Capital gains from the sale of real estate

Internal regulations

Regulations: Article 13.1.i) Law IRNR

According to internal regulations, capital gains from real estate located in Spanish territory are considered income obtained in Spanish territory.

Partial exemption:

Regulations: Fourth Additional Provision of the IRNR Law

Capital gains derived from the sale of urban properties located in Spanish territory that were acquired from May 12, 2012 to December 31, 2012 are exempt by 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 habitual residence for taxpayers residing in another Member State of the EU , Iceland, Norway and, since 07-11-2021, Liechtenstein:

Regulations: Seventh Additional Provision of the IRNR Law

In the case of taxpayers resident in a Member State of the European Union, or of the European Economic Area with effective exchange of tax information (with effect from July 11, 2021, 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 matters of exchange of tax information in the terms provided for in Law 58/2003, of December 17, General Tax Law, which is applicable. See Annex V ), capital gains obtained from the transfer of what was your habitual residence in Spain may be excluded from taxation, provided that the total amount obtained from the transfer is reinvested in the acquisition of a new habitual 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.

When the reinvestment has occurred before the date on which the tax return is to be filed, the reinvestment, total or partial, may be taken into account to determine the corresponding tax liability.

Notwithstanding the above, the obligation to withhold tax by the purchaser of the property (through form 211) will apply, as well as the obligation to submit the declaration (form 210 subsection H) and pay the corresponding tax debt.

In self-assessment form 210, the type of income will be indicated as code 33, if the reinvestment occurred before the transfer, or code 34, when the reinvestment occurs after the transfer.

If the reinvestment has occurred after the date on which the declaration must be submitted, a 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 November 19 ( BOE of November 24).

Agreement

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

Taxation

Regulations: Articles 24, 25 and 26 of the IRNR Law

Income obtained without the mediation of EP must be taxed separately for each total or partial accrual of the income subject to tax.

The taxable base corresponding to capital gains will be determined by applying, in general, to each change in assets, the rules of Personal Income Tax . Profits will be calculated by the difference between the transfer and acquisition values.

In onerous transfers, the acquisition value will be formed by the real amount for which the property was acquired, plus the cost of investments and improvements ⁽¹⁾ , if applicable, carried out (without counting, for these purposes, the costs of conservation and repair) to which the amount of the expenses (commissions, Notary Public, Registry, etc.) and taxes inherent to the acquisition will be added ( Asset Transfers and Documented Legal Acts, VAT or Inheritance or Donation Tax if the acquisition was made free of charge), excluding interest, paid by the now transferor. The amount thus determined will be reduced, where appropriate, by the amount of the depreciation regulated by law, taking into account, in all cases, the minimum depreciation. ⁽²⁾

In the case of transmissions produced after 1 January 2015, the discount coefficients have been removed.

The transfer value will be the actual amount for which the sale has been made, reduced by the amount of expenses and taxes inherent to the transfer that have been paid by the seller.

When the acquisition or transfer was for profit or free of charge (inheritance, legacy or donation), the previous rules will apply, taking as the real amount of the respective values those resulting from the application of the rules of the Inheritance and Gift Tax, without being able to exceed the market value.

The difference between the transfer value and the acquisition value thus determined will be the gain which is subject to taxation.

Transitory rules:

Regulations: Sole transitional provision of the IRNR Law

However, in the case of natural persons , if the property was acquired before December 31, 1994 , the previously found gain may be reduced by applying a transitional regime.

In these cases, the following rules must be taken into account:

Only the portion of the capital gain generated before January 20, 2006 would be subject to reduction.

• Rule 1. Calculation of the portion of capital gains generated before 20-01-2006

  The portion of the capital gain susceptible to reduction is determined based on the proportion represented by the days elapsed from the date of acquisition until January 19, 2006 with respect to the total days elapsed from the date of acquisition until the date of transfer.

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

  The portion of the profit generated prior to January 20, 2006 will be reduced, where 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 assets to which this same transitional regime would have been applied, transferred from January 1, 2015 until the date of transfer of the asset, will be calculated. ( When this result is greater than 400,000 euros, no reduction will be made ).

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

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

  If the taxpayer has acquired the property on two different dates or the property has been improved, the calculations must be made as if they were two capital gains, with different periods of permanence in the application of the reduction coefficients and different update coefficients.

The applicable tax rate is 19%

Deductions: Only the following may be deducted from the tax rate:

• Deductions for donations, under the terms provided for in the Income Law and in the Law on the tax regime of non-profit entities and tax incentives for patronage.

• The retention made by the purchaser of the property.

Withholding tax

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

The person who acquires the property, whether resident or not, is obliged to retain and pay into the Public Treasury 3% of the agreed consideration. This withholding has for the seller the nature of payment on account of the corresponding tax for the income deriving from this transfer.

The purchaser will pay the withholding using Form 211, within one month from the date of transfer, and will provide the non-resident seller with a copy of Form 211, so that the latter can deduct the withholding from the tax rate resulting from the profit declaration. If the withholding is higher than the tax rate, the excess may be refunded.