Real Estate: Spain in Property: A Legal Guide for International Investors in the Real Estate Market

Tax: Tax Treatment of Subsidies Under the Digital Kit Program

Corporate: Tips for drafting a family business protocol

Disputes: Consumers Claims in Air Transport

Employment: New Obligations for Companies with more than Fifty Employees: “LGTBI Plan”

REAL ESTATE

Spain in Property: A Legal Guide for International Investors in the Real Estate Market

VÍCTOR SÁNCHEZ
Partner
FLORENCIA ARRÉBOLA
Senior Associate

Foreign investment in the Spanish residential real estate market has grown exponentially in recent years, making Spain one of the most sought-after destinations in Europe. The reasons are clear: pleasant climate, quality of life, and a solid legal framework that provides security for investors. However, the process of acquiring a property for a foreign national goes far beyond selecting the perfect property. There are specific legal requirements that should not be overlooked.

In this article we address the main key aspects that every international investor, whether an individual or a legal entity, must take into account in order to make a safe and efficient purchase in Spain. From obtaining the Número de Identificación de Extranjeros (NIE) [Foreigners’ Identification Number], to the due diligence proceedings and tax aspects of the transaction, we will explore every detail to ensure that each step in the purchase process is properly grounded.

1. Investor identification

Spain imposes no personal requirements or specific restrictions on citizens, companies or residents wishing to acquire real estate.

Both individuals and legal entities are free to make real estate investments. However, the first essential requirement is to be identified by means of a Tax Identification Number (NIF) which, in the case of individuals, will coincide with the Foreigners’ Identification Number (NIE). The application for a NIF/NIE for individuals is processed in Spain, at the Immigration Offices of the Directorate General of the Police or, abroad, at Spanish consular offices. In the case of legal entities, the processing is carried out by the Tax Agency, which must also identify their legal representative and obtain their own NIE.

2. Identification of the investment in the Foreign Investment Registry

Within the course of one month following their acquisition, and for statistical purposes, the acquisition of real estate in Spain by non-residents, the individual value of which exceeds 500,000 euros, must be declared to the General Secretariat for Investments.

In the case of investments whose origin is directly or indirectly a country considered a non-cooperative area (traditionally known as tax havens), the investment must always be declared, regardless of the amount.

3. Identification of the property

In order to avoid legal problems, it is highly advisable to have specialist legal advice to review key property documentation. The following documents are essential to ensure a secure purchase:

• Nota Simple Registral [Land Registry Note]: This document issued by the Land Registry allows verification of the ownership of the property, its characteristics -surface area, boundaries and potential encumbrances, (mortgages, etc.)- and urban planning qualification. It is essential to confirm that the seller is the legitimate owner and that the property has the physical and legal characteristics that it appears to have.

• Cadastral Reference: This reference provides the details of the property, such as its location, with its geo-referenced coordinates, the type of construction, the surface area and boundaries that are declared and registered for tax purposes and which must coincide with those physically existing and those registered in the Land Registry. Its verification allows checking for discrepancies.

• Certificate of Occupancy: This document certifies that the property meets the minimum conditions of habitability.

• Certificate of Debts with the Homeowners' Association: For properties in communities or urbanizations, it is essential to confirm that the property is up to date with the homeowners' association fees, thus preventing the buyer from having to pay the debts of the previous owner, given that the property itself is subject to the payment of the debts of the year in which the investment is made and those of the three previous calendar years.

• Energy Efficiency Certificate: Mandatory since 2013, it reports on the energy consumption of the property and its environmental impact, an aspect that not only affects the environment, but also the value of the property.

• Utility and Tax Receipts: A review of the latest receipts for Property Tax (IBI) and utilities (water, electricity, gas) ensures that there are no outstanding payments to be assumed by the buyer.

• New construction documentation: For newly built homes, it is essential to obtain the building logbook, which details the technical and legal characteristics of the construction.

4. Buying process

Usually structured in two steps:

• Deposit Agreement: This private contract (Contrato de Arras) secures the reservation of the property by means of an initial payment on account of the price (normally 10% of the purchase price) and sets the terms of the transaction, including potential penalties in the event of non-compliance.

• Public Deed of Sale: Signed before a notary, this deed formalizes the sale and provides legal security for the buyer. Subsequently, the notary sends the document to the Land Registry and notifies the Cadastre of the transfer so that the buyer’s ownership is filed and recorded.

5. Means of Payment

Payments in real estate sales and purchases in Spain are subject to tax regulations and anti-money laundering laws. The permitted methods and conditions of payment are the following:

• Bank Transfers: The most common method, which requires that the funds come from a bank account in the buyer's name in an entity that complies with European anti-money laundering regulations. It is recommended that the buyer has a bank account in Spain to expedite transfers.

• Mortgage Loans: Spanish banks offer mortgages for non-residents, although conditions may vary depending on the buyer's credit profile and the value of the property.

• Banker's Cheque: In some cases, the use of a banker's cheque issued by a reputable financial institution is permitted. This cheque must be presented to the notary at the time of signing the public deed.

6. Indirect taxation of investment. Tax Aspects

The purchase of real estate in Spain is subject to indirect taxes that depend on whether the parties involved are professionals or private individuals, the type of property (home or business premises), the type of transaction (first or subsequent transfer) and the Autonomous Community in which the property is located.

Case studies vary and must be carefully analyzed for each operation.

By way of example, the sale will be subject to Value Added Tax (VAT) if the seller is a company or professional. The applicable rate, if the property transferred is a new home, will be 10%. The applicable rate in the case of business premises is 21%.

However, if the buyer (investor) is also a company or professional and the property is not new, the transaction may be exempt from VAT. In this case, it would be subject to Transfer Tax (Impuesto de Transmisiones Patrimoniales, modalidad de Transmisiones Patrimoniales Onerosas-TPO-), at rates ranging between 6% and 10% of the price, vary depending on the Autonomous Community in which the property is located.

Regardless of whether the investment is subject to VAT or TPO, the formalization of the investment in a public deed and its registration are additionally subject to Stamp Duty (AJD), at a rate of between 0.5% and 1.5% of the value of the property.

7. Post Acquisition Obligations

After the purchase, the buyer must register the property at the Land Registry to formalize ownership and process the registration of basic services (water, electricity, gas, etc.). In addition to this, annual tax obligations must be fulfilled, such as the liquidation of the Property Tax (IBI).

From a direct taxation perspective, non-resident owners will be taxed under the Non-Resident Income Tax (IRNR) if economic income is obtained from the operation of the property, at a rate of 24% on the income generated in Spain.

Conclusion

Buying a property in Spain as a non-resident is an accessible process. However, it requires precise knowledge of local regulations and proper tax planning.

Specialized legal and tax advice not only helps to meet all the requirements and avoid future problems, but also allows buyers to take advantage of the opportunities in the Spanish property market with complete security.

November 2024

---

TAX

Tax Treatment of Subsidies Under the Digital Kit Program

ALEJANDRO PUYO
Partner

The economic help awarded under the Digital Kit Program set forth by the Spanish Government has tax repercussions that affect both the self-employees and small and medium-sized companies and must therefore be treated in accordance with current tax legislation.

In this respect, for companies subject to Corporate Income Tax, the aid under the Digital Kit is considered to be subsidies which, once non-refundable, constitute income for accounting and tax purposes. This income is reflected in the income statement, but its imputation to the tax base may be deferred depending on its nature:

• Subsidies for the acquisition of fixed assets: If the aid is for the purchase of investment assets (e.g. computer equipment or software), the income is recognised on the basis of the depreciation of these assets. In other words, the subisidy is included in the tax base as the subsidised asset is depreciated over its useful life.

• Operating subsidies: In the event that the aid is to cover current expenses (e.g. digitization of services or hiring technical staff), the income must be imputed for tax purposes in the year in which such expenses are incurred, in accordance with the principle of correlation between income and expenses.

For the self-employees who receive aid from the Kit Digital Programme, these subsidies are considered to be income from economic activities for personal income tax purposes, as confirmed by binding consultation V0822/2024. In accordance with the applicable regulations, subsidies are included in the general tax base in the year in which they are considered non-refundable and depending on the use to which the taxpayer puts them:

• Subisidies for the acquisition of assets: If the aid is used for the purchase of capital goods, the income will be recognized as the corresponding asset is depreciated. This allows the tax impact of the grant to be deferred over time.

• Subsidies for current expenses: If the subsidy covers operating expenses related to the digital activity of the self-employed, this income must be declared in the same year in which it is received and will be inputted into the net income from the economic activity.

Lastly, as far as VAT is concerned, this type of subsidy is not directly subject to VAT, as it does not involve the delivery of goods or the provision of services by the beneficiary to the public administration. However, transactions carried out by the beneficiaries with the money received, such as the contracting of digitization services or the purchase of equipment, are subject to VAT.

In these cases, beneficiaries will be able to deduct input VAT provided that the purchases are linked to their taxable economic activity. In this way, VAT will not be an additional cost if the purchases or services acquired are part of their regular operations.

In conclusion, the Digital Kit grants have a clear tax treatment for both Corporate Income Tax and Personal Income Tax. Its recognition will depend on the type of aid (whether it is for the acquisition of assets or to cover operating expenses), and its imputation will be carried out in accordance with the regulations in force for each tax. On the other hand, the operations financed with the aid are subject to VAT, with the possibility of deducting the tax where applicable.

November 2024

---

CORPORATE

Tips for drafting a family business protocol

CHRISTIAN LAMM
Of Counsel

Two systems with quite different rules, values and roles converge in family businesses: on one side, the family system, which values affection and security and, on the other, the market economy system, which seeks efficiency, competitiveness, and profit. The convergence of these two systems in a family business causes problems that may well affect its subsistence.

It is therefore advisable, not to say essential, to have a “family protocol” focusing primarily on reducing conflicts between family members and between family members and the company.

There is no single model of family protocol since its contents will depend both on the type of company and on the particularities and values of the owning family. However, we can generally refer to some elements that should at least be considered in the drafting of any protocol:

• Succession: the issue of the transfer of corporate shares is particularly delicate. It can cause anarchy, or, if concentrated in a single successor, the perception of disadvantage of other family members, which can trigger obstructions and disputes. Furthermore, a poorly designed succession system can lead to incompetent leadership or paralysis in case there is no suitable candidate within the family.

• “Family-Buy Out”: This is the regulation of the way the exit of family partners (voluntary or forced) will take place in exchange for compensation. Here the causes of exit, proceedings and ways of assessment and payment of the social participations must be examined.

• Secret Agreements: Spanish legislation allows establishing agreements that, for reasons of confidentiality and exclusive family interest, can be kept secret and are not accessible in the Commercial Registry. For example, the prohibition to incorporate in-laws into the company.

• Family Council: Family protocols are not immutable and changes in the family, market, etc. may require their amendment or the consideration of other rules. Therefore, it is recommended to foresee a Family Council, that is, a body that makes decisions regarding the relations between the family and the company, the application of the principles and rules contained in the Family Protocol and to solve potential interpretation doubts.

• Process for conflict management: Even with a well-drafted family protocol, conflicts in a family business are highly likely and affect both family dynamics and the operation of the company. Therefore, protocols should provide for conflict mediation as a mandatory preliminary instance. Statistics indicate that mediation of family business conflicts is particularly effective, reaching agreements in more than 70% of the cases.

• Drafting: Finally, it is particularly important that the family protocol is drafted in a clear and understandable way for people who do not have a legal and/or economic background and includes explanations of the motivations, values and objectives underlying its rules. All this will result in a lesser degree of conflict, which is the main reason for the existence of these protocols.

November 2024

---

DISPUTES

Consumers Claims in Air Transport

ANTONI FAIXO
Partner

The number of air trips through Europe has increased exponentially over the last few years, especially in Spain as an important tourist destination. This in turn has led to a rise in the number of incidents and complaints in this sector.

In the context of the relationship between the airline and customers purchasing an airline ticket, customers’ rights are governed by European regulations, so that they apply to all flights departing from an airport in the European Union plus Iceland, Norway and Switzerland, and they also apply to all flights by European airlines, even if they depart from airports in other countries.

There are many different types of complaints. Each type is briefly analyzed below:

1. Flight delay.

1.1. If the delay is 2 hours or more at departure, passengers have the right to receive the following services: food and beverages, hotel accommodation if overnight stay is required, transport between the airport and the place of accommodation.

1.2. If the delay is 5 hours or more at departure, passengers have the right to cancel their decision to travel and claim a refund of the money paid for the ticket. In that case they would not be allowed to claim compensation.

1.3. If the delay is 3 hours or more on arrival, passengers are entitled to claim compensation, unless the airline can prove an extraordinary circumstance. The compensation shall be:

• For trips up to 1,500 km: Euro 250.00.

• For intra-Community trips of more than 1,500 km, and all other flights between 1,500 and 3,000 km: Euro 400.00.

• For trips of more than 3,000 km: Euro 600.00.

It is worth noting that for the purpose of calculating the delay, connecting flights missed due to the delay of the first flight will be taken into account. If this results in a delay in reaching the final destination of more than 3 hours, the right to compensation applies. However, the connection flight is required to have been booked on the same ticket as the first flight for compensation to apply.

2. Flight cancellation. This concept also includes the cancellation of the scheduled flight and transfer to another scheduled flight, or being transferred to another scheduled flight if the aircraft took off but returned to the airport.

In these cases the passenger can choose between reimbursement, re-routing or return.

Furthermore, if a passenger is informed of the cancellation less than 14 days in advance, they are entitled to compensation, which would be for the same amounts as indicated in the previous section.

3. Denied boarding due to overbooking or operational reasons.

Passengers have the right to compensation, in the amounts previously indicated and also to choose between reimbursement, alternative transport, or rebooking to another date.

It is important to note that the airline can justifiably deny boarding for other reasons, without the right to complain, such as not having proof of identity, or for health reasons.

4. Checked baggage loss, damage or delay.

Compensation for loss or damage varies depending on whether the contents have been declared and their weight. In any case the maximum compensation is Euro 1.414,00, unless a separate insurance applies.

In case of delay, the compensation is Euro 67,33 per day of delay in baggage delivery.

Finally, we should point out a particularly important concept, which is that of “extraordinary circumstances,” as these can be used by the airline to justify the breach and avoid paying compensation (though if a passenger chooses to be reimbursed, the airline has to do so as applicable).

The regulations include the following circumstances within this concept:

• Political instability in the country of origin or destination.

• Weather conditions incompatible with flight operation. It must be proved that these conditions affected air traffic at that airport on that day.

• Security risks, such as a person jumping the security checkpoint or aggressive behaviour of a passenger in mid-flight.

• Unexpected flight safety deficiencies.

• Strikes affecting the operations of an air carrier in charge of operating a flight. It must be a strike external to the airline. Internal strikes, i.e. carried out by its own workers, are not admissible as an extraordinary circumstance. For example, a strike by air traffic controllers would be an considered extraordinary circumstance.

• Technical problems external to the normal activity of the air carrier, such as the presence of fuel on the airport runway, or the presence of a bolt on the runway damaging an aircraft tire.

• Bird impact on the aircraft, provided that the company takes the appropriate repair measures as soon as possible.

• The illness or death of the pilot before the flight is only considered to be an extraordinary circumstance if the air carrier proves that other possible replacement pilots were also ill or dead, as the availability of replacement pilots is required in principle.

As we can see, this is a broad concept that must be interpreted on a case by case basis, so that whether or not an extraordinary circumstance is accepted will depend on the interpretation of the corresponding administrative authority, which in Spain is the State Air Safety Agency (AESA).

November 2024

---

EMPLOYMENT

New Obligations for Companies with more than Fifty Employees: “LGTBI Plan”

BEATRIZ CORRAL
Associate

Law 4/2023, of February 28th, for the real and effective equality of trans people and for the guarantee of the rights of LGTBI people, whose fundamental objective is to guarantee the welfare and non-discrimination of this group, came into force in in March 2023.

Given the relevance of the work environment in relation to these issues, Provision 15 of the law established the obligation for companies with more than fifty employees to have a “planned set of measures and resources to achieve real and effective equality for LGTBI people, including a protocol for dealing with harassment or violence against people”, the specifics of which were pending regulatory development.

In this sense, this provision established a period of twelve months for companies to implement the measures, a period which ended in March of this year with the aforementioned regulatory development still pending and, therefore, the content and scope of the planned measures have not been defined.

In order to rectify this circumstance, and with some months of delay, Royal Decree 1026/2024 of October 8th, came into force on October 10th, and includes the planned set of measures for equality and non-discrimination of LGTBI people in companies, so that the corporate obligation initially imposed by the law of March 2023 can be made effective.

Therefore, the corporate obligation is specified as follows:

• Negotiation of “planned measures” aimed at guaranteeing a diverse and respectful LGTBI-friendly working environment, which extend across the employment relationship.

Specifically, the minimum content of the measures must include (i) equal treatment and non-discrimination clauses, which promote a favourable environment for the LGBTI community, as well as (ii) measures in relation to access to employment, (iii) the classification and professional promotion of employees, (iv) training, awareness and language actions, according to the specified minimum content, as well as (v) diversity in the working environment, (vi) leave and social benefits and (vii) disciplinary regime.

- Implementation of a protocol for action against harassment and violence against LGTBI people or adaptation of that previously existing in the Company, whose structure and content must contain, at least, (i) the company’s declaration of principles regarding the non-tolerance of discriminatory practices, (ii) its scope of application, (iii) the guiding principles and guarantees of the procedure, which ensure adequate protection and care for the people affected, as well as (iv) the procedure for filing complaints and (v) the resolution, in which the appropriate measures must be adopted.

In order to comply with the aforementioned corporate obligation, companies must carry out the corresponding negotiations according to their specific situation, so that the measures indicated are negotiated within the framework of the applicable Collective Bargaining Agreement or company agreements. Depending on each case, the Royal Decree establishes a specific deadline for compliance from its entry into force:

• Until January 10th, 2025 (three months), as a general rule.

• Until April 10th, 2025 (six months), in the case of companies that do not have an applicable Collective Bargaining Agreement and Workers´ legal representatives.

This new corporate obligation is an addition to the existing obligations, especially those related to equality, which should not lead to confusion. In this sense, it is important to:

• Adopt a self-contained document and separate from other documents, such as the company's Equality Plan.

• Adapt existing protocols on harassment at work and against sexual harassment of employees in a suitable manner according to the legal requirements.

In case of non-compliance with these measures, Law 4/2023 foresees a specific system of infringements and sanctions, with fines from Euro 200 to 150.000, some of which may be accompanied by accessory sanctions, such as the suppression of subsidies or the prohibition of access to public aid for one year, among others.

Therefore, in view of the short timeframe available, it is essential that the necessary appeals are made to begin the required negotiation.

November 2024

Noviembre 2024