Additional Expenses for Real Estate Purchasing. Taxes and Fees

Taxes

Property Purchase Tax

In some countries real estater buyers do not pay taxes at this stage of transaction. However, there is a significant state tax on the transfer of property rights in most European countries. The exact rate is set by the local authorities and depends on several factors.

• Location: in many countries (Germany, Spain, etc.), each region determines the size of the tax burden itself.
• Type of transaction. As a rule, the transfer of ownership tax is paid only on the secondary market, and for new buildings there is VAT, but it is usually included in the final price that you see in the ad.
• The number of properties. Different rates are often set for buyers of primary or secondary housing.
• Property type: apartments, villas, commercial realty, land plots – different rates for different objects.
• Transaction amount: a progressive scale is used in a number of countries with possible allowances for  luxury real estate.
• The buyer's status: non-residents pay more taxes in some countries.

What is the amount of tax on the purchase of real estate? 

• Bulgaria: 1.5–3.5%.
• Germany, Berlin: 6%. The buyer and the seller are both responsible for the payment, but usually the buyers pays it. 
• Greece: 3.09%.
• Italy: 2% when buying a first home by a resident on the secondary market. For non-residents, the rate is 9% of the cadastral value, so foreigners try to "register" in their new housing.
• Spain: 8% - on average in the country, 10 % in Catalonia.
• France: 6-7% of the transaction amount in the secondary market and 2-3% in the primary market.
• Montenegro: 3%.

Aslo read:
Property Taxes in Spain
Property Taxes in Germany
Property Taxes in Greece
Property Taxes in France
Property Taxes in Bulgaria

VAT on the Purchase of New Buildings

Usually VAT is included in the price of the apartment, but it will be useful to clarify whether the developer has taken this fee into account or you will have to pay on top. This is crucial in some cases. For example, there is a state program in Cyprus, which allows you to get a permanent residence pemit for the purchase of real estate. TIn such a case, the buyer must invest in the property at least €300,000 without VAT. In fact, the property will cost you more.

Some examples of VAT rates for buying new buildings in Europe:

• Greece: 24%. In 2021, the rate is frozen at 3.09%.
• Spain: 10% for residential properties.
• Cyprus: 19%; when buying a first home, you can pay at a reduced rate of 5%.
• France: 20% - included in the final price.

Participation of a Notary

In many European countries, it is the notary who is responsible for the purity of the transaction, and their presence is mandatory, without them the property rights will not be registered. However, even when it is not required by law, the parties prefer to hire a specialist for a number of important functions. The notary must verify the authenticity of the seller's documents, the absence of encumbrances (mortgages, debts for housing and communal services, etc.). In addition, it is them who is engaged in the registration of the transaction and make an entry about the new owner in the state register of real estate.

The notary's fee consists of several parts. In some countries, the minimum rate is set by the state, but the specialist can increase the prices for their services. In addition, the notary often has a number of additional responsibilities, such as obtaining missing certificates or certifying the translation of documents, for which they may ask an extra for. 

So how much does the participation of a notary in Europe cost?

• Greece: from 1%.
• Spain: 1-2%.
• Italy: 1.0 to 3.5% , including transaction registration costs. The larger the transaction amount is, the lower the percentage.
• France: fixed fee of 1-4% of the transaction amount + advisory fee.

In some cases, the participation of a lawyer is also desirable. Their fee may be 1-2% of the transaction amount. Often, the total amount of the commission for legal services is divided by these two specialists.

Realtor's Fee

Often the seller or developer pays for the services of a realtor, but it is better to discuss the fee with your broker in advance.

A few examples of standard realtor commissions:

• Germany: 3-6%. Sometimes it is fully or partially included in the price of the property.
• Greece: 2% plus VAT (24%). 
• Spain: 3-5%. Often included in the price of the property.
• Italy: 3-5% of the transaction amount plus VAT.
• France: commission of 4-5% of the transaction amount. As a rule, it is already included in the cost of the property.

Registration Costs

In some countries it takes a significant amount.

• Germany: 0.5–1.0% (if the property value is low).
• Greece: 0.6% of the property price.

Stamp Duty

The conditions for its use vary significantly. For example, in Spain, it is used only for new buildings. Its size ranges from 0.5 to 1.5%, depending on the region.

In Portugal, the stamp duty is 0.8% of the price in the contract. When attracting a mortgage, the rate increases by another 0.04–0.60%.

In Cyprus, stamp duty is paid when buying properties on both the primary and secondary markets. The rate will be 0.15% of the first €170,860 of the property's value and 0.2% of the amount that exceeds €170,860.

In the UK, stamp duty can reach 15% (for properties worth several million euros), but due to the pandemic there are "holidays" for this type of fees (due to end on June 30, 2021), which have led to a rush demand for housing.

Getting a Mortgage

European mortgage rates are relatively low even for foreigners. But there are additional costs for using it. They will amount to approximately 1-3% of the price of the property. The possible costs are given on the example of Spain, where it is quite simple for a foreigner to get a mortgage.

• Property valuation: €300-1,000.
• Mortgage broker commission: 0.5-1.0% of the loan cost.
• Commission for opening a loan: 0.5–2.0% of the loan amount.
• Property insurance: €150-300 per year.

Other Expenses

In addition to large and understandable items of expenditure, when making a transaction with foreign real estate, there are small (or not very) expenses, which are also useful to remember.

• Getting a TIN or other identifiers: about €10-100.
• Opening an account abroad: €0-200. You can open it for the subsequent transfer of money for the transaction, as well as payment of utilities and taxes on your property.
• Transfer of the amount to a foreign bank account: 0.5–5.0% of the amount.
• Translator's fee: €100-500. An interpreter is usually required directly on the transaction with a foreigner. If you cooperate with a native-speaking realtor, the translation can be performed by an agent, and then it will be free for you. Also, many agencies include this service in the total cost of work. Do not forget about the cost of translation of documents, it can be about €20-50 per page.
• Apostille of foreign language documents: €20-50 per document.
• Payment for the services of a tax representative: €150. In some countries, it is necessary when buying real estate by foreigners.
• Connection of communications in a new building: €100-1,000. Sometimes free of charge.

Usually, the buyer comes to the country to purchase real estate, so the cost of the flight, visa and accommodation should be included in the amount of expenses, but the agency can take on some of the costs. In the context of the pandemic, remote transactions have become widespread, in which this cost item is absent.

To Sum Up

The amount of additional expenses when buying a property depends largely on the country. The most significant costs are the tax on the transfer of ownership, the fee of the realtor and notary, the fee for registration and transfer of money to a foreign bank. In total, additional costs add 5-20% to the price of the property. To get a mortgage, you should put 1-3% in the budget.

We recommend you to request a detailed calculation of the total costs for a specific property from your realtor before the transaction!

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