Taxation of Residential Property Purchases in Madrid: Everything You Need to Know

Purchasing a residential property in Madrid involves various tax obligations that are crucial to understand in order to plan your investment optimally. This article provides a detailed overview of the main taxes and fees associated with acquiring real estate in the Spanish capital.

1. Property Transfer Tax (ITP)
   The Property Transfer Tax (ITP) is a significant tax to consider when buying a second-hand property. In Madrid, the ITP rate generally ranges between 6% and 10% of the purchase price. This rate can vary depending on the value of the property and the buyer's profile. For example, first-time buyers or those purchasing social housing may benefit from reduced rates.
2. Value Added Tax (VAT/IVA)
   If you are purchasing a new property directly from a developer, the Value Added Tax (VAT), known as IVA in Spanish, applies. The standard VAT rate for new residential properties is 10% of the sale price. It is essential to note that VAT replaces the ITP for new properties.
3. Stamp Duty (AJD)
   In addition to VAT when buying a new property, the Stamp Duty (AJD) must also be paid. In Madrid, this tax typically amounts to 1.5% of the sale price. The AJD covers the costs related to registering the property and formalizing the sales documents.
4. Notary and Registration Fees
   When purchasing a property, notary and registration fees are also to be expected. The notary fees cover the drafting and signing of the deed of sale and generally range between 0.5% and 1% of the purchase price. The deed must then be registered with the property registry, which incurs additional fees, usually included in the notary fees.

Conclusion
When acquiring real estate in Madrid, it is essential to consider not only the sale price but also the full range of taxes and additional costs such as the ITP or VAT, the AJD, and notary fees. These costs can represent a significant portion of the total purchase budget and should be anticipated to avoid any surprises. Before finalizing the purchase, it is highly recommended to consult a tax expert or a specialized lawyer to ensure that all tax obligations are met and to optimize your investment.