Capital gains and withholding tax for non-residents

Two very important changes came into effect in January 2007 that made buying property in Spain an even better investment for non-residents.

The first of these changes was a reduction in the capital gains tax on the sale of property in Spain from 35% to 18% for non-residents. In January 2010, the capital gains tax for non-residents increased to 19%, but it is still significantly lower than the highs of 35%. In comparison, in January 2010 the capital gains tax for Spanish residents increased to 19% for the first 6,000 euros of gain and to 21% for any gain in excess of 6,000 euros.

The second change made in January 2007 was a reduction in the withholding tax for non-residents from 5% to 3%. When a non-resident sells a property in Spain, the buyer must retain 3% of the declared purchase price. This 3% is then paid by the purchaser to the tax office on account of the potential capital gain´s tax liability of the non-resident seller. The seller then has a period of 4 months from the date of the sale to submit their capital gains declaration. If there was a loss or if the gain was less than the amount that was retained, the seller is eligible for a refund of the amount that was overpaid. Please note that the refund takes time. It isn´t instantaneous. If the gain is larger than the amount that was retained, then the seller must pay the additional tax due.

Please note that Spanish residents and companies aren´t subject to this 3% withholding tax. This only applies to non-residents.