If the seller does not live in Spain, what taxes do they pay and why does the buyer have to withhold 3 % of the price?

Question

José Manuel Alburquerque · Accepted Answer

The seller pays non-resident income tax (the “impuesto sobre la renta de no residentes”) in Spain on the gain, at 19 %, because the flat is located here. As it would be difficult for the tax authorities to collect it once the seller has left with the money, the law requires the buyer to withhold 3 % of the price and pay it in within a month as a payment on account of that tax. The seller then files their tax return, subtracts the amount withheld and pays whatever is outstanding or recovers any excess. If the seller is an individual, the buyer also pays the “plusvalía municipal”, the municipal capital gains tax, on the seller's behalf and deducts it from the price. What the seller pays Non-resident income tax, at 19 % of the gain. The gain is calculated as for the “IRPF”, Spain's personal income tax, using the sale price, what the flat cost and the expenses of the purchase and sale. It cannot be offset against losses on other transactions. Municipal capital gains tax. If the seller is an individual, the law puts the buyer in the seller's place, as a substitute taxpayer (“sustituto”). The buyer pays it to the town council and deducts it from the price. The IBI, the local property tax, for the year, like any other seller. If the seller lives in another country of the European Union or the European Economic Area and sells what was their principal residence in Spain, they may avoid paying tax on the gain if they reinvest the proceeds in another principal residence, under the same rules as a resident. What counts is where the seller is resident, not their nationality. In general, a person is resident in Spain if they spend more than 183 days a year here or have their centre of interests here. A Spaniard living abroad is not resident. A foreigner living here is, pays the IRPF and has nothing withheld. The 3 % withholding Any buyer must make it, whether a private individual or a company, when the seller is not resident in Spain and has no permanent establishment here, such as a branch. It is 3 % of the agreed price. The buyer pays it to the tax authorities using Form 211 within the month following the deed and pays the seller the rest. If the buyer does not pay it in, the flat is charged with that payment, that is, it is answerable for it even though it now belongs to the buyer. In addition, the buyer is liable as the withholding agent and may be fined. In practice, at the signing the buyer sets aside the 3 % and, where applicable, the amount of the municipal capital gains tax, by separate cheques or transfers, so as to pay them in straight away. The seller's tax return The seller files their return using Form 210 within three months of the end of the period the buyer has to pay in the withholding. They subtract the amount withheld and pay the difference or ask for a refund. For example, with a price of 300.000 euros, the buyer withholds 9.000. If the seller gains 50.000 euros, their tax is 9.500 and they have to pay 500 more. If they gain 20.000, the tax is 3.800 and the tax authorities refund 5.200. If they gain nothing, they can ask for the whole amount withheld to be refunded.