Taxes and Regulations When Buying a Property in the Canary Islands

Table of Contents

1. Introduction

2. Why Invest in Property in the Canary Islands?

3. Overview of the Real Estate Market

4. Legal Framework for Property Ownership

   • 4.1 Property Ownership Rights

   • 4.2 Land Registry and Title Deeds

5. Taxes When Buying a Property

   • 5.1 Property Transfer Tax (ITP)

   • 5.2 VAT and Stamp Duty on New Builds

   • 5.3 Notary and Land Registry Fees

   • 5.4 Legal and Administrative Costs

6. Annual Property Taxes and Ongoing Costs

   • 6.1 IBI (Impuesto sobre Bienes Inmuebles)

   • 6.2 Garbage Collection Tax (Basura)

   • 6.3 Community Fees

   • 6.4 Wealth Tax

   • 6.5 Income Tax on Rental Income

7. Capital Gains Tax and Inheritance Tax

   • 7.1 Selling Your Property: Capital Gains Tax

   • 7.2 Inheritance and Gift Tax

8. Non-Resident vs. Resident Taxation

   • 8.1 Taxation for Non-Residents

   • 8.2 Becoming a Resident: Fiscal Implications

9. Special Fiscal Advantages of the Canary Islands

   • 9.1 ZEC (Zona Especial Canaria)

   • 9.2 Reduced VAT (IGIC)

10. Key Legal Steps in the Buying Process

    • 10.1 NIE Number

    • 10.2 Due Diligence

    • 10.3 Private Contract & Deposit

    • 10.4 Completion at Notary

11. Common Pitfalls to Avoid

12. Using a Lawyer or Real Estate Advisor

13. Summary and Expert Tips

1. Introduction

The Canary Islands, a Spanish archipelago located off the northwest coast of Africa, are a prime destination for real estate investment. With their year-round pleasant climate, stable property market, and favorable tax regime, these islands attract thousands of foreign buyers every year. But to make a smart investment, understanding the taxes and regulations is crucial.

2. Why Invest in Property in the Canary Islands?

• Year-round sunshine and mild temperatures

• Attractive prices compared to mainland Spain

• Strong demand for rentals, especially in touristic areas

• Favorable taxation compared to other Spanish regions

• Access to EU laws and protections as part of Spain

3. Overview of the Real Estate Market

The market is diverse, with high-end villas in Tenerife and Gran Canaria, beachfront apartments in Lanzarote and Fuerteventura, and more affordable rural properties in La Palma or El Hierro. Prices vary by island and location, but demand remains robust thanks to both lifestyle buyers and investors.

4. Legal Framework for Property Ownership

4.1 Property Ownership Rights

Foreigners, whether residents or non-residents, can freely purchase and own property in the Canary Islands.

4.2 Land Registry and Title Deeds

All property transactions must be registered at the Land Registry (Registro de la Propiedad). This protects your legal ownership and records any encumbrances or debts on the property.

5. Taxes When Buying a Property

5.1 Property Transfer Tax (ITP)

For resale properties, buyers pay ITP at a general rate of 6.5% in the Canary Islands, compared to 7–10% in mainland Spain.

5.2 VAT and Stamp Duty on New Builds

New properties from developers are subject to:

• 7% IGIC (Canarian VAT equivalent)

• 1% Stamp Duty (Actos Jurídicos Documentados)

5.3 Notary and Land Registry Fees

• Notary fees typically range between 0.5%–1% of the sale price

• Land registry fees are around 0.3%–0.7%

5.4 Legal and Administrative Costs

• Lawyer fees: 1%–1.5% of the purchase price is standard

• Other admin expenses include translations, certifications, and NIE registration

6. Annual Property Taxes and Ongoing Costs

6.1 IBI (Property Tax)

Paid annually to the local municipality, usually 0.4%–1.1% of cadastral value.

6.2 Garbage Collection Tax (Tasa de Basura)

Charged by local councils; generally between €100–€200 per year depending on property size and location.

6.3 Community Fees

Applicable to apartment complexes or shared facilities, typically €50–€200 per month.

6.4 Wealth Tax

Applies to property value over €700,000 (per person), unless exemptions apply. Can be 0.2%–2.5%.

6.5 Income Tax on Rental Income

• Residents: Taxed as part of total income

• Non-residents: 19% tax on net income from EU/EEA countries; 24% for others

7. Capital Gains Tax and Inheritance Tax

7.1 Selling Your Property: Capital Gains Tax

• Non-residents: 19% flat tax on gain

• Retentions of 3% apply at point of sale

• Reductions possible for reinvestment or residency status

7.2 Inheritance and Gift Tax

• Regional deductions apply, often favorable compared to mainland Spain

• Close relatives may pay little to no tax

8. Non-Resident vs. Resident Taxation

8.1 Taxation for Non-Residents

Non-residents must file tax returns for property income and pay imputed income tax if not rented.

8.2 Becoming a Resident: Fiscal Implications

Living in Spain for over 183 days qualifies you as a tax resident, bringing both obligations and benefits like access to deductions and healthcare.

9. Special Fiscal Advantages of the Canary Islands

9.1 Zona Especial Canaria (ZEC)

For businesses, not individual homeowners, but worth knowing: a special zone offering reduced corporate tax (4%).

9.2 IGIC Instead of IVA

The Canaries use IGIC (Impuesto General Indirecto Canario), a 7% VAT alternative lower than the 21% in mainland Spain.

10. Key Legal Steps in the Buying Process

10.1 NIE Number

A foreigner identification number required for any transaction.

10.2 Due Diligence

Includes land registry checks, building permits, and debt clearance.

10.3 Private Contract & Deposit

Typically 10% deposit with clear conditions prior to notarial transfer.

10.4 Completion at Notary

Signing of Escritura Pública before a notary, followed by Land Registry filing.

11. Common Pitfalls to Avoid

• Not using a qualified lawyer

• Overpaying due to lack of local knowledge

• Hidden debts or encumbrances on property

• Misunderstanding tourist rental licenses

12. Using a Lawyer or Real Estate Advisor

Hiring a local, independent lawyer is strongly recommended. Avoid lawyers suggested by the seller or developer to ensure impartiality.

13. Summary and Expert Tips

• Budget around 10%–12% on top of purchase price for taxes and fees

• Consider Canary Islands’ tax advantages carefully

• Double-check legal standing of any tourist rental offers

• Always verify title deeds and registry information

Buying property in the Canary Islands can be a sound investment and a lifestyle upgrade—but only if you’re fully informed. With proper guidance and awareness of all taxes and regulations, you can avoid costly mistakes and enjoy a smooth buying experience.