If you are buying a property in Spain from a person resident abroad, before going to the notary’s office, you should know that the taxes that correspond to the seller in this transfer, will have to be paid by you to the Public Treasury. For that reason you will have to withhold 3% of the sale price from the seller. In other words, you must stop paying this amount when you sign the notarial deed of sale.
The reason for making the deduction is the Capital Gain derived from the Non-Resident Income Tax. In all purchases and sales of real estate, the seller will be obliged to pay tax on the capital gain obtained as a result of the transfer. The tax legislation establishes the rules for calculating this gain, which will generally be determined by the difference between the transfer and acquisition values. However, when the seller is not resident in Spanish territory, in order to ensure that the tax is collected, the law provides that the buyer must withhold 3% of the purchase price from the seller and make the payment on account of this amount to the State Tax Administration Agency. Generally, this 3% is deducted at the time of formalising the cheques that the buyer delivers to the seller at the notary’s office when signing the deed of sale.
Subsequently, the transferor will have to make the declaration and pay the definitive tax. As a result, the tax authorities will return to him, if appropriate, the excess part of the amount withheld and paid by the buyer. All of this will be done within the time limits and in the manner indicated in the Law and the Regulation on Non-Resident Income Tax, which also establishes the consequences of non-compliance with this obligation.
We must clarify that although it is normally said that the 3% retention must be made to sellers who are not resident in Spain, the determining factor in reality is that the seller is subject to Non-Resident Income Tax. For this reason, if the transferor proves with a certificate issued by the competent body of the Tax Administration that he is not subject to this tax, the withholding and the deposit referred to above will not be made. This will occur if the transferor is subject to Personal Income Tax or Corporation Tax. In these cases, the cheques handed over at the notary’s office will cover the full price of the transaction.
Finally, in addition to the 3% withholding on account of capital gains, it is important that you take into account another very similar case, which is the Municipal Capital Gains Tax or Tax on the Increase in Value of Urban Land. When the seller is a non-resident individual, it is also the buyer who is obliged to pay the Municipal Capital Gains Tax in his capacity as a substitute for the taxpayer, but he will have the right to demand the amounts paid from the seller.