As we all know after the approval of the Brexit Withdrawal Agreement the UK now finds itself in a transition period which will last until the 31st December 2020, assuming that it is not extended. During this transition period UK citizens can continue to live, work and study in the EU as they did before the 31st January 2020, but it is important for those who have not done so yet to start preparing for their stay in Spain after the end of the transition period.
Legal residency and NIE
If you are living in Spain, but have not yet obtained your legal residency certificate (green A4 or card size document) you can still do so before the 31st December under current EU regulations, which we highly recommend. Any application made after this date, unless the transition period is extended of course, will be considered under whatever new regulation is agreed between the UK and EU, or under Spain’s current regulation for non-EU citizens if no agreement is reached on residency. This could mean a substantial increase in minimum income requirements, employment law requirements, etc. depending on the basis for your residency application.
The NIE document (white A4 document), as you will already know, is not proof of residency and is a way of assigning a legal and tax identification number to non-residents, which is required for certain transactions, such as buying a property, registering a vehicle, etc. The regulation surrounding this document will not change after the 31st December, as it is already a document which has exactly the same requirements for EU and non-EU citizens alike.
Life-long healthcare rights in Spain have been guaranteed to those who are resident in Spain before the 31st December, provided they remain a resident.
You can continue to receive and can still claim your UK State Pension if you live in the EU. If you are resident in Spain by the 31st December you will get your pension uprated each year as long as you continue to reside here, and even if you start claiming your pension on or after the 1st January 2021 as long as you meet the conditions set out in the new State Pension guidance.
Driving license and vehicle registration
Once you become a legal resident in Spain you are required to exchange your UK driving license for a Spanish one. Again, before the 31st December this can be done in the same conditions as before under the regulation of EU license exchanges, which is to say a straight exchange of one for the other.
Equally, if you are a resident or spend more than 6 months a year in Spain you are required to register your vehicle in Spain.
It is essential, even more so if you are a Spanish resident or in the process of obtaining residency, to make sure you have a Spanish will in place for your assets in Spain with an express choice of law clause allowing your inheritance to be governed by UK law. The importance of this is addressed in more detail in our post “Why is it more important than ever to have a Spanish Will?”.
The majority of regional Inheritance Tax allowances that UK citizens currently enjoy in Spain do not apply to non-EU residents. This means that, save for a tax agreement to the contrary, UK residents will have Spanish State Inheritance Tax regulation applied to their inheritance. It is therefore important to seek the right advice when structuring you will, in order to keep this in mind.
If you need help or advice with any of these proceedings, do not hesitate to contact us.
Activity: With the exception of certain types of activity
reserved exclusively to public limited companies, private limited companies can
carry out any type of activity.
Number of shareholders: Whilst the capital paid
in by each member of the company is important, in the private limited company
importance is given to the personal qualities of each member, which makes this
type of company more appropriate for activities that work with a small
membership, family or professional companies, as well as to carry out business
with a low initial capital outlay.
Minimum capital: The minimum share capital for a private limited company is 3,000 €. This amount does not need to be outlaid entirely at the signing of the memorandum of association, but if it is not the company will be categorised at “company in organisation” until the minimum capital is reached.
Public Limited Company (Sociedad Anónima)
Activity: Public limited companies can carry out any type
of activity, but there are certain activities reserved exclusively to them
(e.g. banking, pharmaceutical, insurance, etc.). This is also the formation
needed for the company to go public.
Number of shareholders: This is a strongly
capitalist format, which means that greater value is placed on the capital paid
in by each shareholder rather than their personal qualities, which allows for
the free trade of the shares. All of this makes it suited for activities
requiring a larger number of shareholders, as well as greater capital mobility.
Minimum capital: The minimum share capital for a public limited company is 60,000 €, of which at least 25% must be laid out at the signing of the deed of incorporation. The rest of the capital (capital calls) will need to be paid within the period set out in the articles of association.
How to set up a limited company in Spain
NIE: Before you can start the process of setting up a business in Spain, all resident and non-resident foreigners with financial affairs in Spain must have a foreigner’s tax identification number (NIE). The NIE is essential for any fiscal transactions in Spain, such as incorporating a company.
Company name certificate: Once the founding members have their identification numbers, the first step in setting up a limited company is to obtain a company name certificate (certificado de denominación social) from Companies House (Registro Mercantil Central) to verify that the company name you intend to use is not already taken, so you can select it for your new company.
Company bank account: The company bank account will need to be opened in order to deposit the minimum capital. The bank will then issue a certificate of the deposit, needed for the registration of the company.
Articles of association: The articles of association (estatutos sociales) will need to be drafted for your company, that is to say the rules by which the company will be run. There are certain legal minimums that these are required to contain, depending on the type of company and its activity.
Deed of incorporation: A public deed will need to be signed before a notary public containing all the fundamental information for the incorporation of the company and its subsequent registration.
Tax Office procedures: Next you have to make certain applications to the tax authority: a) Apply for your company’s provisional tax identification number (CIF); b) Register for Business Activities Tax (Impuesto de Actividades Económicas); c) Registration for VAT (IVA).
Registration: The company will need to be registered with Companies House (Registro Mercantil Central).
Obtain company tax identification number (CIF): You will need to return to the Tax Office to exchange the provisional company tax number for the permanent one.
Remember that this is a transaction that has legal and tax implications, and we do not recommend that you carry out this type of procedure without the appropriate professional advice.
Due to the increasing amount of foreign retirees choosing it as their retirement destination, international inheritances and the issues they present have become much more common in Spain.
By international inheritances we mean any inheritance with an international dynamic (e.g. the deceased is a foreign national, a foreign law applies to the inheritance, etc.). Here are just a few of the complications that can arise.
Locating last will and testament.
When the deceased is a foreign national, the likelihood that the last will and testament was made abroad is obviously higher. Although within Spain we have an extremely effective system for the registry of wills, this is not often the case in other countries. In the event that the last will and testament has been made in Spain, any notary is able to request information from the Spanish Registry of Wills to ascertain where and when the last will was made and obtain a copy. However, if the last will was made abroad this will need to be obtained, and this can become very difficult if there is no national registry of wills.
Legalisation and translation of foreign documents.
Whenever there is an international dynamic to inheritance, some form of foreign documentation has to be submitted
(e.g. death, birth and marriage certificates, certificate of foreign law, etc.). All foreign documentation will have to legalised/apostilled, depending on its origin, unless it is an exception as regulated by an international convention. Furthermore, unless the notary dealing with the inheritance has sufficient knowledge of the language of the document, or it is a multilingual document, sworn translation will be needed.
Determining the law which applies to the inheritance.
Clauses within Spanish wills electing the law that will apply to the inheritance have become more commonplace, but when such a clause does not exist a determination will need to be made of the applicable law, according to Spanish and EU law, based on the residence of the deceased. This could create limitations for the inheritance if the applicable law establishes forced heirship, as such heirs will have to inherit a certain legal minimum by law.
Certification of foreign Inheritance Law.
In the event that a foreign law does apply to the inheritance, unless the notary is sufficiently aware of the domestic inheritance legislation, a certification of said law will need to be obtained from the appropriate authority of the foreign country. Once again, legalisation/apostille and sworn translation may be needed depending on the circumstances.
Locating inheritors abroad.
Another obvious complication of an international inheritance, is the existence of inheritors who are resident outside of Spain. This only creates a difficulty when they are unable to be contacted due to lack of information, in which case they will need to be located through the appropriate authorities for the inheritance to proceed.
POA for inheritors.
In the case of inheritors who are resident abroad, a power of attorney is often granted for a third party to deal with matters relating to the Spanish inheritance on their behalf. However, some people may not be aware that the only form of power of attorney acceptable in Spain is a notarised one. This means that the inheritor either has to grant the power of attorney before a Spanish notary, or they will need to grant it before a notary public in their country of origin, which will then need to be legalised/apostilled and translated, depending on the Spanish notary’s knowledge of the language.
NIE for all inheritors.
All inheritors, foreign or otherwise, must have a Spanish id number, which means that all foreign inheritors must obtain an NIE (Foreigner Identification Number). This is for tax purposes and the avoidance of money laundering, as the NIE becomes the inheritor’s tax number without which they will be unable to inherit, submit Inheritance Tax return or have any real-estate registered to their name.
Locating assets and liabilities of the estate.
In the event of a Spanish inheritance of a foreign national there are often assets abroad. This can become complicated if the inheritors are unaware of the existence of such assets. As regards locating debts and liabilities of the deceased, this is always difficult in and out of Spain, as there are no centralised records in these cases.
Co-ownership of property among inheritors.
What many, who are unaware of the Spanish inheritance system, do not appreciate is that Spanish wills very rarely assign an executor, as it is not a common role in Spain due to the necessary execution by notary public. This means that in such cases there are no means by which part or the whole estate is liquidated before each inheritor acquires their share. Therefore, in the case of real-estate, it can lead to a situation where a property is co-owned by several inheritors, the obvious implication of which is that the property will not be able to be subsequently sold without the agreement of all parties.
Inheritance Tax jurisdiction.
The residence of the deceased and the inheritors will determine whether jurisdiction over Inheritance Tax lies with the appropriate regional tax authority or the central tax authority.
These and other complications are why it is very important in these cases to seek appropriate legal advice from professionals who specialize in such international cases. The inheritance process in Spain is not as straight-forward as in other jurisdictions, and without the correct guidance can be unnecessarily complicated and delayed.
The procedure when buying a property from a developer in Spain differs significantly from buying from a private party, which is why the subject requires its own article as the pitfalls vary meaningfully from one another.
The Deposit Contract
It is important to remember that, in most cases, you are paying a deposit on a property which does not even exist yet and will not be completed for a couple of years. New constructions have an inherent element of risk associated to them, entirely different to that of resale properties.
Developers or real estate agencies will often encourage you to sign a deposit contract, which takes the property off the market for a pre-agreed period of time (usually around 30 days). The deposit contract is a succinct document and the amount paid will be deducted from the final purchase price at completion.
It is highly recommended that you hire an independent conveyance lawyer from the outset (prior to signing a deposit contract), rather than the lawyers recommended by the developer, much less use their own lawyers. You must remember that it is the developer’s best interests they will be concerned with, not your own, and this can be an expensive mistake in the long run.
Furthermore, no deposit should be paid unless the developer or estate agency have supplied you with an approved building licence. If there is no building licence it could void the bank guarantees securing your stage payments, that is to say that you would lose all your money without any legal recourse.
In addition to all of this, reservation deposits are normally non-refundable unless the contract expressly states otherwise.
Before the period set out in the deposit contract is up you will be expected to sign a private purchase agreement.
By this stage your lawyer should have already supplied you with a report on title, so you are fully aware of the legal situation of the property you have decided on buying before signing the private contract. This report on title will allow your lawyer to ascertain whether:
The developer is creditworthy
The developer owns the land where the property is to be built
A valid building licence has been issued by town hall
There are any challenging planning issues surrounding the development
The construction site complies with Spain’s Coastal Law
Ordinarily, on signing a private purchase agreement you are expected to make a down payment, as well as approximately 35% of the final sales price in the stage payments, which will be deducted from the final sales price upon completion. This amount of money is non-refundable, in the same way as the deposit.
It is of the utmost importance that the deposit and all stage payments should be secured by bank guarantees. This will safeguard your money in the event the development is not finished or should the developer file for bankruptcy.
Bear in mind that a developer cannot amend the delivery date of a property as agreed in the private contract without the buyer’s written authorisation.
The signing of the title deed before a Notary Public is what is referred to as completion, and it is when the balance owed on the property is paid off. If mortgage finance is required a second deed is also signed called a mortgage deed.
It is strongly advised never to complete the sale before having a copy of the Licence of First Occupation. Otherwise it will mean you are unable to take out a mortgage, unable to benefit from official utility supplies, unable to rent the property, potentially responsible for planning illegalities and reduced offers from future prospective buyers.
Employing an experienced and impartial lawyer pays for itself with all the money you stand to save by avoiding the most common pitfalls involved in buying a property in Spain.
Make sure you are assisted on your house-hunting by reputable experts (such as a long-established real estate agency, a reliable mortgage broker or a seasoned lawyer) to benefit most from the wide range of available bargains.
And finally, it is important you are not pressured into completing and take your time to fully assess the information you are being given.
As we all know, citizens of EU and EEA member states are allowed free movement throughout the Spanish territory. This is in theory. In reality, since 11th July 2012, the conditions for residence in Spain for more than 3 months have become much stricter. (suite…)