The information below is meant as a guideline only and should not be taken as 100 percent accurate as the laws and fgures can change on a regular basis.
Capital Gains Tax or CGT applies to the sale of property pretty much throughout the world. This page will hopefully act as guide to CGT on property in Spain.
NEWS…From January 2007 the Spanish government brought Spain inline with other EU countries and reduced the capital gains tax from 35% for non residents to 18%. In addition to this the witholding tax of 5% was reduced to 3%.
CGT can apply to an individual or a company whether registered as a resident in Spain or not. The rules and regulations differ depending on the type of assets that are involved. When a non resident of Spain sells a property in Spain whether as an individual or as a company, the rate of CGT is 35 percent on the profit that is made as a result of the sale. The selling price is the difference between the buying price and the selling price with the inclusion of the relevant coefficient if the property was purchased before the year 2004.
Below are a list of rules that should be used to help calculate the CGT on the sale of a property.
Purchase price when calculating the Capital Gains Tax
The purchase value is the price paid for the property you have sold amended with the relevant coefficient, once you have added the expenses incurred and the taxes paid in the purchase. Dependent upon the year of original purchase the value is updated using the coefficients created by the Spanish government.
1994 and before – 1.1146
1995 – 1.2108
1996 – 1.1694
1997 – 1.1461
1998 – 1.238
1999 – 1.1036
2000 – 1.0824
2001 – 1.0612
2002 – 1.0404
2003 – 1.02
2004 – 1
The selling price for calculating Capital Gains Tax
The selling price as you would imagine is the actual price for which the property has been sold, deducting the relevant taxes and expenses incurred by the seller of the property in Spain. Legal fees, taxes and an agents commission can also be deducted from the actual selling price of the property. However, improvements made to the property of the ownership period also have to be taken into account in order to calculate the CGT. This is only true if the construction is legally and administratively documented and invoices are present showing IVA (VAT) for all work that was carried out on the property.
An example of such calculations could be as follows:
Mr X purchased an apartment in the year 2002 for a sum of 400,000 euros and sold it in January of the year 2005 for a sum of 550,000 euros.
In 2002 Mr X paid out the following sums:
28,000 euros in transfer tax (7 percent)
1,000 euros Notary and land registry
4,640 in legal fees
Total of 33,640 euros
The total cost of acquisition was:
40,000 euros for the property
33,640 euros in additional costs
Making a total of 433,640 euros
To adjust the cost using the relevant coefficient for the year of 2002 you need to multiply by 1.0404 to give a final total of 451,159.06 euros
When the property was sold by Mr X he incurred the following costs:
31,900 euros 5 percent agents commission
6,380 euros in legal fees
750 euros Plusvalia
A total of 39,030 euros
The CGT would be calculated as follows:
X – A total selling price of 550,000 euros less the costs of 39,030 euros
Total of 510,970 euros
Y – The total acquisition cost with the addition of the purchase costs
Total of 451,159.06 euros including the coefficient adjustments shown earlier.
The gain is simply X minus Y which equates to 59,810.94 euros.
The CGT rate for non residents of Spain from Januaury 2007 18% therefore the Capital Gains Tax is 10,765.97 (Prior to 2007 the Capital Gains Tax due at 35% would have been 20,933.83 euros).
3 percent withholding tax for a non resident is paid on account of CGT 16,500 euros (3% of the selling price). Tax excess paid 5,734.03 euros (Information about withholding tax on property)
In the case we have used there would be a tax credit for the balance between the 3percent withholding tax of 16,500 euros and the total CGT of 10,765.97 euros. This excess amount of 5,734.03 euros can be claimed directly from the tax office within 3 months from the date when the 3percent withholding tax was initially paid.
If the seller purchased the property before 31st December 1986, the CGT would be zero with no obligation to pay the withholding tax.
As a resident in Spain there are some advantages in respect of Capital Gains Tax on the sale of property. These factors should be considered carefully when you buy a property in Spain if you want to avoid any unecessary taxes that could be avoided.
Residents do not encounter the following:
There is no withholding tax on the sale of property
The gain can be exempt if reinvesting in a new main home (toally or partially)
When the seller is over 65 and the main home is sold there is an exeption on CGT so long as certain requirements are met then the rate of CGT can be reduced to 15 percent on profit.
