Selling property in Spain as a non-resident. The buying party’s obligation to retain 3% of the sale price.
In this article we are going to address the issue of property sale in Spain by non-resident citizens, and the buying party’s obligation to retain 3% of the sale price.
Therefore, when a property is sold in Spain by a non-resident, any profit made shall be taxed as Capital Gains against their Non-Resident Income Tax (IRNR).
The gross profit shall be established by calculating the difference between the acquisition price (any expenses and taxes resulting from that acquisition shall be included), and the sale price (any expenses and taxes resulting from the transaction shall be deducted).
The procedure governing the aforementioned 3% retention is established by the Regulations on Non-Resident Income Tax (RD 1576/2006), which provide that:
- In cases of real estate transactions concerning property situated in Spanish territory by Non-Resident Income Tax payers, the acquirer shall be obliged to retain and deposit 3% of the agreed price, as an advanced payment against the Non-Resident Income Tax corresponding to the non-resident selling party.
- The acquirer shall NOT be obliged to retain and deposit the advanced payment when the selling party provides proof that they are subject to Personal Income Tax via a certificate issued by the competent body of the Inland Revenue (subsequently, we will provide more information on the prerequisites for the certificate, being a fundamental requirement to the entire process)
- The party obliged to retain or deposit the advanced payment (the acquirer) must present a declaration before the Delegation or Government Agency of the Inland Revenue corresponding to the area in which the property is located, and pay the retained amount of tax due, on account of the selling party, to the Public Treasury, within a period of one month as from the date of the transaction. Together with the official form nº 211
- The taxpayer whom is non-resident in Spanish territory must declare, and settle the definitive Capital gains Tax (the current tax rate in force for EU, Islandic and Norwegian citizens is 19%, and 24% for any other taxpayers), deducting the amount of 3% retained by the acquirer from the amount due, within a period of three months following the sale, together with the official form nº 210.
In the case that the selling party does not make any profit from the sale, the non-resident selling party shall not be liable to pay the tax and can therefore request a refund of the tax withheld by submitting form nº 212.
If this occurs, the inland revenue will proceed, following the necessary verifications, to refund the taxpayer the excess withheld or payed.
- If the above-mentioned amount payable is not retained o settled, the transferred property shall remain liable for payment if the amount settled is lower than the amount withheldor played in advance, and the corresponding tax. The land registrar will record this to that effect in the corresponding registration, stating the amount outstanding on the property.
It is important to indicate that at the time of addressing the issue of whether or not to retain the 3%, that accreditation of residency or non-residency is neither sufficient or valid, neither is proof of being in possession of a residency card or certificate of residency, even a certificate of Fiscal Residence is not sufficient, the only valid document is the certificate that proves subjection to Income Tax in Spain.
In the case that the amount due is NOT payed, the property will remain subject to the outstanding payment. For that reason, the purchasing party should in all cases retain the 3%, which will therefore be reflected in the public deeds, unless the selling party presents a certificate issued by the Inland Revenue providing proof that the transferor is subject to Income Tax in Spain.
Transferors whom are EU citizens, and furthermore are Non-resident taxpayers, shall not be liable for Capital Gains Tax on the sale, provided that the amount obtained through the sale is reinvested in a main residence.
At MSG LEGAL we can advise you on whether or not there is an obligation to withhold tax for any property purchasing transaction, from your point of view, being either the buying party, or the selling party. We can also handle the preparation and presentation of the various official forms required for settlement or refund of revenue, generated by the property sale procedure to be followed when the selling party is a non-resident citizen.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.