Are you aware that if you are a non-resident in Spain and you are selling a property, the buyer will have to retain 3% of the agreed price to deposit it at the Spanish Tax Office?

1. Why is that? Every seller in Spain will have to pay taxes for the profit generated when selling a piece of real estate, i.e. a property. The taxes vary depending on your fiscal residency, that is if you are a tax resident in Spain or not, the profit obtained and should be calculated by your lawyer or tax advisor (check my previous article on that subject).

If you are tax resident in Spain, which shall be proved by a certificate of the Spanish Tax Office to be presented to the Notary that prepares the selling deed, you will pay the taxes on the profit generated in June of the year following the one when the profit was generated.

If you are not a tax resident in Spain, the Spanish Tax Office considers that it may be more difficult to clear the tax once the transaction is fully closed so it established the 3% retention that the buyers are obliged to deposit at the Tax Office in thirty days after the closing and derives the liability on depositing that amount to the buyer. That avoids non-paid taxes and future problems with non-residents that may have left already the country.

2. What if the amount deposited is higher than the profit tax to be paid? In this case, the seller has to present a tax declaration, in three months after the one month period the buyer has to deposit the 3% retained, informing the Tax Office about the profit generated or even if there is no profit. Once the Tax Office checks the Tax declaration and that there are no other non-paid taxes by that individual, it will refund the difference between the amount deposited and the actual tax. In our experience those refunds are taking between six months and one year.

3. What if the 3% retained is not enough to cover the profit tax generated? Is this case, the seller also has to present a profit tax declaration in the same period as before and pay the additional amount to cover the full tax amount.

* Since each particular case is different, it is highly recommendable that you check your own tax situation with your lawyer or tax advisor.