Questions and answers for the most common queries.

1. Do we have to pay Income Tax in Spain when we sell our property?

The answer is yes.

If you owned a property which was sold in Spain and also live abroad, you will be considered a tax payer by the Spanish authorities despite being a non-resident.

In the eyes of the Spanish Tax Office, any non-resident person or company earning income in Spain is a tax payer. The sale of a property in Spain is considered to be taxable.

2. How can non-residency be proved?

Non-resident status can be proved by means of a certificate providing proof of residence in another country issued by the tax authorities of that country. These certificates are valid for one year.

3. What type of income is taxable in Spain?

In relation to the properties of non-residents situated in Spain, all income deriving either directly or indirectly from these properties or the rights relating to them (territoriality criterion) are taxable.

Let us look at some examples:

a) Simple ownership of property is subject to non-resident income tax (we shall examine this in another article).

b) Private or holiday rentals are subject to non-resident income tax (we shall examine this in another article).

c) The sale of any non-resident property situated in Spain is subject to non-resident income tax (we shall look at this below).

4. What tax rate or percentage of gains is taxable in Spain?

In the case of gains obtained by a UK resident as a result of the sale of property located in Spain, the Spanish Tax Office has the legal authority to tax the capital gains. (For example, a UK resident earns money for the sale of a property located in Spain. The gains will be taxed in Spain at the rate of 18%, after 1/1/2007; and at 35% for sales carried out before 31/12/2006).

5. How is capital gains calculated for the sale of a property in Spain?

The gains will always be determined by the difference between transfer and purchase price.

A) The purchase price will comprise the price which the property being transferred was purchased for, adding any expenses and taxes paid when it was purchased. Depending on the year when it was purchased, this price will be corrected by applying certain actualisation coefficients which are established annually by the National General Budgetary Law.

B) The transfer price will be the real price paid for the property and this means that the tax office can on inspection verify and correct a price declared in a deed of sale. Any expenses (agency commissions, lawyers’ and accountant’s fees, etc.) and any taxes relating to the transfer which the seller has paid (municipal capital gain) must be discounted from this transfer price.
If the property was purchased before 31st December 1994 and improvements made, the calculations need to be corrected and in this case it is advisable to consult a qualified professional as the capital gain calculation becomes complicated.

6. Non-resident tax retention
The person purchasing the property, whether resident or not, must deduct and pay 3% of the agreed price to the tax office (for purchases made before 31st December 2006 the rate was 5%). For the seller, this retention is an advance payment of the corresponding tax for the gain resulting from the sale. The purchaser will therefore give the non-resident seller a copy of form 211 (with which the retention was made) so that the seller can deduct the retention of the amount to be paid resulting from the declaration from the gain. If the amount retained is higher than the amount to be paid, the difference may be refunded.
If the retention is not paid, the property will be subject to payment of the tax.
IMPORTANT OBSERVATION: It is important to remember that fiscal residence in Spain for declaring the inadmissibility of the retention before a notary must be proved by means of the corresponding certificate issued by the tax office. It is necessary to prove more than just residency: the seller must prove that they pay tax in Spain like any other resident.

7.  What form must we complete?

Form 212

When the property being transferred belongs to a married couple both of whom are non-residents, it is not possible to present a joint tax declaration.

8. How long do we have to present the tax declaration?

Three months from the end of the period in which the person purchasing the property has to pay the retention (this period is, in turn, one month from the date of sale).

9. Where must we present this form?

At the Tax Office (Delegación or Aministración de la Agencia Tributaria) corresponding to the place where the property is located.

10. What is the procedure for the return of the 3% retention?
In the case of capital loss or when the retention is higher than the amount to be paid, you are entitled to a refund of the excess amount retained. The refund procedure begins with the presentation of declaration form 212 at the appropriate Tax Office. The amount is refunded by bank transfer to the account indicated on the declaration. The account holder will be the non-resident taxpayer concerned or their representative (the representative must have been granted express powers in the document certifying their status as a representative to receive the refund and in this case, it is advisable to grant power of attorney with special authorities). If the non-resident taxpayer does not hold a bank account in Spain, they can submit a document to the Tax Office Director requesting the refund by cheque. The copy for the non-resident transferee of form 211 with which the retention was paid will be attached to the declaration (form 212).
The Tax Office can make a provisional settlement within six months from the end of the period established for the presentation of the declaration. When the declaration is presented late, the six months will be counted from the date of presentation. If the provisional settlement is not made in this period, the Tax Office will proceed on their own initiative to refund the excess on the self-assessed amount without affecting subsequent settlements which may be deemed legitimate. If the amount has not been refunded after six months for reasons attributable to the Administration, the corresponding interest will be added to the amount due to be refunded.

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