What is the 3% withholding on the purchase price for non-residents?

June 22, 2023

What is the 3% withholding on the purchase price for non-residents?

Understanding the 3% withholding on the purchase price for non-residents is crucial when dealing with property transactions in Spain. This mechanism ensures compliance with non-resident tax obligations. In this context, let's delve into the details of this withholding tax and its implications.

What is the 3% withholding on the purchase price for non-residents?

If you find yourself as a non-resident in Spain seeking to sell a property, it's important to be aware that 3% of the transaction price will be withheld.

This amount is withheld by the buyer from the selling price on account of your non-resident tax in Spain. The buyer will deposit the 3% to the Spanish Treasury via 211 Form within one month from the sale date.

It is important to note that the buyer is required to send a copy of the 211 Form to you. The 211 form contains a unique code that will have to be included in your Capital Gains Tax return in order to offset the 3% withholding tax or apply for a refund where applicable.

Why is the 3% withholding tax applied to non-residents?

When a non-resident sells a property in Spain, they are obligated to pay non-resident tax based on the profit made from the transaction. 

It's worth noting that residents in Spain also face a similar tax when selling a property. However, the difference lies in the timing of the payment. Tax residents fulfil their tax obligations through their annual income tax return, whereas non-residents encounter both withholding and Capital Gains Tax return at the time of sale. This mechanism ensures the collection of taxes from non-residents, as it can be more challenging to guarantee payment after the property transaction has concluded.

Furthermore, the rate of this tax differs for non-residents. For non-residents either a flat rate of 19% applies regardless of the country of tax residency. On the other hand, tax residents in Spain are subject to a different percentage, ranging from 19% to 28% based on the profit made.

What if the 3% withholding does not match the tax liability?

After the sale, non-residents are required to declare the sale to the Spanish tax authorities through the Capital Gains tax return via 210 Form (“Modelo 210”). It is likely that the final tax due will not correspond to the 3% that was initially withheld. The final tax liability may be lower or higher. What should sellers of non-resident properties do in such instances?

If less tax has been withheld than the final amount due:

In this scenario, the seller must declare and pay the difference between what has already been paid and the final tax amount. The seller has a three-month period from the end of the one-month period to settle the withholding tax. To do so, the seller needs to complete Form 210 and attach Form 211, which should have been provided by the buyer.

If more withholding tax has been withheld than what was due:

The opposite situation may also occur, where the 3% withholding exceeds the tax liability based on the profit from the transaction. In such cases, the seller must still declare the final tax amount and request a refund for the difference.

What if the seller does not file the 210 tax return?

In the event that the seller has generated a profit and the tax liability surpasses the amount withheld, it becomes obligatory for the seller to submit Form 210 and pay the remaining tax due on the profit from the property sale. Failure to comply with this requirement grants the Spanish tax authorities the authority to issue a supplementary tax return and impose penalties.

Furthermore, since the Spanish tax authorities may not possess information regarding the acquisition value, they will assume it to be zero euros and no deductions will be applied. Consequently, in the eyes of the tax authorities, the entire sale price will be considered a gain.

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