For real estate transactions in Spain, the decisive factor for the payment of capital gains tax (plusvalía) is whether the seller is a resident or non-resident.
Back in 1999, the Spanish government amended the regulations on municipal capital gains tax, the plusvalía. Anyone selling a property as a non-resident foreigner in the country is exempt from paying the tax – the buyer must pay it.
Buyer has an obligation
The law on the payment of capital gains tax is the "Ley de Haciendas Locales". It states that, in principle, the seller of a property must pay the plusvalía – levied by the municipality –. There is an exception if the seller is a non-resident, i.e. he or she is not domiciled in Spain and is therefore not liable to pay tax in the country. The obligation to pay the plusvalía is therefore transferred to the buyer.
Reimbursement possible
However, the latter can reclaim the capital gains tax. The Spanish General Tax Law (LGT) allows the buyer to claim a refund of the municipal tax from the non-resident seller. At first glance, this sounds like a good idea, but in practice it is extremely difficult to implement. As a rule, the foreign seller will refuse to reimburse the tax.
This leaves the buyer with only a civil action. This is extremely complicated against a legal entity that is not resident and registered in Spain.
Contractual protectionFor this reason, it should already be agreed in the purchase contract how the (foreign) seller can indemnify the buyer for the payment of the tax. This is usually done via a clause in the purchase contract for the property.
Either a price reduction can be agreed between the parties, or - which is more often the case - the amount is retained for subsequent payment by the taxable buyer.Though such a clause is made possible by the freedom of contract, it is not binding for the Spanish tax authorities. In other words: The buyer is not released from his obligation to pay the capital gains tax himself in the event of non-payment by the foreign seller.Right of appeal
In these cases, the purchaser is a so-called substitute taxpayer. He is therefore entitled to a right of appeal, either in the context of a recovery appeal before the municipal council or in economic administrative proceedings.
Filing an appeal is one way of reclaiming the municipal levy as a purchaser if the non-resident seller does not pay it.
Two calculation methods
There are two ways of calculating capital gains tax: In the objective formula, the cadastral value of the property is multiplied by new coefficients created each year.
These coefficients depend on the real estate market situation and are established in the General State Budget Law. With this option, the taxpayer has the possibility to pay the tax based on the actual capital gain at the time of transfer of ownership.The real formula is calculated from the difference between the sale price and the purchase or acquisition price of the property. If the taxpayer can prove that the real capital gain is lower than that resulting from the property valuation method, the real value can be used as the basis for calculating the tax. In this case, the seller must provide a copy of the deed of sale so that the buyer can submit it to the municipality.
The decisive factor is that the seller is obliged to inform the buyer of the existence of an appraisal. This verified value forms the basis for determining the purchase value in the actual calculation process. The same applies if no profit was made on the sale of the property. In this case, the tax does not have to be paid.
