This article was written exclusively for Expat Network by B LAW & TAX, International Tax & Legal Advisors

Currently Stamp Duty is charged in Spain on the execution of the mortgage deed at rates that depend on the autonomous community where the property is located. Base rates range between 0.5 percent and 1.5 percent.

Up until mid-October 2018, Mortgage Law stated that home buyers had to pay the Stamp Duty. Although it is not entirely clear who should pay the tax in the way the rule is worded, this has been supported by case law for decades, including, among others, by the Supreme Court of Spain.  These decisions have long given the banks the backing to continue operating in this way in the mortgage loan business.

The back-and-forth over who is liable for mortgage Stamp Duty began on October 16^th, 2018, when the Spanish´s Supreme Court determined that lenders should pay the mortgage taxes. This Court ruling held that banks should pay the Stamp taxes, as banks were the main beneficiaries of a mortgage agreement. However, the Court reversed its ruling a day later, citing concerns about “enormous economic and social impact” of the decision, and maintaining the approach followed to date.

As a consequence of the decision taken by the Supreme Court, the Spanish government has ruled on this matter, indicating that it does not agree with the decision taken by the Supreme Court. In this sense, the regulation passed by the Spanish government establishes that banks, not the home buyers, are responsible for paying mortgage Stamp Duty on property purchases, overruling the Court decision that customers should continue to pay the tax.

The Spanish government passed this decision with the Royal Decree 17/2018, published in the Official Bulletin on November 9^th, 2018, and effective from last November 10^th, 2018.

Additionally, Spanish government are shortly to propose a law creating an independent consumer protection agency to protect finance sector clients.

Spain´s banks will not be permitted to deduct mortgage Stamp Duty from their annual tax liabilities. Henceforth, this expense will be considered as non- deductible from Corporate Tax by the lender, as noted in the first final provisions of the Royal Decree referred to above.

Notwithstanding the above, the following exception should be borne in mind: banks will not pay Stamp Duty when the State, Catholic Church or political parties are the one taking out the mortgage.

Finally, it is important to emphasize that the government´s Royal Decree, by virtue of which banks are responsible of paying Stamp Duty on property purchases, will not be applied retrospectively. Therefore, banks instead of the property buyers have been liable to pay the Stamp Duty since November 10^th, 2018.