CANARY ISLANDS BUYERS GUIDE
Ok, so you've made the decision and found the perfect home in the sun. Now what? How do you go from being just a sightseer to a property owner? Obviously some money has to exchange hands before the previous occupier is going to let you start bringing in your collection of Burt Bacharach LP’s and making yourself feel at home.
How much deposit needs to be put down to secure the purchase depends on the type of property you’re looking to own. If it’s a resale then generally 10% is requested up front, increasing to up to 25% if you’re buying a new property direct from the builder. Contracts then need to be drawn up clarifying the who, what, when and how’s of the agreement between both parties, such as the completion date and method of payment.
Before the deeds can be handed over however, all the receipts and necessary paperwork have to be checked to see that there are no debts outstanding on the property. This will include;
- Obtaining a Nota Simple (clearing data from the registration office.)
- Checking that all I.B.I (local council rates) have been fully paid up to date.
- Collecting the most recent electricity & water receipts signed and approved by the President of the community.
- Obtaining a copy of the deeds (Escritura).
You'll need all the originals of these documents on the day of completion at the Notary's office. The notary will refuse to sign the deeds unless it has been clearly stated that you were already aware that some receipts were missing.
Taxes & Other Costs
In addition to the sales price, bear in mind that you, the purchaser, will also have to pay approximately 10% of the new declared value for a resale property, or approximately 6% if buying a new property. This is made up of the following taxes and fees;
6% ITP tax (Impuesto sobre Transmisiones Patrimoniales) when buying resale property, or 5% ITP plus 0.5% stamp duty if purchasing new property
Notary fees
Property registration fee
Plus valia (capital gains tax)
If you buy in the name of a company you are also liable to pay IVA (VAT) or IGIC, the Canarian equivalent.
Mortgages
You'll be pleased to hear it's fairly straightforward to apply for and obtain a mortgage and non-residents can get up to 60% of the valuation price. There are costs involved however:
- Approximately 240 Euros for a property valuation.
- 1% mortgage opening commission.
- Insurance, varying from 120 – 240 Euros per year.
- A fee for the Notary & Registration of the mortgage.
Provided you submit the requested financial information, which is very straightforward, the mortgage can be effective within 10 to 15 working days. The advantages of securing a local mortgage include extremely low interest rates (4% variable, 5% fixed); it doesn't reflect your country of origin; it’s tax deductible; and should you rent the property, the same account can be used as a debit credit account.
The only downside is that local banks, whether they have major international associations or not, will only finance you a percentage of the valuation price, not of the actual purchase price. Therefore, depending on the evaluation, it’s sometimes worthwhile taking the time to compare what different banks will offer.
F.A.Q´s - Frequently asked questions
What is a sales agreement?
A private document signed between the buyer and seller. It must state the following points;
- Details of the buyer and seller.
- A legal description of the property
- The purchase price
- The form of payment and currency to be used in the transaction (banker’s draft, cash, etc.)
- The completion dates and penalty clauses if these dates are not met (usually, if the buyer withdraws after signing the contract he is liable to pay double the amount of the deposit).
What if there's still a mortgage on the property?
If there is a mortgage on the property it can be cancelled on the same day that you sign at the Notary. Before the signing date at the notary, we will inform the holding bank to prepare the cancellation costs, and the amount that the seller still owes.
On the day of the signing a banker's draft will be made out for this outstanding figure including the costs and paid to the bank. This figure will then be deducted from the purchase price when paying the seller. The bank will then register the cancellation of the mortgage.
Is it easy for a foreigner to obtain a mortgage?
Yes. So long as you can submit basic financial information getting a mortgage is much easier than in most other European countries. Often builders will offer you a mortgage if you purchase a new property. But don’t worry, we will handle the whole process for you.
What does a foreigner need in order to buy property in the Canary Islands?
The first thing is to apply for an N.I.E. (Number of Identification for Foreigners), which is basically an ID card anybody with a financial interest in Spain or the Canary Islands is required to have. You'll also need to set up a non-resident bank account, which is a simple process, but again, we will handle all these administrative procedures for you.
Will we have to pay tax when selling a property?
Yes, as a non-resident you'll have to pay 5% of the new declared value as a retention to the Spanish Tax Office, but provided your accounts are in order you should get most of this back within five or six months.
You will also have to pay 35% of the capital gains as Income Tax, i.e. 35% of the difference between the price you paid for the property and the price you’re selling it for.
Special incentives for companies investing in the Canaries
As more and more people each year are discovering the appeal of the Canary Islands, the tourism economy is shooting up at an unprecedented rate – great news for the financial stability of the region, and good news for the visitor as more money is consequently put back into improving the region's infrastructure and facilities.
However, as if the prospect of a booming population wasn't enough enticement to encourage new business to the archipelago, the Special Canary Islands Zone (ZEC) was established in the year 2000 to promote even further development by offering unique tax advantages to new companies establishing themselves within this zone.
There are certain criteria to be met before registering for ZEC status (ask us for more details) but ZEC companies will enjoy the following tax advantages:
- Rather than the 30 to 35 percent corporation tax levied on companies in Spain, those sheltered under the ZEC regime will only be charged between one and five percent on profits derived from ZEC activities.
- Exemption from IGIC on delivery of goods and provision of service from one ZEC company to another, and also on the importation of goods.
- Exemption from Capital Transfer Tax and Stamp Duty in business activities and company operations within the geographical area of the ZEC.
As ZEC businesses are considered Spanish resident companies, EU tax treaties are fully applicable to avoid double taxation.
CAPE VERDE BUYERS GUIDE
Purchase of Property in Cape Verde
The process of purchasing property in Cape Verde generally involves the following steps:
1. Carry out Land Charges Searches at the local Municipal Authority and Land Registry Offices.
These will reveal whether there are charges registered upon the property or any restrictions on title. The existence of a valid habitation permit is a precondition for a valid conveyance of built property to take place in Cape Verde and the existence of such permit presumes that a valid building licence was issued previously.
The documents which should be obtained are the "Certidao do Registo Predial" (land registry certificate), "Planta de Localizacao" (official map with the property's exact location) and the "Certidao Matricial" (tax information certificate).
If the property is not registered, it is necessary to obtain a "Certidao pela negativa" (a certificate confirming that the property in not registered in anyone's name) and a "Certidao matricial para o efeito" (a tax certificate confirming this). With these two documents, it will be possible to register the property.
2. Check the payment of tax regarding the property, and bills for electricity and other services by asking the vendor to produce evidence of payment of such invoices.
3. We will also need to obtain a power of attorney from you to represent you in the promissory contract and deed, and also to request the necessary tax cards on your behalf. We will draft the power of attorney in Portuguese and attach a translation to English for your perusal.
This document will have to be signed before a Notary and duly legalised by the Cape Verde Honorary Consul in Liverpool before it is returned to us. Please note that we may deal with the legalisation of this document on request.
4. Obtain a tax card on the purchaser’s behalf.
5. Sign the Promissory Contract of Purchase and Sale ("Contrato Promessa de Compra e Venda").
At this stage the purchaser will normally be expected to pay a deposit, which is negotiable (10% or lately 30% is common practice).
In Cape Verde, the parties are contractually bound on signature of this Promissory Contract of Purchase and Sale, which sets out the terms of the transaction (property details, price, method of payment, completion date, warranties, penalties, etc.).
This contract should be signed before a Notary Public in Cape Verde. Until such contract is exchanged the vendor is not committed and can change his mind.
Payment of the property tax called "IUP" tax, respecting the transfer.
6. Sign the final Deed of Conveyance called the "Escritura" which has to be done before a Notary Public in Cape Verde. This is the document that gives the purchaser proper title to the Property. The Deed must be scheduled with a minimum of 30 days' notice.
7. Register the purchase at the local Land Registry and local Municipal Authority so that title is enforceable against third parties. In Cape Verde, subsequently to the signature of the Deed, the Notary will prepare and send a report to the local Municipal Authority regarding the transaction. The Municipality will then update its records accordingly and register the new ownership of the property.
Notarial and registration fees and stamp duty can be expected to be approximately 2.5% of the property's attributed value. They are payable on signature of the Deed of Conveyance.
8. Services A contract needs to be signed with the providers of services, such as water, gas and electricity. We do not normally arrange this for clients, but can assist on request. Clients are advised to arrange for final meter readings to take placed prior to completion.
9. The Taxes regarding Property can be listed as the following:
Transfer Tax – flat rate of 3% on the attributed value to be paid before the Deed of purchase and sale.
Holding property/ Annual Rates – flat rate of 3% on 25% of the attributed value to be paid annually in April (or in two instalments in April and September of each year)
Capital Gains Tax – (i) Capital gains regarding plots for construction are taxable if their sale value exceeds a 100% increase of the value at which they were initially purchased.
(ii) Capital gains regarding any other property are taxable if their sale value exceeds a 30% increase of the value at which they were initially purchased.
In both (i) and (ii), the capital gain is taxed at a flat rate of 3% and should be paid within 30 days of the Deed, together with the submission of a "Declaracao de mais valias" (Capital Gains statement).
Inheritance/Gift Tax – Any property transmitted by inheritance or by gift is taxed at a flat rate of 3% on the attributed value.
Capeverdian Will
Once you have acquired the property, it is advisable that you execute a Capeverdian will to deal with your property in Cape Verde. Although an English will is valid, obtaining probate in Cape Verde is easier if there is a Capeverdian will.