Selling a property in Spain when you live abroad: the 3% withholding, form 210 and the municipal plusvalía

First, your tax residence

Which tax applies to the sale depends on where you are tax resident. If you are not resident in Spain, the gain does not go into Spanish personal income tax but into Non-Resident Income Tax, because it comes from a property located in Spain (Non-Resident Income Tax Act, article 13.1.i.3.º). If you are in fact still resident in Spain, the buyer does not have to withhold anything once you prove, with a certificate from the Spanish Tax Agency, that you pay Spanish personal income tax or, if the seller is a company, corporate income tax (Non-Resident Income Tax Regulation, article 14.2.a). Residence decides who files, which tax is paid and whether there is a withholding, so it is settled before signing. The rules for working out where you are resident are on our page for non-residents.

The 3% is not the tax

When a non-resident seller acts without a permanent establishment, the buyer must withhold and pay to the Tax Agency 3% of the agreed price, or make the corresponding payment on account, within one month of the sale, on form 211 (Non-Resident Income Tax Act, article 25.2, and Regulation, article 14, sections 1 and 3). That 3% is a payment on account. The tax is calculated on the gain, not on the price, and the rate is 19% wherever the seller lives: unlike rental income, a gain on a sale has no higher rate for residents outside the European Union (article 25.1.f.3.º). There is no withholding when the property is contributed to set up or increase the capital of a company resident in Spain (article 25.2).

What decides the gain

The gain is the difference between what you obtain from the sale and what the property cost you. The purchase price is increased by investments and improvements and by the costs and taxes of the purchase, excluding loan interest; if the property was let, that value is reduced by the depreciation that applies, and the Personal Income Tax Regulation always counts the minimum depreciation, whether or not it was deducted as an expense (article 40.1). The sale price is reduced by the costs and taxes of the sale paid by the seller, and the price that counts is the one actually paid unless it is below market value, in which case market value counts (Personal Income Tax Act, article 35, part of the rules on gains to which article 24.4 of the Non-Resident Income Tax Act refers). If the property was inherited or received as a gift, the starting value is the one resulting from the inheritance and gift tax rules, capped at market value (Personal Income Tax Act, article 36). That is why, before signing, we rebuild the purchase value from the deed, the invoices for works and what was declared in the inheritance or gift: without that support the gain comes out higher than it really is. There are also rules that, depending on the purchase date or the seller's circumstances, can reduce the gain, and they are checked case by case.

Form 210 is filed even when it means a refund

After the sale, the seller files form 210 for the result, gain or loss, within the three months that begin once a month has passed since the sale (Order EHA/3316/2010, article 5.a, as currently worded, which refers to article 14.4 of the Regulation). The amount paid in by the buyer is deducted on that form. If the gain is small or there is a loss, the withholding exceeds the tax, and the Tax Agency refunds the difference after any checks it needs to make (Regulation, article 14.4). Without form 210 there is no refund. The other deadlines for the form are in our guide to form 210 for non-residents.

If the buyer does not pay the withholding

If the buyer does not pay in the 3%, the property sold is charged with payment of the lower of that withholding and the seller's tax, and the land registrar records this in a marginal note on the registration, stating the amount the property answers for. The note is cancelled on expiry, or with the payment receipt or a certificate showing that the sale is not subject to tax or that the debt is time-barred (Non-Resident Income Tax Act, article 25.2, and Regulation, article 14.5). The charge stays with the property, so a default by the buyer also falls on the property.

If it was your main home and you live in the European Union

A resident of another European Union Member State, or of a European Economic Area state with an effective exchange of tax information, can leave untaxed the gain on selling what was their main home in Spain if they reinvest the whole amount obtained in a new main home, under the personal income tax rules; if only part is reinvested, the proportional part is left untaxed (Non-Resident Income Tax Act, seventh additional provision, sections 1, 2 and 4). Under those rules, the reinvestment is made, at once or in instalments, within two years of the sale, or the amount obtained is used to pay for a new main home bought in the two previous years; and if the home sold was bought with a loan, the amount obtained is calculated by deducting the principal outstanding at that time (Personal Income Tax Regulation, article 41, sections 1 and 3). The buyer still withholds 3%, and if the reinvestment has been made before the date on which form 210 must be filed, it is taken into account on that return (section 3 of the same provision).

The municipal plusvalía: the buyer files it as substitute taxpayer

Besides the State tax there is the municipal tax on the increase in value of urban land (plusvalía municipal). On a sale it is paid by the seller, but if the seller is an individual who is not resident in Spain, the buyer is the liable party, as substitute taxpayer (Local Finance Act, article 106.2). The substitute pays in the seller's place, but can then claim back from the seller what was paid, unless the law provides otherwise (General Tax Act, article 36.3). It must be declared within thirty working days of the sale (article 110.2). If the purchase and sale values of the land show no increase, the sale is not subject to the tax, but it still has to be declared, with the purchase and sale deeds (article 104.5). The rate, coefficients and reliefs depend on the bylaw of the municipality where the property is located. That is why we calculate the plusvalía before signing, together with the 3% withholding.

How we handle it

Before signing we check whether you are resident or not, calculate the gain, the withholding and the plusvalía, and tell you which documents are needed. Afterwards we prepare form 210, with the refund where there is one, and the plusvalía return if you ask us to. Everything is done remotely: documents arrive by email or WhatsApp, and before the Tax Agency we act under your power of representation, so your digital certificate stays with you. No return is filed until you know its amount and the reasons for it. More on how we work with clients abroad is on our page for non-residents.