Buying a property abroad can be one of the most rewarding — yet complex — experiences. From property prices, visas, and taxes to legal procedures and financial transfers, each step requires careful attention. One factor that buyers often overlook, however, is foreign exchange — a key element that can significantly impact the total cost of your investment.
At FRAU LEGAL, we help our clients not only navigate Spanish property law but also understand how financial and tax decisions abroad can affect their purchase in Spain, particularly in the Balearic Islands.
Understanding the Foreign Exchange Market
The foreign exchange (forex) market is constantly fluctuating — and even small movements in currency rates can have major consequences when transferring large amounts of money for a property purchase.
For example:
- In February 2022, £1 was worth €1.20, the best rate in two years.
- Only a few days later, the pound-euro rate dropped to €1.18 due to a shift in European Central Bank policies.
While a 2-cent difference may seem minor, when transferring hundreds of thousands of euros, the impact can be thousands in losses or savings.
To protect yourself from these fluctuations, it is essential to work with professional foreign exchange brokers. They offer:
- Fixed exchange rates to secure property prices in advance.
- Specialist advice to manage international payments efficiently.
- Faster, safer transactions at more competitive rates than banks.
Although Bufete Frau does not handle currency exchange in-house, we have had excellent experiences collaborating with Privalgo, a trusted foreign exchange specialist that provides secure and cost-effective international transfers.
CJEU Ruling on the Model 720 in Spain
Model 720 is a mandatory informative declaration for Spanish tax residents who hold assets abroad (such as real estate, bank accounts, shares, or companies).
Recently, the Court of Justice of the European Union (CJEU) ruled that Spain’s former sanctions system for Model 720 violated the EU principle of free movement of capital.
The ruling establishes:
- A statute of limitations: Previously, fines for non-compliance were indefinite. Now, they must expire after a reasonable period.
- Proportionality of fines: Penalties for late or missing declarations were deemed excessive and disproportionate and must now be reduced.
If you have been penalised under the old system, our Tax Law Department can help review your case and claim potential reimbursements.
VAT or Transfer Tax (ITP): Which Applies When Buying Property?
When purchasing property in Spain, you will pay one of two main taxes — VAT (IVA) or Transfer Tax (ITP) — depending on the nature of the transaction.
1. Transfer Tax (ITP)
- Applies to resales (properties sold by private individuals).
- The rate in the Balearic Islands ranges from 8% to 11.5%, depending on the value of the property.
2. VAT (IVA)
- Applies to new properties sold for the first time (usually by developers or promoters).
- The rate is 10% for residential properties and 21% for commercial properties.
If the sale occurs within two years of construction, it is also considered a first transfer and subject to VAT.
3. Between Professionals
- If both parties are professionals, VAT applies — but it can often be deductible for the buyer.
Understanding which tax applies is essential to calculate the true cost of your investment and avoid unnecessary expenses.
Need Legal Advice Before Buying in Spain?
The purchase process in another country can feel daunting, but with the right legal and financial guidance, it can also be secure and rewarding.
At Frau Legal, we offer comprehensive legal advice on property purchases for both EU and non-EU residents, ensuring every transaction complies with Spanish law and tax regulations.
