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Non-Resident Taxation Manual (January 2023)

Capital gains arising from the sale of real estate

Internal regulations

Regulations:article 13.1.i) Law IRNR

In accordance with domestic legislation, capital gains are considered to be income obtained in Spanish territory when they derive from real estate located in Spanish territory.

Partial exemption:

Regulations:Additional provision four of the Non-Resident Personal Income Tax Law

Capital gains derived from the sale of urban real estate located in Spanish territory acquired from 12 May 2012 until 31 December 2012 are exempt at 50%.This partial exemption is not applicable:

  • In the case of individuals, when the property has been acquired from or transferred to the spouse or any person related to the taxpayer by straight-line or collateral kinship, consanguinity or affinity until the second degree, inclusive, or from or to a company associated with the taxpayer or with any of the aforementioned persons through any circumstances established in Article 42 of the Commercial Code, regardless of the residence and the obligation to prepare consolidated annual accounts.

  • In the case of companies, when the property has been acquired from or transferred to a person or company associated through any of the circumstances established in Article 42 of the Commercial Code, regardless of the residence and the obligation to prepare consolidated annual accounts, or from or to the spouse of such person or from or to any person related to him/her by straight-line or collateral kinship, consanguinity or affinity until the second degree, inclusive.

Exemption for reinvestment in main residence for taxpayers resident in another EU Member State , Iceland, Norway and, from 11-07-2021, Liechtenstein:

Regulations:Additional provision seven of the Non-Resident Personal Income Tax Law

In the case of taxpayers resident in a Member State of the European Union or of the European Economic Area with an effective exchange of tax information (with effect from 11 July 2021, the regulatory references made to States with which there is an effective exchange of tax information are understood to be made to States with which there are regulations on mutual assistance in the exchange of tax information under the terms set out in Law 58/2003, of 17 December, General Taxation, which is applicable.See Annex V), capital gains obtained on the transfer of what has been their main residence in Spain may be excluded from taxation, provided that the total amount obtained on the transfer is reinvested in the purchase of a new main residence.When the reinvested amount is lower than the total of the amount received in the transfer, only the proportional part of the capital gain obtained corresponding to the reinvested amount will be excluded from taxation.

If the reinvestment is prior to the date on which the tax return should be submitted, the reinvestment, either partial or total, may be taken into account for determining the corresponding tax debt.

Notwithstanding the above, the purchaser of the property must make a withholding (using Form 211) and file a return (Form 210 sub-section H) and pay the corresponding tax debt.

The self-assessment Form 210 will indicate code 33 as the type of income if the reinvestment was made before the transfer, or code 34 if the reinvestment was made after the transfer.

If the reinvestment has taken place after the date on which the tax return must be filed, the total or partial refund of the tax debt paid corresponding to the capital gain obtained may be requested by submitting the application form approved in Order HAP/2474/2015, of 19 November (BOE of 24 November).

Agreement

In accordance with the Conventions signed by Spain, gains derived from the disposal of real estate located in Spanish territory may be subject to taxation in Spain.

Taxation

Regulations:articles 24, 25 and 26 Non-Resident Income Tax Law

Income obtained without the intermediation of EP must be taxed separately for each total or partial accrual of the taxable income.

The taxable base corresponding to capital gains shall be determined by applying, in general, to each capital change, the rules of IRPF.Gains shall be calculated as the difference between the transfer and acquisition values.

In onerous transfers, the acquisition value will be made up of the actual amount for which the property was acquired, plus the cost of the investments and improvements (1), if applicable, made (without the expenses of conservation and repair being counted for these purposes) to which will be added the amount of the expenses (fees, Notary Public, Registry, etc.)and taxes inherent in the acquisition (Property transfers and documented legal acts, VAT or inheritance or gift tax if the acquisition was made free of charge), excluding interest paid by the now transferor.The amount so determined will, if applicable, be reduced by the amount of the depreciation applied by the regulation, in any event applying the minimum depreciation (2)

(1) In the case of assets on which improvements have been made in a year other than that of their acquisition, it will be necessary to distinguish the part of the transfer value corresponding to the asset and to the improvement or improvements made, in order to determine, separately and independently, both the capital gains or losses deriving from one and the other, and the reduction, if any, applicable.For these purposes, the values and dates of acquisition shall be those corresponding, respectively, to the asset item and to each of the improvements made.(Go back)

(2) Tax-deductible depreciation relates to property used for business activities, leased or subleased property and real rights of use and enjoyment over real estate.In these cases, the minimum depreciation will be computed, regardless of its effective consideration as an expense.

For leased properties, the amount of the minimum depreciation is determined by applying the percentage of 3% to the higher of the following values:acquisition cost paid or the assessed value, excluding the value of the land.When the land value is not known, it will be calculated by apportioning the cost of acquisition paid between the assessed values of the land and the construction of each year.In the case of real estate acquired for profit, the acquisition cost is the value of the property in application of the rules of Inheritance and Gift Tax or its value ascertained in these taxes, not including the value of the land, and the amount of the taxes paid plus the expenses inherent to the acquisition and, where applicable, all the investments and improvements made.(Interpretative criterion established by the Supreme Court in judgment number 1130/2021, of 15 September).(Return)

In the case of transfers taking place from 1 January 2015, the updating coefficients are no longer used.

The transfer value shall be the actual amount for which the sale was effected, less the amount of the expenses and taxes inherent to the transfer that have been paid by the seller.

When the acquisition or transfer has been for profit or free of charge (inheritance, legacy or donation) the above rules shall apply, taking the values resulting from the application of the rules of Inheritance and Donations Tax as the real amount of the respective values, without exceeding the market value.

The capital gain, on which taxation will be paid, consists of the difference between the transfer value and the acquisition value, determined as described above.

Temporary arrangement:

Regulations:Sole transitional provision of the Non-Resident Personal Income Tax Law

However, in the case of individuals, if the property was acquired before 31 December 1994, the gain previously found may be reduced as a transitional regime applies.

In these cases the following rules should be taken into account :

Only that fractional part of the capital gains generated before 20 January 2006 will be susceptible to reduction.

  • Rule 1.Calculation of the part of the capital gain generated before 20-01-2006

    The fractional part of the capital gain susceptible to reduction is determined by the proportion of the number of days elapsed from the date of acquisition up to 19 January 2006 with respect to the total number of days elapsed from the date of acquisition to the date of transfer.

  • Rule 2.Calculation of the reduction (see example)

    The part of the capital gains earned before 20 January 2006 will be reduced, if applicable, as follows:

    1. The number of years between the purchase date of the element and 31 December 1996 will be calculated and rounded up.

    2. The transfer value of all the assets whose capital gains would have been subject to the same transitional regime, transferred from 1 January 2015 until the date of transfer of the asset, shall be calculated.(When this result exceeds 400,000 euros, no reduction will be applied).

    3. When the sum of the transfer value of the asset and the amount referred to in b) above is less than 400,000 euros, the part of the capital gain generated prior to 20 January 2006 shall be reduced by the amount resulting from applying 11.11% for each year of permanence of those referred to in a) above that exceeds two.

    4. When the sum of the transfer value of the asset and the amount referred to in b) above exceeds 400,000 euros, but the result of b) above is less than 400,000 euros, the reduction shall be applied to that part of the capital gain generated prior to 20 January 2006 which proportionally corresponds to the part of the transfer value which, when added to the amount referred to in b) above, does not exceed 400,000 euros.

    If the taxpayer has acquired the real estate on two different dates or the real estate has been subject to improvement, it will be necessary to make the calculations as if there were two capital gains, with different periods of ownership in the application of the reduction coefficients and different updating coefficients.

The applicable tax rate is 19%.

Deductions:of the tax liability may only be deducted:

  • Deductions for donations, under the terms set out in the Law of IRPF and in the Law on the tax regime for non-profit organisations and tax incentives for patronage.

  • The amount withheld by the purchaser of the building.

Withholding tax

Regulations:Article 25.2 IRNR Law;article 14 Non-Resident Income Tax Regulation and article 8 Order EHA/3316/2010, of 17 December, approving the self-assessment forms 210, 211 and 213 of the Non-Resident Income Tax.

The person acquiring the property, whether resident or non-resident, is obliged to withhold and pay to the Treasury 3% of the agreed consideration.For the seller, this withholding acts as a payment on account of capital gains tax arising from the transaction.

The purchaser will deposit the withholding using form 211, within one month from the date of transfer, and will give the non-resident vendor a copy of form 211, so that the vendor can deduct the withholding from the tax liability resulting from declaring the net gains.Should the withheld amount be greater than the tax liability, it is possible to obtain a refund of the difference.

Example: Transfer of a property on 31 December 2019 for 300,000 euros, acquired on 1 January 1991 for the equivalent of 100,000 euros.The taxpayer previously transferred, on 1 February 2015, another equity element (whose transfer value was 200,000 euros), to which gain the transitory regime was applied.

Determination of the taxable profit:

  • Capital gain (Difference):300,000-100,000 = 200,000

  • Profit generated up to 19/01/2006:103.824 € (1)

  • Profit susceptible to reduction:69.216 € (2)

  • Reduction:30.759,6 € (3)

Taxable income reduced capital gain:169.240,4 € (4)

Notes for the example:

(1)

  • No. days elapsed between the dates of purchase and sale:10,591
  • No. days elapsed between the dates of purchase and 19/01/2006:5,498

Calculation:(200,000x5,498) /10,591 =103,824 (Back)

(2)

  • Limit on transfer values:€400,000

  • Accumulated sum of transfer values from other assets transferred between 1 January 2015 and the date of the current transfer:€200,000

  • Although the current transfer value is €300,000, as €200,000 have already been used up from the €400,000 limit in the previous transfer, there is only €200,000 left to use in the current transfer.

The fractional part of the amounts generated up to 19/01/2006 which proportionately corresponds to a €200,000 transfer value is susceptible to reduction.

Calculation:(103,824 x200,000) / 300,000 = 69,216 (Back)

(3)

  • Period the asset was held prior to 31-12-1996 (between the acquisition date and 31/12/1996, rounded up):6

  • No. of years over 2:6-2 = 4

  • Reduction percentage:4x11.11% = 44.44%

Calculation:(69,216x44.44) / 100 = 30,759.6 (Back)

(4) Calculation:Difference-Reduction=200.000-30.759,6 =169.240,4 € (Back)

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