The process of selling a property in Spain involves more than simply finding a buyer. It entails a series of tax obligations, the most significant of which is the capital gains tax.
The realisation of capital gains in Spain carries with it the obligation to file the corresponding tax declaration depending on the type of taxpayer, an obligation which applies equally to both residents and non-residents. However, under current legislation, non-residents are required to fulfil this obligation in advance through the application of a mandatory 3 per cent withholding at the time of sale, without exception.
Declaration M210 is the official form designed to regulate the Non-Resident Income Tax (IRNR), a fiscal document that every non-resident must submit when earning income subject to taxation in Spain. In the context of property sales, this form governs the taxation of the gains derived from the transaction. However, taxation does not always result in a payment; in some cases, the amount withheld may be refunded.
Three Per Cent Withholding upon Selling a Property: How Does It Work?
The automatic 3 per cent withholding on the sale price, which must be paid directly by the purchaser, serves as a precautionary measure imposed by the Spanish Tax Office to ensure that the non-resident vendor does not evade the tax due on the capital gains realised. However, this does not constitute the final tax liability.
This 3 per cent withholding is treated as an advance payment of the capital gains tax, calculated as the difference between the purchase and sale prices, subject to the applicable tax rate. Nonetheless, this represents a potential gain, as the actual amount due must be recalculated upon submission of Form 210, which entails an accurate calculation of the capital gain derived from the property transaction. The outcome of Form 210 may result either in an additional payment or a refund of the amount previously withheld.
Calculation of the Capital Gain Derived from the Sale
The capital gain or loss, is determined by the difference between the transfer value and the acquisition value.
The acquisition value comprises the purchase price plus the cost of any investments and improvements made, as well as all expenses and taxes inherent to the acquisition. From this total, any deductible depreciation shall be subtracted in the case of rented properties.
The transfer value consists of the actual sale price, less any expenses and taxes inherent to the transfer.
As regards the expenses and taxes inherent to the acquisition, these may include, among others, notary fees, land registry fees, legal and administrative fees, the municipal capital gains tax applicable at the time of acquisition, and the Property Transfer Tax.
Settlement Process for Form 210 after the Sale
The Form 210 settlement must be completed within four months following the sale of the property.
One of the most noteworthy aspects of Form 210 is the possibility of receiving a refund. This occurs when the 3 per cent withheld by the purchaser exceeds the actual tax liability on the capital gain.
If a non-resident sells a property at a loss or with minimal gain, they may be entitled to recover up to the full amount of the 3 per cent withheld by the purchaser. This requires meticulous preparation of documentation, including the original purchase price, any improvements made to the property, and all associated costs, such as legal fees, transfer taxes, and notary expenses.
In instances where the 3 per cent withholding does not fully cover the capital gains tax due, non-resident vendors must submit Form 210 to pay the difference between the withheld amount and the actual tax due.
The Role of Form 211 and Its Impact on Non-Resident Vendors
The 3 per cent withholding made by the purchaser at the time of purchase must be paid to the Spanish Tax Office via declaration M211 within one month of the transfer. This step is essential, as it formally records the withholding and allows the vendor to request a refund or settle any outstanding balance.
One of the more contentious—and frankly, unfair—issues stemming from this legal framework is the situation in which the purchaser fails to fulfil their obligation to pay the withheld amount to the tax authorities. Under the current logic, the vendor, who has already borne the financial impact of the 3 per cent retention, may be left in limbo if the purchasers simply fail to do their part. After all, while the vendor is expected to account for every cent with meticulous documentation, the purchaser’s failure to comply can render the entire process meaningless.
According to the Non-Resident Income Tax Regulations, “If the withholding or advance payment referred to above has not been paid, the transferred property shall be subject to the payment of the lesser of the amount withheld or the corresponding tax.” This might suggest that the legal burden lies solely with the purchaser, and that the vendor should be allowed to proceed as if the withheld amount had indeed been deposited. A reasonable interpretation—if only it held up in practice.
In reality, vendors are often caught in a bureaucratic paradox: held accountable for a payment they neither control nor can confirm, yet still expected to navigate the refund process as though all parties had played by the rules. It’s a remarkable system, really—where one party’s compliance is taken for granted, and the other’s negligence becomes the vendor’s problem.
