Lawyer Raymundo Larrain explains the tax benefits of living and investing in property in Andalucia.

Inset photo: Andalusian thoroughbred running free at dawn

Introduction

Spoiler: in short, no it is not. But it’s as good as it gets from a tax point of view.

Andalusia is one of 17 regions in Spain that happen to have devolved competencies in several areas, including taxation. Since the new regional government took office back in 2019, they have introduced a plethora of tax changes that in effect have reduced, suppressed, or negated multiple tax figures. As a result of this tax-friendly approach, Andalusia has become the region in Spain with the lowest taxes (along with Madrid). Needless to say, this has fostered huge foreign investments in the region which have translated into capital growth of 40% over the last 5 years. Quite impressive if you ask me.

Over the course of two decades, I have defended in my over 500 published articles how low taxation is the key to incentivizing and attracting foreign investments. It’s not rocket science. High taxes only benefit politicians and their cronies. Foreign investments have a positive overall impact on society, as they create new jobs, create wealth, and allow locals in general to improve their lives. For example, the Four Seasons hotel chain has decided to invest over 650 million euros in Marbella, which will create 4,000 new jobs during the construction phase and a further 750 permanent jobs once completed. This is the kind of investment you get when you accommodate small and large investors creating a healthy tax environment that fosters investment in lieu of demonizing and shaming entrepreneurs and investors.

I’m going to cover briefly the changes in taxation which go on to explain why Andalucia has become Spain’s number one hotspot for property investment and why so many people are getting rich fast.

1. Inheritance tax was suppressed in 2019

As we reported in SPI at the time, Andalusia supressed inheritance tax to the point almost no one pays for this tax anymore. Moreover, over the last 4 years, none of my clients who have inherited have paid for it.

This tax, in my view, should be abolished as it serves no purpose. Fortunately for us, Andalucía’s politicians saw it fit and proper to suppress it.

2. Gift tax was suppressed in 2019

Tied with the above, Gift tax was also suppressed to the point family relatives pay little to no tax on gifting money or assets in this region.

Again, this is a tax that I find unfair when it comes to family members. I am very pleased it has been almost suppressed in Andalusia.

3. Property Transfer Tax was slashed in 2021

Another groundbreaking tax change was to slash property transfer tax on buying resale property. Initially, this tax break was conceived as a temporary measure (in Spain ‘temporary’ is a codeword for permanent) to mitigate the severe effects of the Covid-19 outbreak. However, it was later made indefinite. This tax change translates, in simple layman’s terms, to tax savings ranging from 15% to over 30%, dependent on the properties asking price. The higher the asking price, the bigger the tax savings.

4. Stamp Duty was cut by 20% in 2021

On buying off-plan property, Stamp Duty was reduced by 20% to only 1,2% on the asking price. Again, a most welcome measure to incentivize the acquisition of new build property.

5. Wealth Tax was suppressed in 2022

Yet another welcome groundbreaking tax change that ushered in a  new tax era, was to suppress Wealth Tax. In my personal experience as a conveyance lawyer, this tax was single handedly responsible from holding back scores of HNWI from investing in Andalucia. Its suppression has acted as a beacon, attracting affluent families to invest and live in Andalucia, taking full advantage of its newfound low-taxation status.

There are yet several more positive tax changes I could list, but I believe I have collated the main ones and I don’t fancy boring readers overextending myself. What’s important to take from this article, is that this emerging trend of low taxation in Andalucia is ongoing, it’s consolidating, and it’s catching up in other Spanish regions in view of the spectacular results. Politicians love them votes. Meaning the electorate is (very) pleased with all these changes, which in turn secures their vote in the upcoming municipal and regional elections. This also translates for investors into legal stability and security on the mid to long run on taxation matters.  It’s a win-win for everyone.

If in addition to the above tax advantages for the region of Andalucia, you also add in beneficial tax regimes, like the new Digital Nomad Visa (known as the tax-free visa), some people will be able to be resident in Andalucia and pay no tax on assets or money held abroad and simultaneously pay little to no tax (or no tax at all) on assets and income located in Andalucia. Triple win, anyone?

Speak to a lawyer to pay few taxes, give us a call.

Conclusion

As I like to point out in my articles, politics is the art of creating new problems.

Politicians are not businesspersons; it is not their job to play God in creating jobs or running companies. In my view, politicians need to take a step back, and limit themselves to create the right legal framework and tax incentives for businesspeople to move in and create wealth and jobs in freedom. No one knows best how to create jobs, manage companies, or create wealth than the private sector, period.

When politicians create the necessary means, investors and businesspeople pick up on the changes and flock in to create new companies, jobs, and wealth that benefit society at large. Andalucía and Madrid are prime examples of this mindset and as a result have the lowest unemployment rates in all of Spain. Some people may (wrongfully) label them as tax havens, but all they are really doing is applying common sense to attract investments and create jobs in benefit of the locals, always within the law.

This nicely goes on to explain the capital growth of two digits a year, over the last 5 years, Madrid and Andalucía have enjoyed. Unsurprisingly, no other region in Spain has managed this feat, not even by a long shot. It should be noted that any region in Spain is empowered – and free – to follow the same path of reducing taxes if it wills it, as enshrined by Spain’s Constitution of 1978.

“If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don’t have to manage them.” – Jack Welch

John Francis “Jack” Welch Jr. (1935 – 2020). From a humble background of deeply religious Irish immigrants, he made money as a youth working as a newspaper delivery boy and shoe salesman. He captained his high school hockey team and would go on to study chemical engineering. He would rise to become a legendary US business executive, author of several best-selling books on management, and ex-CEO of General Electric (at the time, the world’s largest and most powerful company). Through a series of clever acquisitions in emerging markets, and by (polemically) streamlining the company, Mr Welch multiplied GE’s market cap by a stunning 38. Over the course of two decades, under his competent stewardship, he steadily grew the company from $12bn to a whopping 450 billion dollars of capitalization. Upon retirement, he received the largest severance payment in recorded history ($417mn). He is retired with an estimated personal fortune of $1bn and never missed mass on Sunday’s. Mr. Welch is widely regarded as the most competent manager in corporate history.

Jack married a lawyer; nobody’s perfect.

LNA offers the following tax & legal services:

• Conveyancing in Spain – Buying
• Rentals (contract-drafting)
• Contracts (read & review)
• Holiday Rental Accounting Service (HRAS)
• Registration of Holiday Homes (only Andalusia)
• Golden Visa (investor visa)
• Digital Nomad Visa (tax-free visa)

Larraín Nesbitt Lawyers, small on fees, BIG on service.

Interested? Come and speak to Larraín Nesbitt Abogados’ friendly staff who will be pleased to guide you through the different residency options, choosing the one that appeals to you most. Marbella-based Larraín Nesbitt Abogados (LNA) has over 20 years’ taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain.

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Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No politician was harmed in writing this article. Ní neart go cur le chéile. VOV.