Taxes to be Paid by Foreigners When Selling Property in Spain
Understanding the taxes applicable to the sale of property in Spain by foreigners is crucial to avoid surprises and comply with tax obligations. Below is an overview of the most relevant taxes in this situation.
The Non-Resident Income Tax (IRNR) is the main tax that non-resident foreigners in Spain are subject to when selling property. IRNR is calculated on the profit obtained from the sale and is applied at a flat rate of 19%. The profit is determined by subtracting the acquisition value of the property (purchase price plus associated expenses) from the transfer value (selling price minus associated expenses). It is important to maintain proper records of incurred expenses to reduce the taxable base and pay taxes only on the actual profit.
It should be borne in mind that this «sale» will be subject to an advance payment to be made to the Tax Agency, in the form of a withholding tax of 3% of the sale price. This withholding must be made by the buyer and paid to the Tax Agency. When the seller declares the sale of the property through the IRNR 2010 form, and makes the calculations, he can deduct the 3% withholding he would have paid from the resulting tax payable.
In addition to IRNR, foreigners are also subject to the Tax on the Increase in Value of Urban Land, known as the municipal capital gains tax or «plusvalía.» This tax is applied to the gain generated by the increase in value of the land from acquisition to sale. The taxable base and the applicable rate vary depending on the municipality where the property is located. It is important to note that some municipalities may require the payment of the municipal capital gains tax even if a loss has been incurred in the sale.
In addition to these taxes, other expenses related to the sale of property in Spain need to be considered. For example, it is common for sellers to bear the costs of the real estate agency, notary fees, and municipal taxes such as the Property Tax (IBI) up to the date of sale.
It is crucial to highlight that taxes and tax obligations can change over time and vary depending on each individual’s specific circumstances. Therefore, it is highly recommended to consult with a tax advisor or lawyer specialized in tax law to obtain personalized and updated guidance on the taxes applicable to the sale of property in Spain.
In summary, foreigners selling property in Spain are subject to the Non-Resident Income Tax and the municipal capital gains tax. Understanding these tax obligations and seeking specialized advice is essential to ensure proper compliance and avoid financial surprises.