qualify for the reduced rate of 2% of the Property Transfer Tax, do not hesitate to contact Valido Home. Our real estate law professionals will take care of the process correctly and efficiently so that you can enjoy all the benefits that this option offers. Contact us now and let us help you achieve your financial goals!