Ownership rights have continued to face constraints since times of the Roman era in coherence with the need of controlling the environmentally friendly use of land. The Spanish basic legal framework of the land ownership rights is the Land Law nº 7/2015, of 30th November, which regulates the rights and duties derived from the land use and is compulsory to all territories in Spain. The 17 Spanish regional governments have further developed such legal framework. The applicable law in Andalucía is the Planning Law nº 7/2002, of 17th December.

This article will describe the basic points to have in mind when buying land in Spain.

The planning situation

First and foremost, before committing in writing with the vendor, it is necessary to know how the land can be developed as well as the surroundings. This search can be done by looking into the General Planning Law of the Town hall where the land is situated (PGOU) which will tell us if the land can be developed, what can be built and when.

The urban transformation of land into buildable plots is a complex process that involves time and money. It takes a long time for the Town hall to approve the planning tools. The concept of urgency for the Administration differs from the one of the private sector. It needs money as drafting and speeding up the approval of the planning tools (others than the PGOU) devolve upon the private initiative.

It is important to know that ownership of developable land (“suelo urbanizable”) implies for the owner certain rights and duties from a planning point of view. The owner is committed to participate in the costs of developing the land into ready-to-build plots. In exchange the owner has the right to receive an urban plot of equivalent value to that one he gave. Nobody can guarantee the length and cost of this process nor will the owner receive an urban plot of same location and size as the one he provided.

Due to these uncertainties, most foreign investors are more interested in buying urban plots (ready to start building after the building permit is granted) than developable land, as the rules are much clearer.

The investment vehicle

Together with the planning investigation, it is also necessary to choose the right vehicle for the investment. There is catalogue of bad advices for non-residents, generally about the use of a company for saving taxes. Let us see the different alternatives:

  • A limited liability company is only recommendable when the real purpose for the investment is doing business with the future sale or rental of the property and not for private use of the last beneficiary of the company. The advantages of using a company are mainly two: (1) the shareholder’s liability is limited to the capital invested and (2) the Value Added Tax paid at the purchase and during the building process can be recovered which is a great tax relief. The disadvantages are the formalities and costs involved in the management of the company as well as the double taxation: at the corporate level and when dividends are paid to the shareholder, which can raise the total tax rate up to 54% in certain cases. Spain has signed double taxation treaties with many countries which help minimizing the tax impact.
  • If the investor is willing to enjoy the house he will build in the plot, the investment should be done in his own name as he will pay less tax and will afford less running costs and formalities.
  • A foreign company can invest in Spain as a non-resident entity. If benefits will be repatriated and having the liability of the business limited to the amount invested is not a key point, then this may be a good option. However, it is recommendable to compare the cost with other alternatives as Spain double taxation treaties may make the Spanish SL more attractive.

Taxes and costs involved

Doing number is always a good exercise to avoid surprises. The most important item of the budget is the tax bill and it will depend on the planning condition of the land and the business status of the vendor and the buyer.

The purchase of rural land (where no development is possible as a general rule) is exempt of VAT and therefore subject to Transfer Tax at the rate of 8, 9 and 10% (8% on the first €400.000, 9% on the price between de 400.001 € a 700.000 € and 10% from 700.001 € onwards).

Exceptionally, the purchase can be charged with VAT provided the following two requisites are met: (a) the vendor must be VAT tax payer and must renounce to the VAT exemption in the purchase deed and (b) the buyer must also be VAT tax payer acting within the scope of his economic activity and must have the right to deduct total o partially the VAT paid. Such renounce to VAT exemption implies paying an additional Stamp Duty (2% in Andalucía).

On the contrary, if we buy developable land, meaning land that will be or is being transformed physically in order to convert it into urban plots, the purchase will be taxed with VAT (21% currently) and Stamp Duties (1,5% in Andalucía).

In addition to taxes, the buyer will have to pay Notary fees, Land Registry fees and lawyer fees if involved. The agent commission is usually paid by the vendor, this should be checked by the buyer in advance.

The purchase process

Once the above is clear and there is a consensus on the purchase conditions it is the right time to draft and sign a binding agreement with the vendor fixing the purchase terms agreed, which basically are these: identification of the land, price and method of payment, planning and physical conditions in which the land will be delivered, how costs and taxes will be shared and completion date.

The purchase process usually needs several steps to complete on the acquisition of the land in order to reconcile the vendor’s interest in selling as quickly as possible and the buyer’s interest in doing a safe investment.

A. Deposit contract

A deposit or reservation agreement can be signed at the beginning. This consists of putting down a deposit with the vendor, representing a small part of the purchase price, in order to confirm that the buyer’s interest is genuine and have the vendor withdraw the property from the market whilst the buyer and his lawyer check all is in order, that the property is free of all hidden charges and legal impediments in order to transfer the property on the agreed terms.  Should the sale go through the deposit will form part payment of the purchase price.

I recommend mentioning in the contract the possibility to pull out of the deal and have the deposit refunded to the buyer in the event there is any legal impediment for transferring the land in the terms agreed and, in particular, if the geology of land is not able to support the future building. This should be carefully checked as soon as possible through a geologist report.

B. Private purchase contract

Once the legal situation of the property and the vendor´s legal capacity to transfer the property with all the necessary formalities have been checked, both parties may move on to the private contract.  The private contract will clearly state the identity of both parties, the description of the property, the conditions of the transfer, the price and its form of payment, the date of the signing of the public deed and the form into which the expenses and taxes from the sale of the property will be divided.  From this moment onwards, the “purchase contract” is legally binding for both parties.

C. Public Deed

Once the private contract has been signed and in order for the transaction to be considered completed and for the new owner of the land to be inscribed in the Property Registry, it is necessary to obtain the registered title deed (“Escritura Pública”).  This document must be signed by the vendor and the buyer in the presence of a Spanish Notary who testifies the identity of the parties and sets out the principles of the sales agreement, including the description of the property, the price and form of payment.  This is the moment when the buyer receives the keys to the property.

D. Registering in the Property Registry

Once the corresponding taxes have been paid, the public deed will be registered in the Property Registry to make the sale public and thus completing the entire purchase process.  From then on, only the buyer will be able to sell or encumber the property.  In general terms, this is how Property Registry protection works.

One can skip steps a) and b) and go straight to the public deed if the buyer is aware of the taxation and legal situation of the land and has the necessary funds available for the purchase.


When buying land in Spain the investor must focus the attention on three main points: the planning possibilities of the land, the proper vehicle to channel the investment and the costs involved. This will require specific knowledge hence the need of qualified legal advice.
Published by: Adolfo Martos Gross
Visit: Gutiérrez del Alamo y Martos, Abogados