Non resident selling a property in Spain. What about Capital Gain Tax?

When a non-resident sells property in Spain, they buyer is obliged to retain 3% of the price and pay it to the tax authorities to cover the vendor’s tax liabilities. 

So, if you are non resident in Spain, be prepared to be withold an amount of 3% of the price of the sale. 

This tax is the vendor’s capital gains tax, which has to be declared in his or her annual income tax returns (known in Spain as La Renta), and is taxed at 19%. Non-residents used to be taxed on capital gains at 25% but this was reduced to 18% (same as residents) as of 01/01/08, then put up to 19% on 01/01/10, and finally raised to 21% in 2012 - 2014, and then reduced to 20% in 2015, and finally, 19% for 2016 up to day .

The reason for this is that the taxman wants the money in case the vendor does a runner without paying his taxes, something that almost all non-resident vendors have done in the past.

(Please note that this retention does not cover the vendor’s ‘plusvalia’ tax liability, which is paid to the town hall and is a separate matter. 

See here: http://javierherrerallamas.blogspot.com.es/2013/08/plusvalia-municipal-capital-gain-tax.html)

But not everything it is lost. There are somes ways to reduce your tax exposure. Mainly there are three different ways:

Reductions on when the property was purchased

Those who bought a property after the 31st of December of 1.994 will not be entitled to any reductions. 

Those who bought in 1.987 of after will enjoy of a reduction of 11.11% on the net gain for every year they have owned the property before the 31st of December 1996 after taking the first two years. This means that a seller starts benefiting from this reduction, his first 11.11%, if he bought in 1.994, 22.22% if he bought in 1.993 and so on. 

Those who bought before the 31st of December 1.986 will be pay not tax, as the cuttoff point is 1.996. 

Reductions on the inflationary movements

This reduction is obtained by applying a percentage to the l purchase price, raising the original price to the level of the value of the peseta today. This inflationary correction factor is applied to the entire purchase price, as well as to all costs surrounding the purchase. Likewise, improvements and extensions on the property will have to be updated inflation-wise.

The correction factor to be applied will be the following:

Reductions on the inherent costs of the purchase, works done on the property and others.

Costs of the purchase: these would include VAT or Transfer Tax, Plusvalía Tax (where paid by the buyer), Land registry and Notary fees, lawyer´s and real estate agent´s fees, where applicable. 

Extensions and improvements done on the property: These should not be confused with maintenance and conservation costs, as these are not deductible. In practice, there is no clear cut distinction between one and the other. 

Examples of not deductible costs are repair or maintenance works, such as painting, repairs on heating systems, lifts, plumbing and so on.

Examples of deductible costs are the installation of iron bars, doors, double glazing windows and similar improvements on the property.

It well may happen that your tax bill is lesser than the 3% withold. In that case, you can apply for refund. This could take sometime depending upon the tax office; some are quicker than others. In theory it shouldn’t take more than a few months, though some places seems to be taking up to 16 months. Around a year seems to be quite common. So, usually, your money returns to your bank account by a Bank transfer. 

But also could happen that vendor’s tax bill is greater than the 3% retention. In this case, even when it is very unusual, the Spanish taxman may try and come after you for it back home.

But if you don’t hear from them within 4 years you know you’re safe, as that is the legal deadline for the tax authorities to take action.

Javier Herrera Llamas

No more Offshore Companies holding spanish Assets !!!

For some time now I have been advising on the dangers of owning assets in Spain through an offshore company.


Over the last twenty years many thousands of foreign investors have channelled their property investments in Spain directly or indirectly through offshore companies. This has enabled many individuals to avoid the payment of many Spanish taxes such as capital gains tax and inheritance and gift tax.

From 2007 these tax avoidance measures came to an end and owning assets in Spain through an offshore structure could have no commercial or fiscal benefit. Continuing to hold assets in an offshore structure could now increase exposure to taxation.

From there onwards, the offshore company must pay annually a tax consisting of 3% on the Value of the Property for Rates Purposes (Valor Catastral). The Valor Catastral has no resemblance with the real value of the property and normally does not exceed 50% of this.

Just very receinlty Tax Authorities are now considering that the transfer of the capital shares of the company is taxable under transfer tax, and this will be based on the market value of the real estate, regardless of the property price declared or the shares face value.

In line with the rest of Europe, the Spanish authorities have been continously (and will be) trying to introduce legislation that will lessen the amount of tax evasion and money laundering that is perceived to be enjoyed by entities located in offshore tax centres. The tax office does not want to leave any stone unturned in its quest to eradicate all investments channelled through tax haven countries.

The main thrust of the legislation is aimed at forcing such companies to demonstrate beyond reasonable doubt that their underlying activities are truly carried out in their respective offshore centre, and that these are indeed normal business activities.

Finally, if all this was not enough, there has been also cases for chriminal prosecution against the lawyer, the ultimate beneficiary and the director of the offshore companies, by which were all sentenced to jail terms.

So we can really say that the times offhsore companies were easily used to avoid the taxation on spanish assets are gone. Now, this requires a much more careful approach.

Javier Herrera Llamas