Tenerife is one of the most sought-after destinations for property buyers, whether they are residents in Spain or international investors looking to settle on the island. However, the purchasing process varies depending on the buyer’s residency status.
Below, we analyze the key differences and essential aspects to consider when acquiring a property.
1. Legal and Tax Considerations
For Residents
Residents in Spain have a more straightforward process since they already possess a NIE (Número de Identificación de Extranjero) and can easily operate within the Spanish financial system. They also benefit from better mortgage conditions and, in some cases, tax incentives.
For Non-Residents
Non-resident buyers must also obtain a NIE, which is mandatory for any real estate transaction in Spain. This can be done either in Spain or through a Spanish consulate abroad. Additionally, opening a Spanish bank account is recommended to facilitate payments and comply with tax regulations.
2. Financing Conditions
For Residents
Residents have access to more favorable mortgage conditions, with financing options covering up to 80% of the property's value, longer repayment terms, and competitive interest rates.
For Non-Residents
Banks impose stricter financing conditions for non-residents, typically limiting loans to 60-70% of the property's value and applying higher interest rates. Additionally, proof of income from the home country and extensive documentation may be required.
3. Taxes and Additional Costs
For Residents
Residents must pay the same taxes as any property buyer in Spain:
- Transfer Tax (ITP) for second-hand properties (ranging from 6.5% to 10%).
- Canary Islands General Indirect Tax (IGIC) of 7% and Stamp Duty (AJD) for new properties.
- Notary, registration fees, and agency commissions.
For Non-Residents
In addition to the above taxes, non-residents must consider:
- Non-Resident Income Tax (IRNR): If the property is not rented, a tax is applied based on its cadastral value. If rented, income tax applies to the rental earnings.
- Potential tax withholdings when buying or selling property.
4. Tax Obligations After Purchase
For Residents
Residents must include the property in their income tax return and pay annual Property Tax (IBI), along with any applicable municipal fees.
For Non-Residents
Non-residents must file an IRNR tax return annually if the property is not rented and pay the IBI. When selling, a 3% withholding tax may apply as an advance on capital gains tax.
5. Recommendations for a Secure Purchase
Regardless of residency status, it is highly advisable to seek assistance from a real estate lawyer and a financial advisor to ensure a smooth transaction.
Conclusion
Buying property in Tenerife differs significantly depending on the buyer’s profile. While residents enjoy better financing and tax conditions, non-residents must meet additional requirements. However, with the right guidance, purchasing a property on the island remains an excellent investment opportunity.
Interested in buying a property in Tenerife? At Elba Invest, we guide you through every step! Contact us and find your dream home.
https://www.elbainvest.com/en/contact