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Spain's proposed 100% tax on foreign property buyers sparks legal concerns
Following Spain's announcement of a proposed 100 percent tax on property purchases by non-EU non-residents, legal and real estate experts are raising significant concerns regarding its viability and legality. The initiative, spearheaded by the Socialist-led government, aims to curb foreign speculation in the property market, a move first suggested by Prime Minister Pedro Sánchez earlier this year.
The draft bill, now submitted to Congress, specifies that the tax will be levied on the taxable base of the property—effectively doubling the price for foreign buyers. For instance, a villa valued at €300,000 would incur a tax of the same amount, minus the standard property transfer tax (ITP), which ranges between 6 to 11 percent depending on the region.
Despite its intentions, the proposal has met with alarm from various sectors within Spain. Mark Stücklin, a prominent real estate expert and head of Spanish Property Insight, expressed skepticism about the proposal’s effectiveness, suggesting it may be more of a political maneuver rather than a viable economic solution.
Alejandro Del Campo, a lawyer based in Mallorca, criticized the proposed tax as nonsensical. He has previously challenged similar measures in EU courts, highlighting Spain's history of discriminatory taxation against non-residents. Del Campo pointed out that the European Court of Justice has previously ruled against Spain for such actions, indicating a legal precedent that could undermine the new proposal.
The proposed tax has been described by the General Council of Economists (CGE) as "madness." Experts from the CGE and the Registry of Economists and Tax Advisors (REAF) argue that the core issue lies not in foreign purchases but in the housing shortage in specific areas of Spain. They caution that imposing such a drastic tax could have unintended consequences, including a chilling effect on foreign investment.
Questions arise about the potential future market for properties subject to this tax. REAF head Agustín Fernández noted that if buyers pay double the property's value, the resale market may become unviable, raising concerns about long-term investment in the Spanish real estate market.
As the proposal awaits parliamentary approval, the discussions surrounding its implications continue to evolve. Legal experts urge caution, emphasizing the importance of adhering to EU regulations regarding the free movement of capital. The fate of this ambitious tax remains uncertain, with potential legal challenges looming on the horizon.
