Spain is pushing ahead with plans for a 100% tax on property purchases made by non-EU residents.
The draft proposal, released on Thursday, would effectively double the cost of buying property for foreign nationals from outside the European Union – including Brits and Americans.
The legal text describes the levy as a Complementary State Tax on the Transfer of Real Estate to Non-EU Residents.
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It says the tax ‘will be obtained by applying a 100% tax rate to the taxable base’, which is the value of the property being sold.
It means, for example, that a British citizen buying a €100,000 home would have to pay €200,000.
Socialist prime minister Pedro Sanchez first announced the measure back in January.
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He said at the time: ‘We’re going to ban non-EU foreigners who don’t live in our country from speculating with the housing our country’s families need.’
The proposal is part of a broader 12-point housing reform agenda, which includes increasing taxes on short-term holiday rentals and phasing out the golden visa scheme – the latter of which has already been completed.
Is the 100% tax law yet?
No, the proposed tax is not currently law, and won’t be until it is granted approval by Spanish parliament.
Given that Sanchez’s government is a minority coalition, passing such a controversial measure would require significant support from other parties, which may be challenging.
Legal and practical challenges
Several legal and practical obstacles could also impede the implementation of this tax.
For starters, the Spanish constitution forbids any ‘confiscatory’ tax, meaning critics could make the argument that a 100% tax is unconstitutional.
Property taxes are also administered at the regional level, meaning there could be resistance in the most affected areas – such as Andalucia or Valencia, where foreign investment into property is huge.
Meanwhile, critics argue that non-EU buyers constitute a small fraction of the housing market (approximately 3 to 5% of transactions) and that the tax could deter foreign investment without significantly alleviating the housing crisis.
Clashes with EU rules
The proposed measure, it could be argued, is a form of discrimination based on nationality.
EU law prohibits discrimination based on nationality under Article 18 of the Treaty on the Functioning of the European Union (TFEU).
Even though the proposal targets non-EU nationals, it may indirectly discriminate against dual nationals, residents with foreign ties, or even EU citizens living abroad.
For instance, a German citizen residing in the US who tries to buy property in Spain could be affected, raising legal concerns.
More importantly, the punitive tax breaks Article 63 of TFEU, which prohibits restrictions on capital movements between EU member states and between the EU and third countries.
A 100% tax functions as a de facto ban on investment by non-EU residents and could be seen as a barrier to the free movement of capital, which is still protected even when it involves non-EU investors.
The European Court of Justice (ECJ) has previously struck down discriminatory tax measures against non-residents if they’re deemed disproportionate or unjustified.
Spain itself has lost ECJ cases over inheritance taxes that treated non-residents unfairly.
