At the end of last year the Spanish government rushed through a retroactive law to tax wealth in Spain that is particularly hard on foreign investors in Spanish real estate with €3m or more invested, even fund investors who might not be aware of their exposure to Spain.
The ‘Solidarity Tax on Big Fortunes’ was rushed through by the government at the end of 2022 with retroactive effect, meaning it applied to tax declarations for 2022, giving investors no time to adjust.
Now that tax experts have had time to study the law it’s becoming clear that foreign investors are treated unfairly, and foreign investment is likely to suffer as a consequence, which could reduce the tax take.
The law now includes “indirect” investments, meaning fund investors who don’t own a property in Spain either directly or through a company for personal use. Fund investors now face paying a wealth tax of up to 3.5% with no exemptions if they have €3m or more invested in a fund with 50% of its assets in Spanish real estate, though exchange-traded funds are not included.
So for example, a resident of Germany who invests in a fund that has 50% of its assets in property in Mallorca would now have to pay wealth tax in Spain with no exemptions, even if the investor is not aware of the fund’s investments.
The new law does not distinguish between types of property (residential, commercial) and types of investors, like funds and individuals buying a property for personal use directly or through a company. In some circumstances it will also make non-residents pay more Spanish wealth tax than residents, which is discriminatory.
The Spanish Tax Office (Agencia Tributaria) announced in February that one of its priorities this year will be checking on non-residents with “indirect” real estate investments in Spain so it looks like tax inspectors will focus on implementing this law.
Spanish tax experts say the law was drafted in a rush to get it on the books before the end of last year, and hasn’t been thought through. It was tagged onto an unrelated bill slapping a windfall tax on banks and energy companies, and was not given parliamentary scrutiny.
Tax consultants report a rise in foreign investors looking to reduce their exposure to this new “solidarity tax” on assets held in Spain, though none of them can get off the hook for last year. They point out that international investors are flighty and some, perhaps many, will now go elsewhere, leaving Spain and the Spanish treasury poorer for it.
The “solidarity tax” is conditioned by international tax treaties, so not all foreign investors are affected equally. According to Spanish press reports, residents of the UK, Germany and France – the three biggest sources of foreign investment in Spanish real estate – will be snared by it, but residents of Austria, Switzerland, Sweden and the Netherlands will not.
For more information read the articles below or consult a Spanish lawyer:
Thoughts on ““Solidarity tax” on wealth likely to discourage foreign investment in Spanish real estate”
Politics of envy, from the lefty anti-property owning Spanish government.
We have the same problem here in Wales, with a communist inspired Assembly.
They want you to own nothing and be grateful for it.
What they fail to realise is that they will probably end up with a smaller tax take, as people invest elsewhere.
Ideology trumps common sense yet again.
Mark Stücklin says:
At least we have sunshine in Spain, which makes the high taxes in some regions like Catalonia and the Balearics slightly more bearable (Madrid is low tax, though the new “solidarity” tax discussed above now affects Madrid too). Wales is more soggy than sunny, from what I remember.