What is the 3% retention tax when selling a property?
The 3% retention is a tax which is payable when a non-resident sells a property in Spain.
The buyer of the property is required to retain 3% of the purchase price and deliver it to the tax office.
The non-resident seller is able to make a claim to have the 3% returned to them.
This is an administrative process. The Tax authority checks whether there are any outstanding taxes payable by the non-resident seller (such as the annual non-resident tax) before returning any funds.
The buyer is not obliged to retain 3% of the purchase price if the seller is able to prove their Spanish tax residency (Hacienda Tax Residency Certificate).The regulation covering the 3% retention is Royal Legislative Decree 5/2004, of March 5, which approves the revised text of the Non-Resident Income Tax Law, article 25.2.
The 3% retention scheme for the transfer of non-resident properties is as follows:
- Transmissions of real estate located in Spain by taxpayers of the Non-Resident Income Tax, the buyer is obliged to retain 3% of the purchase price.
- The buyer will not have this obligation if the seller accredits his Spanish Tax Residence by Hacienda Tax Certificate.
- The buyer must present the tax declaration to the Tax Agency and pay the amount withheld, within the first month from the date that the sale was signed.
- The non-resident taxpayer (seller) must make their tax declaration, pay the appropriate tax, and then request return of the 3% tax paid. The Tax Agency will check the validity of the claim, ensure there are no outstanding Tax debts, and then notify the taxpayer of the status of their claim.
- If the 3% retention is not made at the time of the property transfer (and no tax resident certificate is presented), the payment/debt is transferred to the property, and therefore it will fall to the buyer to pay since it is assumed that the seller is abroad and unreachable.
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