Design Process
Building in Spain as a Foreigner
Spain is the fourth largest country by territory in the European Union, as well as the third most visited country in the world.
Today, the Spanish economy bases a significant portion of its wealth on the tourism sector, and to accommodate all this tourist demand, Spain has traditionally been a country with a very active construction sector, with both sectors representing 16% and 6% of annual GDP, respectively, with a trend toward increased foreign investment in primary and secondary residences despite various crises, including the COVID-19 pandemic.
Over the years at Slow Studio, we have been in contact with different types of families from abroad with the intention of investing in Spain. The profiles that contact us are very varied and range from Spanish families who, for work reasons, have resided for several years in a foreign country and are returning to Spain with savings and better investment capacity than average, to foreigners seeking to establish their primary or secondary residence, attracted by the climate and quality of life in our country.
In any case, beyond having the financial capacity to carry out the project of purchasing land and building a house as a foreigner in Spain, it is important to consider a series of legal and financial conditions that will define the viability of the project.
What are the minimum requirements to be able to build in Spain?
Having an NIE
The first essential requirement to be able to build in Spain as a foreigner is to have an NIE, the Foreigner Identity Number, which consists of a personal and exclusive number that allows you to initiate a procedure to obtain a document beyond the visa—with the objective of being able to remain longer in Spanish territory. It is the equivalent of the well-known DNI for Spanish citizens, the National Identity Document, a form of identification without which we cannot initiate any legal procedure in this country.
The process to obtain an NIE is not difficult, but it is slow. We can go directly to the immigration offices in Spain or attempt to process it from abroad before coming. Although it may sound contradictory, the truth is that signing a deposit contract for the purchase of land helps expedite this process, as it is not considered a definitive procedure and does not require an NIE.
What is the Golden Visa?
When processing our residence permit, we have two options: the temporary permit (which ranges from 90 days to 5 years) and the permanent permit, a permit easily accessible to citizens belonging to the EU and more complex to process in the case of citizens from countries outside the EU.
However, there is a third option, which is the so-called Golden Visa, a residence permit popularized in recent years among southern European countries to encourage foreign capital investment in the country.
The Golden Visa consists of obtaining a residence permit directly through the purchase or construction of a property valued at over €500,000.
Having a bank account in Spain
To build in Spain as a foreigner, it is not essential to open an account at a Spanish bank, although if you wish to apply for a mortgage, it will be necessary, as we will see later. However, even if we did not need any type of additional financing, it is a procedure that can greatly expedite the purchase.
A common case is that of a foreign couple who decides to retire in Spain, so they sell their home in their country of origin and can purchase and build their future project with that money without needing to request any type of loan.
When opening a bank account, we always recommend opting for ethical banks such as Triodos, whose philosophy prioritizes financing projects that provide added value at a social or environmental level. For this reason, they primarily finance ecological homes, with the incentive that the higher the efficiency rating, the lower the interest paid.
Are there extra taxes or expenses due to being a foreigner?
The purchase of land to build our future home encompasses a set of taxes and expenses that are very important to consider before starting, so as not to make mistakes in our financial planning. This is a topic we have previously addressed in more detail on this blog, in the article How much does it cost to build a house?
The main idea is that even if the user wishes to maintain their residence in another country, all taxes associated with the purchase of land and the construction of a house will be paid in Spain: VAT/ITP, notary fees, registration fees, IBI, waste tax, etc.
Let us examine the extra taxes and expenses in the case of building in Spain as a foreigner.
Extra taxes and expenses for building in Spain as a foreigner
IRNR
First of all, we must be aware that the lack of a residence permit implies paying more than a person residing in Spain who is constantly contributing to the country—as a form of compensation for this fact. Therefore, it is important not to confuse the residence permit with the municipal register, a fairly common mistake since it is true that both refer to the issue of residence.
The difference is that the municipal register is basically a record of where each person lives, can be obtained very easily, and has few legal implications, while the residence permit is a very costly legal process that we will address later.
In the event of not having a residence permit in Spain, the buyer must pay a tax called IRNR, Non-Resident Income Tax. It is a direct tax that levies income obtained in Spanish territory and amounts to 24%, replacing the equivalent for Spanish residents called IRPF, Personal Income Tax.
An exception would be if you have paid taxes for more than 183 days during the calendar year in Spain, which would allow you to switch to paying IRPF. It is simply unusual to pay taxes for practically half a year without completing the residence permit procedure, since it is usually associated with a work permit.
Fiscal representative
The major problem of not being a resident in Spain when applying for bank financing is that it complicates the collection of defaults for institutions, and this can hinder the granting of a mortgage, so the solution involves appointing a fiscal representative in Spain: a natural or legal person who acts as a substitute for another person in their relations with the Tax Administration for carrying out administrative actions.
A fiscal representative can be a trusted resident person who does so voluntarily, but it is normally a procedure mediated through an administrative agency and represents an extra cost. In recent years, the European Commission has insisted that Spain eliminate this obligation, as it is the only EU country that requires it, contradicting European regulations.
Document translation
Any signing of legal documents for two parties who do not share the same language requires a translation, but this will not be just any translation. It is an action that must be carried out by a sworn translator whose updated list can be found on the website of the Ministry of Foreign Affairs.
Does a Spanish bank grant mortgages to foreigners?
We enter murky territory when establishing generalizations in the case of wanting to obtain a mortgage to build in Spain as a foreigner, since the theory states that non-resident buyers can enjoy the same mortgage conditions as Spaniards. However, the reality is far different due to the impossibility of proceeding with the seizure of assets abroad.
Thus, in practice, a Spanish bank does not grant mortgages to citizens who have not contributed for at least one year in our country, and a foreign bank does not grant mortgages in a foreign country.
There are some banks that offer mortgages focused on non-residents with different conditions from conventional Spanish mortgages.
Conditions of Spanish mortgages
In general, a mortgage never covers the purchase of the plot, so we must have that money in cash or own a plot. Secondly, it does not cover 100% of the investment either, but usually covers 80% for the primary residence and 60-70% in the case of a secondary residence. In the case of self-promoted housing, the mortgage usually covers construction and some expenses but does not usually cover either the project or the building permit. In any case, each bank may vary the conditions, which will also depend on the solvency analysis of each family.
Viability of mortgages for foreigners
A mortgage to build in Spain as a foreigner must always be requested from a Spanish bank, as foreign banks do not grant mortgages for plots or constructions outside their territory.
Additionally, a property abroad is not accepted as collateral in the mortgage, so one possibility in the case of having a firm commitment to this future life project would be to sell the old property and pay directly in cash for the new home.
Regarding the viability of mortgages for foreigners, we must bear in mind that each banking institution can establish its own criteria based on the country of residence of the mortgage applicant.
As a general rule, Spanish banks do not usually grant mortgages to people who have not contributed for at least one year in Spain, which includes citizens born in Spain who emigrated and decide to return after a few years, known as expats.
In the case of one year of contributions, the financing percentage is usually reduced, easily reaching only 50% of the construction amount, although it is true that after 2 years of residence (including contributions) in Spain, there are some banks that offer up to 80% financing provided it can be declared as a primary residence.
What are the best areas to invest in Spain?
Investment in properties is concentrated in the cities of Barcelona and Madrid, which comprise the largest investment movement in the entire country, especially in terms of housing. If we consider building a house as a future investment, both are among the main cities in the ranking of the most profitable locations to invest in Spain, Barcelona with 5.1% and Madrid with 5.8%.
Cities such as Las Palmas de Gran Canaria also stand out, concentrating 8% of foreign investment and forming part of the ‘sun and beach’ model so characteristic of our country.
It is also worth mentioning coastal areas and islands, locations such as the Costa del Sol with Marbella at the forefront or the island of Mallorca, which attracts a lot of Central European capital in the secondary residence market, are some examples of locations preferred by foreigners when investing in properties for vacation tourism.
At the firm, we have carried out various projects for foreign clients who are considering retiring to Mallorca or Menorca, and in our studio we approach them from the perspective of efficiency and health, such as the house in Son Vida for a foreign couple who found an ideal location in this development in Mallorca, an exclusive residential area in full development, or the house in Mahón that was carried out for an investor with the intention of selling the property upon completion of the work.