f you are interested in investing in Spain and you are from the USA, UK or basically any other country outside of the EU, this is for you. Below you will find information on the points to take into account when buying property as a non-European citizen. We invite you to read on so that you don't miss any details!
Nowadays, the Spanish real estate market offers the highest value in terms of return on investment (ROI) in history. As you probably know the ROI is a ratio that compares the profit or loss of an investment in relation to its cost. It is very useful for assessing the potential return on a stand-alone investment as well as for comparing the returns on various investments. In short, ROI is important because it allows you to determine how much you stand to gain from your investments, so you can plan for the future. These are the key points in the return on investment for a U.S. investor:
- Opportunity for appreciation through currency exchange from the dollar to the euro.
- Negotiating a positive equity in the purchase for later gains.
- Rental returns on the asset and later benefit from the exchange
- Selling the asset and exchanging the currency when the euro regains strength.
With the drop in the value of the Euro, the inflation produced by the Covid19 and the gas conflict in Europe, a new opportunity has opened up for all investors with USD, so we are seeing an increase in applications, offers and purchases in the most popular areas of Spain, such as the Costa del Sol. The first step for the investment process in our country is to obtain the Foreign Identity Number (ITIN in the case of the United States, or NIN for the United Kingdom), which allows any foreign citizen to have a fiscal identity to carry out procedures before the Spanish Tax Agency, such as signing contracts or opening bank accounts.
Having a NIE and a bank account are two of the requirements to be able to create a LLC (Limited Liability Company), the most common type of commercial company in Spain, as small self-employed entrepreneurs use it to limit their liability to the capital contributed, avoiding being liable with their personal assets for the debts of their businesses. It is always a good idea to grant a power of attorney for all these formalities and avoid Spanish administrative bureaucracy, which can be confusing for an international client.
However, there is a tax disadvantage, as Europeans are taxed at 19% on profits, and can deduct the rental costs of the property. The tax rate for non-EU US residents is 24% on profits, with no deduction for rental operating expenses. Therefore, investors use the LLC to purchase the real estate asset as unpaid managers, and are thus subject to 15% tax on profits for the first two years and 25% thereafter. In addition, by employing an LLC you benefit from deducting VAT, as well as the expenses generated by the rental activity and, in some cases, on the purchase under construction of a new building, within the tax period of that year in which the property was purchased.
In Spain, taxes are filed every six months and corporate tax is filed every July. It is very important to know that the income and expenses that count for the tax period start on the 1st January and end on the 31st December of each year.
What other advantages does an LLC have?
- Companies have easier access to bank credit, as they provide banks with better information on how they work, and, in addition, the fact that they are a company gives them a better image (as long as it has been in business for more than two years and is tax-liquid).
- The number of partners is the minimum possible, so it can be a sole proprietorship.
- The minimum share capital required is relatively low (€3000), and once paid up it can be used to finance investments or liquidity needs.
If after the purchase of the property you decide to rent it for monthly rent, the owner must appoint a fiscal representative. This representative must have a residence permit in Spain, and is in charge of the administrative management of the property. In addition, another tax is payable: the Non-Resident Income Tax, which is equivalent to Personal Income Tax. If an investment of €500,000 or more is made, the investor will be able to access the residency regime for investors, commonly called Golden Visa.
We advise you to carry out this whole investment process with a trustworthy agent, as well as an experienced lawyer or group of lawyers to advise you on the taxes and fees in both countries, both in the USA and Spain, of course. It is also advisable to have a mortgage expert with you, who will shop around for the best deal, negotiate with the banks and take care of the paperwork! If you finance your purchase by at least 50%, the ROI will be higher, with a better return. Target Estates has been in business for many years and has established a professional team for all these steps, so that customer service is carried out successfully.
Spain is now at a perfect time to receive investments, especially those focused on the real estate market. If you then rent out the property as holiday accommodation in Spain, the property pays for itself and generates a profit, and that profit is held for a currency exchange in the future and gains from the appreciation.
As of the present day, 5th October 2022, 1 US dollar is equivalent to 1 euro, which represents an opportunity for the currency to appreciate by 5-7% over the next two years. If you find the right broker, he will also help you, through commercial strategies, to make the best purchase by negotiating a positive net real value 5-15% below market value.
Spain is the first country in Europe in terms of quality of life and the third in the world for foreigners living in our country. Modern and high quality healthcare, a stable environment for business and citizenship, a rich cultural heritage and an internationally renowned gastronomy. Among the main attractions for property investors in Spain is undoubtedly the landscape with 8,000 km of coastline and beautiful beaches and the excellent climate with more than 300 days of sunshine a year that make Spain the best European Mediterranean climate! Here, you can enjoy your holidays in a privileged place, we assure you.
If you are interested in buying a property in our country, you can contact us by arranging a video consultation by sending an email to info@target-estates.com, or by visiting our website. We will help you find your real estate agent to advise you and accompany you through the whole process.
