Withholding tax on property in Spain for non residents.
In an effort to try and keep you informed of different scenarios regarding selling property in Spain and the taxes associated with it, the following letter was sent to the Sur in English newspaper (www.surinenglish.com) and was responded to by the Tax and Legal Advisors, Pricewaterhouse Coopers of Malaga.
Please note that we cannot confirm the accuracy of the information and you should seek your own legal advice on tax issues relating to selling a property in Spain. The rules and regulations are subject to constant changes and although this may be correct at time of posting to this website, it might not be the case when you read it.
“I am an Irish citizen and in 1998 I brought an apartment in Torremolinos which I am about to sell.
I am rather confused about the tax implications of the sale, since on the one hand I have read that capital gains made by non residents are taxed at 35 percent, but the person who is dealing with the sale has told me that the purchaser has to retain 5 percent of the amount of the sale and pay it into the Spanish tax authorities.
I would like to know if the five percent retention is compulsory and if this would exempt me from the obligation of the 35 percent capital gains”
The answer provided to the above situation is as follows:
When a purchase-sale involving property takes place, this normally gives rise to a capital gain which is defined as the difference between the sale value and the original acquisition value.
In this particular instance, as you are not a tax resident in Spain, your capital gain is taxable at 35 percent, which means that the tax payable to the tax authorities would be 35 percent of the difference between the transfer and acquisition values, provided this difference results in a positive figure, i.e. that a capital gain has actually been made.
Spanish law states that when a vendor is non resident, the purchaser – whether or not he or she is resident – is obliged to withold and pay into the Spanish tax authorities five percent of the agreed purchase-sale amount.
This withholding is understood as a payment on account by the vendor of his / her possible gains tax liability deriving from the operation. The five percent of the price must be paid to the authorities by the purchaser within one month of the date of transfer of the property using standard form 211.
On the other hand, you as the non resident vendor, should present standard form 212 at the corresponding tax office to where the property is located, within a period of four months after the date of transfer, indicating the capital gains calculations.
Therefore in the event of a capital loss or if the withholding made is in excess of your actual capital gains liability, you would be entitled to a refund of the excess amount paid and this process would commence with the presentation of the above form 212.
Any refund receivable would be made by bank transfer to the account indicated on the tax declaration.
Conversely, if the resulting capital gain is more that the five percent withholding paid, you would be required to pay the difference using the same 212.
HISTORICAL NOTES: Please note that from January 2007 the with holding tax reduced from 5% to 3% and Capital Gains Tax from 35% to 18% for non-residents
However these taxes are likely to alter year to year so again we advise you to use this as a guide and to seek legal advice
