When you own a property in Ibiza, you are liable to pay both a local tax and perhaps also wealth tax.
Local property tax in Ibiza – IBI – MOD210
IBI (local rates) is a municipal tax which has to be paid every year by owners of properties in Ibiza. The amount is determined by the value assigned to your property by the town hall – known as valor catastral.
The tax rate which has been approved by each Town Council – and which is the same for all properties within the municipality – will be applied to this value. This value is normally much lower than real marked value, which means this is not a very high amount. Typically around 1500 euros annually for a property worth around two million euros.
How does your property become liable for tax?
Whenever you purchase a home, you are obliged to apply for the property to be registered. The official application form is known as Modelo 902 and you can obtain it from your local tax office. The buyer of a property is the person obliged to declare the property for registration.
When you pay the IBI on your property for the first time, you will be billed by mail and the following years it shall be possible to have it done by direct debit through your bank.
How to register your property in Ibiza
The registration can be done in the town hall or in the tax collecting offices. The application for registration will be sent to the Cataster Office (meaning the catastro office that you will find in each of the provincial capitals), since they are the ones responsible for making the registration and the assessment on the value of the property, that will later appear in your bill.
If the property that you have bought has not been registered for tax purposes, or if you have built a house on a registered plot, or if you have made additions/extensions to a registered building, the documents that should be submitted when applying for a property to be registered are the following:
- A 20×15 cm photograph of the front of the building.
- A plan showing the situation of the property (you can get such plan in the town hall).
- Plan of the building plot.
- Plans of each floor of the house.
- Certificado de fin de obra (Certificate of termination of the work) from the architect and the cédula de habitabilidad(Habitation Certificate).
On the application form will be some space for technical information on the dwelling.
If the property in Ibiza is already registered
If you buy a second-hand property and the previous owner can give you receipts for the local rates (IBI), you know that the property has already been registered. Your obligation then is to declare yourself as the new owner. This is done in the town halls or the SUMA offices, which will then send the application on to the catastro for registration.
You will be asked to produce:
- Photocopies of your title deed (escrituras).
- The last receipt for local rates (IBI) for the property.
You will be given a copy of the application that you fill in and sign. The change in name will not appear on the tax bill before the next tax period.
Do remember that the law establishes certain time limits for this registration. For changes in ownership of a property, the time limit is two (2) months after signing the escritura. For registration of new buildings or renovations, it is also two (2) months from signing the escritura de obra nueva (deed for the building).
There are now fines for not complying with the obligations mentioned above, ranging from 6 to 900€.
Voluntary payment period of property tax
The voluntary period for payment of IBI and other local taxes can vary in each municipality. You find out the dates in your local tax collection office. Payments made after the voluntary period will be surcharged at the rate of 20%, plus interest on the delay.
Wealth tax – MOD 714
All property owners in Spain (both residents and nonresidents) has to pay an annual wealth tax.
The Wealth tax is calculated on the value of the purchase price if it is larger than the town hall value (which it is 99% of all cases).
The tax is based on the net value of the total assets in Spain after deductions of the mortgage.
The Balearic Islands Parliament has recently ratified an amendment to the 2024 budget that brings about a noteworthy shift in the dynamics of Wealth Tax regulations within the region.
The pivotal adjustment involves elevating the minimum exemption threshold for this tax from €700,000 to a substantial €3,000,000. This modification directly benefits investors holding assets up to €3,000,000, as they are now exempt from the Wealth Tax.
This alteration brings positive implications for both investors who were previously subject to taxation within this bracket and those possessing assets exceeding €3 million.
The former now enjoy complete exemption from the tax, while the latter experience a reduction in their annual tax liability.
It’s crucial to bear in mind that Wealth Tax is an annual obligation due on the 31st of December each year, based on the individual’s wealth at that specific date. The calculation involves assessing assets and deducting relevant items such as private loans and mortgages.
Once the net wealth is determined, the total payable amount is calculated using either the Balearic Islands table or the State table, depending on the taxpayer’s tax residence. Investors residing in the Balearic Islands utilize the Autonomous Community table and whereas foreign investors who are non-tax residents use the State table.
For instance, an individual with a €3,500,000 investment on the island would shift from being taxed on €2,700,000 to a taxable base of €500,000. Notably, on a taxable base of €2,700,000, a foreign investor would have been liable for €28,046.26 per year in wealth tax, whereas with a taxable base of €400,000, the tax is reduced significantly to a total of €1,664.36.
Additionally, there are various strategies to minimize wealth tax:
- Pooling investments with multiple investors to increase the minimum exempt amount.
- Financing the acquisition at the time of purchase to deduct the acquired debt.
- Opting for purchases through foreign companies with over 50% of their assets located outside Spain can also be an effective strategy.
Please note that the laws in Ibiza change very often and although I have done all I can to correctly interpret the law the above is in no way full legal advice, but my interpretation of the law, and it does not substitute the legal report of a lawyer.