Property Investment Tax Issues Majorca - Holiday Villas Mallorca

They say that there are two things you can depend on in life: one is that you'll die, the other that you'll pay taxes. Particularly if you happen to own a holiday villa in Majorca. The tax system here is complex and detailed, below is a guide to the areas you'll be charged on.

Buying and owning

Holiday villas in Majorca may be enticing, but taxes are high. Purchase Tax rests at around seven per cent of the value of your property, lawyers can be expensive and there is much red tape to cut through. Once you have gained your own property, an annual Wealth Tax is levied on the price of your assets, which varies from one and a half to two and a half per cent per year.

It's up to you to provide an annual declaration of the value of your interests on the island, although at least expenses incurred on the property can be deducted against this. If you are a resident (someone who spends over 183 days of the year in Majorca) charges are higher still: instead you pay an annual Wealth Tax based on the market value of your worldwide assets, not just your local ones.

While the annual Capital Gains Tax lies at up to 15%, should you decide to sell you'll end up paying 25% of the amount received back to the government.

Letting

Taxation on holiday villas in Majorca doesn't end with bricks and mortar. If your property needs staffing you should account for spending almost double an employee's annual wage after social charges' contributions plus the two months' bonus salary given each year. Corporation tax on large-scale businesses is levied at 35%, while that for small to medium sized businesses, which commercial properties are classified as, rests at 30%, and the assets deductible system is not as generous as in some overseas countries.

Renting

Make sure to read all the small print in your contract through thoroughly. Some landlords insert terms that bind the tenant to paying the annual charges levied by the property owners' collective for the block or the Property Tax (impuesto sobre bienes inmuebles or IBI), which can be substantial.

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