Reply To: Lawyer Problems and Indemnity

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with cash payment you mean you underdeclared the price of the property at the notaries and paid the difference in cash to the developer. This is ilegal and you may be prosecuted if they find out. The Tax Authorities are clamping down as of late (within this last year) on this very common practice in Spain.

A lawyer must not recommend you to pay like this at any time.

Besides all the above, when you underdeclare a property of first construction (off-plan) you waive 7% VAT. But the truth is that you are financing the sellers capital gains tax; being yourself a non-resident it will be at 35%.

So doing the maths you save yourself 35 minus 7= minus 28. You save only now 7% to pay later on an increase of 28% in taxes which you shouldn’t have paid in the first place because it corresponded to the seller. You are in fact paying his taxes because he declares he is making less of a profit in the sale than he really is. You finance the seller’s taxes is the bottomline of underdeclaring the value of a property.

When you sell the property in a few years time the increase in value will be artificialbecause you underdeclared in the first place. Unless your purchaser also pays you in cash and you underdeclare in turn pasing on the tax liability to the pourchaser.

As a general rule the purchaser must always try to declare the exact amount and avoid underdeclaring besides the fact that its ilegal, whereas the sellers interest is always to underdeclare