If you are selling a property in Spain as a non-resident you should be aware that there are a number of tax obligations, the most important of which is the Capital Gains Tax.
This tax applies to the profit made from the sale of property and is mandatory for both residents and non-residents.
However, non-residents must comply with additional requirements, such as the mandatory 3% withholding tax, wich can complicate the process. Understanding this is essential to ensure tax compliance and minimize the tax burden when welling real estate in Spain.
Understanding the 3% Retention for Non-residents
One of the particularities if you are selling a property in Spain as a non-resident is the 3% retention imposed by the Spanish tax authorities “Agencia Tributaria española“.
This amount is withheld by the buyer and paid directly to the tax office as a guarantee that the seller will declare and pay their Capital gains tax.
The 3% is not necessarily the final tax amount; it is an estimate. If the retained amount excedes the actual Capital Gains Tax owned, the seller may claim a refund.
However, if the retention does not cover the tax liability, the seller will be required to pay the difference. For non-residents, this can create a complicated scenario, especially when considering other obligations such as the non-resident income tax.
The role of Form 211 and how it affects Non-resident sellers
After the 3% retention, the buyer is responsible for submitting this amount to the tax offcie using Form 211.
This step is crucial, as it offically records the withholding and opens the door for the seller to either request a refund or settle any outstanding tax amounts. The non-resident seller receives a copy of this form, which they must use when filing their final tax return.
For sellers who did not make a profit on the sale, this form is essential in claiming a full refund of the retained amount. This is because Spanish tax authorities allow the seller to reclaim the 3% if no capital gain was made.
The process ensures that non-residents do not unjustly lose money when selling property at a loss or a negligible profit.
How to Recover the 3% Retained When There is No Capital Gain
If a non-resident sells a property at a loss, or the gain is minimal, they may be entitled to a full refund of the 3% retained by the buyer. However, several conditions must be met for the refund to be processed.
First, the seller must be up-to-date with all their Spanish tax obligations, especially their non-resident income tax. Any outstanding taxes or issues with previous filings can delay or prevent the refund.
Additionally, the seller needs to file the appropriate forms within four months after the sale to claim the refund. This requires careful documentation, including the original purchase price, improvements made to the property, and all associated costs such as legal fees, transfer taxes, and notary fees.
Failing to submit these details accurately could lead to a loss of the refund, so it’s critical to seek professional advice.
Capital Gains Tax Rates for Non-Residents: What You Need to Know
For non-residents, the capital gains tax on property sales in Spain is set at a flat rate of 19%.
This applies whether the seller is a resident of another European Union country or a non-EU country.
The 19% tax is levied on the net gain, which is the difference between the sale price and the acquisition cost of the property, minus deductible expenses.
Deductions and Expenses: Reducing Your Capital Gains Tax Liability
Fortunately, there are several deductible expenses that can reduce your capital gains tax liability. These include costs associated with both the purchase and sale of the property.
Common deductions include:
- Legal fees and notary costs from the initial purchase.
- Transfer taxes (such as stamp duty or the property transfer tax).
- Costs of improvements made to the property, with certain nuances.
- Real estate agent commissions.
- Municipal taxes, such as the “Plusvalía Municipal,” which is a local tax on the increase in land value.
By carefully documenting these expenses, you can significantly reduce the taxable amount of your capital gain. In some cases, this could result in a much lower tax liability or even a refund.
Filing the 210 Form: When the 3% Retention is Insufficient
In cases where the 3% retention does not cover the full capital gains tax, non-resident sellers must file Form 210.
This form allows the seller to pay the difference between the 3% retained and the actual tax owed. The deadline for submitting Form 210 is four months from the date of the sale. Failure to submit it on time can result in penalties and interest charges.
Common Mistakes Non-Residents Should Avoid When Selling Property in Spain
One of the most common pitfalls when selling a property in Spain as a non-resident is not correctly taking into account the 3% withholding tax. Some sellers overlook this requirement entirely, leading to unexpected deductions at the time of sale.
Others may misunderstand the tax implications and fail to file the appropriate forms to recover the retained amount or settle additional liabilities.
Another mistake is underestimating the importance of staying current with non-resident tax obligations. Not being up-to-date can prevent a seller from claiming refunds or processing the sale smoothly.
Additionally, non-residents often fail to document deductible expenses adequately, which can result in a higher tax bill than necessary.