AML Compliance for US Buyers: Source of Funds for Spanish New-Build

For US citizens looking to invest in the vibrant new-build property market on the Costa del Sol, understanding Anti-Money Laundering (AML) compliance is a critical step in the purchasing process. Spain, like many countries, has robust regulations in place to prevent illicit financial activities, and these directly impact how foreign buyers, particularly from countries like the United States, must demonstrate the legitimate origin of their funds for property transactions. This guide, written for clients of Life in Costa, aims to clarify these requirements for those acquiring new-build homes in the areas we cover.

Understanding Anti-Money Laundering (AML) in Spain

Anti-Money Laundering (AML) refers to a set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. For property transactions in Spain, this means that all parties involved in the sale, including developers, real estate agents, lawyers, and notaries, have a legal obligation to verify the identity of the buyer and the legitimacy of the funds used for the purchase.

The primary Spanish legislation governing AML is Ley 10/2010, de 28 de abril, de prevención del blanqueo de capitales y de la financiación del terrorismo, and its regulatory framework is established by Real Decreto 304/2014, de 5 de mayo. These laws mandate that ‘obliged subjects’ (sujetos obligados), such as financial institutions and legal professionals, conduct due diligence on their clients. This includes identifying clients, verifying their identities, and obtaining information on the purpose and nature of business relationships and the source of funds and assets.

Source of Funds Requirements for US Buyers

When purchasing a new-build property on the Costa del Sol, US buyers will be asked to provide comprehensive documentation to demonstrate the legal source of their funds. This is a standard procedure and an essential part of the due diligence process. The specific documents requested may vary slightly depending on the amounts involved and the particular circumstances of the buyer, but typically include:

• Proof of Identity: Valid passport and NIE (Número de Identificación de Extranjero), which is a foreigner’s identification number required for all financial and legal activities in Spain.
• Bank Statements: Detailed bank statements from the originating bank account, typically for the last 6-12 months, showing the accumulation of funds.
• Tax Returns: Personal income tax returns (e.g., US Form 1040) for the last 1-3 years, demonstrating declared income consistent with the funds being used for the property purchase.
• Employment Documentation: If employed, recent pay slips, employment contracts, and letters from employers confirming salary and duration of employment.
• Business Ownership Documentation: For self-employed individuals or business owners, company registration documents, business bank statements, audited financial statements, and evidence of dividend payments or drawings.
• Documentation for Sale of Assets: If funds originated from the sale of another property or significant asset, a copy of the sale contract and bank statements showing the receipt of proceeds.
• Inheritance or Gift Documentation: If funds were inherited or received as a gift, relevant legal documents (e.g., wills, probate documents, gift deeds) and bank statements confirming the transfer.
• Loan Agreements: If part of the purchase is funded through a loan, the loan agreement from the financial institution.

It is crucial that all documentation is clear, legible, and, if not originally in Spanish, accompanied by a sworn translation. Your Spanish lawyer will guide you through the precise requirements.

The New-Build Purchase Process and AML Considerations

The purchase of a new-build or off-plan property involves staged payments, and AML checks are performed throughout the process.

1. Reservation Agreement: An initial deposit secures the property. The source of these initial funds will be scrutinised.
2. Private Purchase Contract: A larger down payment is typically made upon signing the private purchase contract (Contrato de Compraventa). The source of these funds must also be verifiable.
3. Staged Payments: Further payments are made during the construction phase. Each of these payments may trigger additional AML checks, especially if the funds originate from different sources or accounts.
4. Completion at Notary: The final payment is made upon completion and signing of the public deed (Escritura Pública) before a Spanish notary. The notary is a key ‘obliged subject’ in AML procedures and will require all source of funds documentation to be in order before authorising the transaction.

Transparency at every stage is paramount. Any inconsistencies or lack of documentation can cause significant delays or even halt the purchase.

Key Tax Considerations for US Buyers

Understanding the tax landscape is integral to planning your new-build purchase. For new-build residential properties in Spain, you will generally pay IVA (Value Added Tax) and AJD (Stamp Duty).

• IVA (Impuesto sobre el Valor Añadido): For new residential properties in Spain, the standard IVA rate is 10% of the purchase price.
• AJD (Actos Jurídicos Documentados): In Andalusia, the general Stamp Duty rate for new-build properties is 1.2% of the documented price.

When factoring in IVA, AJD, notary fees, Land Registry fees, and legal costs, the total acquisition costs for a new-build property in Andalusia typically range around 14% of the purchase price.

Ongoing Taxes for Non-Resident Owners

As a non-resident US property owner in Spain, you will be subject to several annual taxes:

• IRNR (Impuesto sobre la Renta de No Residentes – Non-Resident Income Tax): This tax is declared via Modelo 210. US residents are taxed at a rate of 24% on gross rental income. If the property is for personal use and not rented out, a deemed income (renta imputada) is calculated based on the cadastral value of the property, typically 1.1% or 2% of this value, and then taxed at 24%. Capital gains upon selling the property are taxed at 19% for all non-residents.
• IBI (Impuesto sobre Bienes Inmuebles – Local Property Tax): This is an annual municipal tax based on the cadastral value of the property. Rates vary by municipality but typically range between 0.4% and 1.1% for urban properties in Andalusia.

It is important to note that when a non-resident sells a property in Spain, the buyer is legally obligated to withhold 3% of the sale price and pay it directly to the Agencia Tributaria as an advance payment towards the seller’s potential capital gains tax liability.

FATCA Compliance for US Citizens

The Foreign Account Tax Compliance Act (FATCA) is a US law aimed at preventing US citizens from using foreign financial institutions to avoid US taxation. Spain has an intergovernmental agreement (IGA) with the US to facilitate FATCA compliance. This means Spanish financial institutions (including banks) are required to identify ‘US Persons’ and report their financial account information to the Spanish tax authorities, who then exchange this information with the US Internal Revenue Service (IRS). As a US buyer, expect your Spanish bank to request specific US tax identification details (such as your TIN) to comply with FATCA.

The Role of Professional Advice

Navigating the complexities of AML compliance, Spanish property law, and cross-border taxation requires expert guidance. We strongly recommend engaging independent legal and tax advisors specialising in international property transactions in Spain. Their expertise will be invaluable in ensuring all documentation is correct, funds are properly accounted for, and all tax obligations are met, providing peace of mind throughout your new-build property purchase journey on the Costa del Sol.