Municipal Capital Gains Tax in Spain for Non-Residents

This tax applies to both residents and non-residents, and is collected by the local town hall (Ayuntamiento) where the property is located. Non-resident property owners must be particularly mindful of this obligation, as they are equally liable when transferring urban properties.

In addition to the Plusvalía Municipal, non-resident sellers are also subject to a 3% withholding tax on the sale price of the property. This amount is retained by the buyer and paid directly to the Spanish Tax Agency (Agencia Tributaria) as an advance payment of the seller’s potential capital gains tax.

To recover part or all of this 3%—or to declare a capital gain if applicable—the seller must submit the Modelo 210 for capital gains within four months of the sale. Failing to do so may result in losing the right to a refund and potential penalties.

Given that approximately 15% of property transactions in Spain involve non-resident individuals, understanding how the Plusvalía Municipal, the 3% withholding, and the Modelo 210 interact is essential for proper tax compliance and financial planning.

Legal Framework

The IIVTNU is regulated by the Royal Legislative Decree 2/2004, of March 5, which approves the Consolidated Text of the Law Regulating Local Treasuries (Ley Reguladora de las Haciendas Locales). However, this tax has undergone significant changes following several Constitutional Court rulings.

Recent Legal Developments

The most significant change came with the Constitutional Court Ruling 182/2021 of October 26, 2021, which declared unconstitutional the method of calculating the tax base. This led to an urgent reform through Royal Decree-Law 26/2021 of November 8, 2021, which established a new calculation system.

The key aspects of this reform include:

• The tax is only applicable when there is an actual increase in the value of the land
• Two methods for calculating the tax base:

Objective method: Based on cadastral values and coefficients

Real gain method: Based on the actual difference between acquisition and transfer values

• Taxpayers can choose the most beneficial method for their specific case.

Who Pays the Tax?

Taxable Person

For non-residents, the taxable person (the one obliged to pay the tax) depends on the type of transfer:

Substitute of the Taxpayer

An important consideration for non-residents selling property in Spain is the figure of the "substitute of the taxpayer." When the seller is a non-resident in Spain, the buyer is obliged to withhold and pay the tax on behalf of the seller, unless the seller proves they are subject to tax in Spain through a permanent establishment.

This mechanism ensures tax collection and places additional responsibility on buyers when purchasing from non-residents.

Important for Buyers: If you are purchasing property from a non-resident seller, you may be responsible for withholding and paying this tax. Failure to do so could make you liable for the tax amount. Always verify this obligation with your legal advisor before completing a property purchase.

Tax Calculation

The tax is calculated based on the increase in the value of the land (not the buildings) during the ownership period, with a maximum period of 20 years. The calculation can be done through two methods:

Objective Method

This method applies coefficients approved by each municipality (within legal limits) to the cadastral value of the land at the time of transfer. The coefficients vary according to the number of years the property has been owned.

The calculation formula is:

Tax Base = Cadastral Value of Land × Annual Coefficient × Years of Ownership (max. 20)

Tax Rates

The tax rates are set by each municipality, with a maximum of 30%. The rates typically range between 20% and 30% and may be progressive depending on the ownership period.

Exemptions and Reductions

There are several exemptions and reductions that may benefit non-residents:

• No Increase in Value: If it can be proven that there has been no increase in the value of the land, the transfer is not subject to tax. This is a direct result of the Constitutional Court rulings and subsequent legal reform.
• Family Transfers: Some municipalities offer reductions for transfers between spouses or in favour of descendants or ascendants. These reductions vary by municipality.
• Main Residence: Some municipalities offer reductions for the transfer of the main residence due to death. However, this would not apply to non-residents, as they typically don't have their main residence in Spain.

Real Gain Method

This method calculates the actual increase in value by comparing:

• The land value at acquisition (proportional part of the total value)
• The land value at transfer (proportional part of the total value)

The calculation formula is:

Tax Base = Land Value at Transfer - Land Value at Acquisition

If there is no actual increase in value, no tax is due. This method is particularly beneficial for properties that have not appreciated significantly or have decreased in value.

Tax Rates

The tax rates are set by each municipality, with a maximum of 30%. The rates typically range between 20% and 30% and may be progressive depending on the ownership period.

Practical Implications for Non-Residents

Filing and Payment

Non-residents must file and pay the tax within the following deadlines:

• Sales and donations: 30 business days from the transfer date
• Inheritances: 6 months from the date of death, extendable for another 6 months

The declaration must be filed with the municipality where the property is located.

Documentation Required

Non-residents typically need to provide:

• Tax form provided by the municipality
• Public deed of transfer
• Previous acquisition title
• Proof of payment
• NIE (Foreigner Identification Number)
• In case of exemption or non-subjection, supporting documentation

Recommendations for Non-Residents

Documentation

Keep all documentation related to the acquisition and expenses of the property. This includes the purchase deed, receipts for improvements, and any other documents that may affect the property's value.

Professional Advice

Before any property transfer, consult with a tax advisor familiar with both Spanish tax law and the tax system of your country of residence. This can help you navigate the complex tax implications and avoid unexpected liabilities.

Municipal Regulations

Check the specific regulations of the municipality where the property is located, as tax rates and potential reductions vary. This information is usually available on the municipality's website or can be obtained from the local tax office.