Whether you are buying, selling or renting property, you will need to pay Madrid real estate taxes. This article explains everything you need to know about taxes if you are planning on investing in Madrid real estate.
Purchasing Madrid real estate
If you are planning on purchasing real estate in Madrid, there are extra fees associated with the purchase. Aside from the Madrid real estate taxes, you will also need to pay notary and legal fees. Expect to add 10-11% in fees, in addition to your real estate investment.
NOTE: Notary fees vary, based upon the purchase price. For properties valued less than 100,000€, notary fees amount to 0.4% of the purchase price. Properties valued between 100,000€ and 400,000€ are assessed between 0.1-0.4% of the purchase price. Properties valued more than 400,000€ are assessed 0.1% of the property purchase price. Land registry fees range between 0.5% and 1.0%, depending on the purchase price and whether a mortgage is involved. This website can help you calculate fees you can expect to pay when purchasing Madrid real estate.
First step: Acquire a NIE
Before you invest in Madrid real estate, you will need to acquire a NIE (Número de Identificación Fiscal de Extranjeros). This is a tax number for non-Spaniards. It is not difficult to obtain, as the Spanish government strives to make it as easy as possible for people to pay their taxes. You need to apply in person, either at the relevant police station in Spain or at the Spanish Consulate in your country. After making the appointment, you complete a form and pay a small fee (9.84€). If you do not wish apply in person, you may grant power of attorney to a Spanish lawyer and they can do everything for you. If you need help finding a reliable lawyer, Madrid Estate works with trusted attorneys that can help you through every step of the purchase process.
Taxes due when purchasing a property
New-build properties are taxed differently than second hand properties. If you purchase a newly built property, you will have to pay a Value Added Tax (IVA), which is 10% of the purchase price. You will also have to pay a stamp duty (IAJD). This covers the legal work required by the local authority to register the property with the land registry. It ranges between 0.3% and 0.7% of the purchase price of the property for sale Madrid.
If you purchase a second hand property, you do not need to pay the IVA. However, you will need to pay a property transfer tax (ITP). The ITP varies, depending upon where in Spain the property is located. The ITP in Madrid is 6% of the property value; this is the lowest ITP in Spain.
Annual property taxes
All Spanish property owners are required to pay annual property taxes (IBI). This tax is based on the property value(s), regardless of whether the owner is a Spanish resident or not. It is calculated on the basis of the cadastral value set by the town hall. This tax rate runs from 0.4%- 1.1%, depending upon where the property is located. The tax rate for urban property in the Community of Madrid is 0.442%.
If you own a property in Spain but are not a Spanish resident, you will also need to pay annual non-resident property taxes. . If you rent the property and earn rental income, you will need to pay quarterly taxes on this income (please see the following section of this article), regardless of whether you are a Spanish resident or not.
If your property is valued more than 700,000€, you will also need to pay a wealth tax. The Community of Madrid waived this tax, but reinstated it in 2024. To learn more about this (rather complicated) situation, we refer you to: Wealth Taxes in Europe, 2024
Finally, Spanish property owners must pay a small annual tax for refuse collection. This tax is roughly 80€ for a three bedroom apartment; it covers drainage and trash collection.
Renting Madrid real estate
If you purchase Madrid property for investment purposes, you will need to pay taxes on your rental income. You are required to pay these Madrid real estate taxes whether you are a Spanish resident or not. It’s important to note that if your property is vacant, the Spanish tax office will still tax the potential income your property could produce if it was rented. This is known as Imputed Income Tax; it’s typically 1.1% of the property’s book value (cadastral value).
The tax on rental income in Spain is 19% for EU residents and 24% for residents of non-EU countries. EU citizens can deduct relevant expenses; non-EU citizens cannot deduct property related expenses. This tax on rental income is due every quarter; it must be paid within 20 days of the end of the quarter, or you will be charged a late fee.
If you want to reduce your Madrid real estate taxes, you can open a Spanish limited liability company and purchase the property through this. To learn more, we invite you to read: Advantages of buying property in Spain through a company.
Tax advantages for multiple rental properties
If you are an investor and own multiple rental properties, you can significantly lower your tax burden. To qualify, you must own at least eight rental properties and they must be rented long term. In this situation, you receive significant tax benefits:
- You you can qualify for up to a 100% deduction on rental income.
- As you will need to purchase the properties via a Spanish company, you can deduct all property related expenses AND will not have to pay the Property Transfer Tax when you purchase a new property.
- You do not have to pay the non-resident income tax rate.
Selling Madrid real estate
If you wish to sell your Spanish property, you will likely need to pay capital gains taxes and the plusvalia. If you are not a Spanish resident, you will need to pay capital gains taxes when you sell. If you are a Spanish resident but the property isn’t your primary residence, you will also need to pay capital gains taxes. If you sell your primary residence and are a Spanish resident, you do not need to pay capital gains taxes.
The amount of capital gains taxes payable is calculated based upon the price declared when the property was purchased and what was declared when it was sold. Non-Spanish residents from the EU usually pay around 19% in capital gains tax, whereas non-residents outside of the EU pay around 24%.
The plusvalia is a local tax that you must pay to the town hall located in the area where the property you are selling is located. This tax is based on the value of the land and the length of time you owned your property. However, plusvalia does not have to be paid if the value of the land is lower when it was sold than when it was purchased. The plusvalia must be paid within 30 days of transferring the property title to its new owner; it is paid directly at the Madrid town hall. The plusvalia is a very controversial Madrid real estate tax. In 2021 the Spanish Supreme Court declared the tax unconstitutional, due to the way it was calculated. Therefore, for a short period of time the plusvalia was not assessed. However, they changed the way the tax is calculated and people selling their property currently need to pay this tax.
Do you wish to learn more about investing in Madrid real estate? Or perhaps you need help creating a portfolio of investment properties? We can help! Madrid Estate offers a full range of services for international property investors: CONTACT US TODAY to learn more.
