July 2025
The debate surrounding Spain’s housing market has taken an unexpected turn with the submission of a draft bill to Parliament proposing a 100% tax on the value of real estate acquired by non-residents and non-EU nationals. Defended by the government as an antidote to “foreign speculation,” this measure would require paying an amount equal to the purchase price in taxes, effectively doubling the cost of the property. The impact would be especially noticeable in the Balearic Islands, where many foreigners reside.
The draft, which still requires a parliamentary majority to become law, would introduce this surcharge as an additional tax to the existing Property Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP). For example, if a non-EU citizen were to pay €600,000 for an apartment in Palma, they would be required to pay an additional €600,000 to the tax authorities, bringing the total cost to over €1.2 million.
Experts have responded harshly, stressing that the proposed tax violates Article 63 of the Treaty on the Functioning of the European Union, which prohibits restrictions on the free movement of capital. Consequently, they argue, “this will end up before the European courts.”
Professional associations have also used strong language. The General Council of Economists (CGE) has described the tax as “confiscatory,” while the Registry of Tax Advisors (REAF) warns of a boomerang effect: anyone paying double today may struggle to resell the property without incurring losses tomorrow, potentially paralyzing the “second-hand market” that the measure supposedly aims to make more affordable.
Paradoxically, the design of the tax reveals loopholes that could undermine its effect. New constructions would be exempt, as they are subject to VAT rather than the ITP, as would many transactions between businesses or self-employed individuals, who may opt to apply VAT. This means that purchasing directly from developers would become a fully legal workaround.
Nevertheless, the government is working on a “tailor-made” version that mimics the structure of the Wealth Tax: a state-level surcharge to the ITP. The idea is to circumvent competition among autonomous regions and invoke the “social urgency” of the housing issue as a justification, in an attempt to bypass potential violations of the free movement of capital. However, legal and economic experts warn that this strategy is unlikely to withstand scrutiny by either Brussels or the Spanish courts.
As a result, the scope of affected transactions would shrink considerably: sales to non-EU citizens represent only 3% of the national market and are concentrated in high-end real estate. Therefore, this tax would do little to relieve pressure on local rental markets or improve access to primary housing.
In the Balearic Islands, where one-third of transactions involve foreign buyers, the uncertainty is even greater. On one hand, there may be a delay in the influx of investment capital that supports much of the construction and renovation activity. On the other hand, there is no guarantee that prices will drop if supply remains limited and demand from (tax-exempt) European buyers persists.
Beyond the political controversy, most experts agree on one thing: before signing a pre-contract or planning a property sale, it is essential to consult a tax advisor familiar with both national and EU regulations. A professional analysis will allow investors to assess alternatives (new construction, corporate structures, minimum residency requirements) and to anticipate potential changes stemming from the legislative process or future rulings by the European Court of Justice.
In such a dynamic market as that of the Balearic Islands – and with a legal framework still under construction – tax planning is not a luxury, but the only reliable compass to protect investments, avoid unpleasant surprises, and, where appropriate, make use of the loopholes left open by the legislator.