December 17th, 2013
The understanding since its introduction has been that the 3% tax retention on Spanish property sales by foreign owners is applied only to non- Spanish resident sellers. Conversely, Spanish resident sellers should not suffer the same deduction.
However, the recent tightening of the rules and practice guidelines in this area has meant that in many cases, sellers who are Spanish residents are falling into the traps for the unwary; meaning they are also losing 3% of the proceeds of their Spanish property sales, in tax retention.
The reclaim process in applicable cases can be very lengthy and convoluted. So, many Spanish property sellers end up simply ‘writing off’ the 3% even though really, they should be entitled to have the tax retention refunded, hence the reference to the loss of the 3% in practice.
It is important to appreciate that in this context, Spanish residency has two component elements. The first is legal or factual residency (generally evidenced by a Certificate of Residency). The second aspect, which is of equal importance, is that the positive step must also be taken to become fiscally resident in Spain; and annually to file the corresponding tax declaration in Spain. (In most cases, this is an obligation of Spanish property owners, in any event).
Provided that these fiscal obligations have been complied with in all respects and for the requisite period; when a Spanish property sale is agreed, the Spanish Tax Authority should issue a Certificate of Fiscal Residency. This, combined with the evidence of factual residency, should satisfy the Notary and the Spanish Authorities that no 3% tax retention should be made.
It should be noted though, that even for non-Spanish residents, a later tax assessment can be made following the sale, and capital gains tax charged, depending on the facts and figures of the case in question.
Additionally, all sellers (Spanish resident and non- Spanish resident alike) still have to pay ‘Plus Valia’, the municipal tax on Spanish property sales. This is calculated by reference to Catastral (rateable) value and the period of ownership.
In conclusion, it is essential to have reliable professional guidance on tax issues and transactional costs, before agreeing terms for a Spanish property sale. Otherwise, there is no certainty as to the net sale price which will be received. Please speak to our team at Legal 4 Spain, for clear advice and competitively priced legal representation on Spanish property sales.