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V3112-20 19 October 2020 · SG de Impuestos Patrimoniales, Tasas y Precios Públicos Criterion in force
IP · obligación real

Foreign loan debt used to purchase property in Spain is tax-deductible

A tax resident in Germany inquired whether debt from a loan granted by a German bank to purchase property in Mallorca is deductible for Wealth Tax purposes. The Directorate General for Taxes (DGT) ruled that the debt is deductible due to its purpose, provided it is proven that the funds are invested in the property located in Spain.

The question raised

Whether the amount of the debt from the loan granted by the German financial institution, secured by a mortgage on the taxpayer's assets in Germany and intended for the acquisition of the real estate, constitutes a deductible debt for the purposes of determining the taxable base of the Wealth Tax.

The DGT's ruling

In cases of real obligation, only debts for capital invested in assets located in Spanish territory are deductible. Therefore, the debt is deductible to the extent that it is allocated to the acquisition of the real estate in Spain, such allocation must be proven by any means valid under the law. This is applicable regardless of the type of loan granted by the financial institution.

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