Withholding of 3% of Non-Resident Income Tax

How exactly does the 3% withholding applied to Non-Residents work?
Article 25-2 of the Consolidated Text of the Law on Non-Resident Income Tax (hereinafter IRNR) Royal Legislative Decree 5/2004 of March 5 provides the following: «In the case of transfers of real estate located in the territory Spanish by taxpayers who act without a permanent establishment, the acquirer will be obliged to withhold and deposit 3%, or to make the corresponding deposit on account, of the agreed consideration, as payment on account of the tax corresponding to those.

In this regard, the following considerations should be made:

Its rationale is to avoid “take the money and run” and, we have seen, that it applies to both natural and legal persons, although those taxpayers who, being subject to IRNR, act through a permanent establishment are excluded.
Its purpose is the transfer of real estate located in Spanish territory. The Resolution of the General Directorate of Taxes (hereinafter DGT) of March 6, 2017 (V0568-17) extends the obligation to withhold to a case of transfer of the right of use and preferential enjoyment for a certain number of years of a position berthing, which originates from an administrative concession over the Andalusian port public domain and for which authorization must be requested from the concessionaire.
Its scope is that of those transfers likely to generate a capital gain, regardless of whether or not the following occurs in the specific case:

  • This includes, according to the DGT Resolution of January 5, 2015, transmissions derived from a judicial transaction.
  • And the same can be said of the transmissions derived from judicial or extrajudicial procedures of execution, with which the successful bidder or auctioneer will have to withhold 3% for the stated purpose.

In the public deeds of foreign public documents related to real estate located in Spanish territory, in which the omission of any reference to the obligation of retention is frequent, the Notary Public must warn of this and, where appropriate, take advantage of the parties to complement the foreign public document in this regard.
On the contrary, in deeds authorized by a Spanish Notary relating to real estate located abroad, regardless of the warnings that must be made about the effectiveness of the document, there will be no such retention obligation. Yes, of course, if it is an exchange of properties located in different countries when the transfer of the property located in Spanish territory falls within the scope of application of the precept.
We understand that due to the prohibition of analogy of 14 of the General Tax Law, the “lifting of the veil” of article 314-2 of the Securities Market Law does not operate for the transfer of aliquot parts of entities with such evasive intention. Consequently, without prejudice to the taxation of the gain, there will be no obligation to withhold.
For the calculation of the withholding, the price or consideration will be taken into account, not the eventual profit.
In purchases with a deferred price, there is an obligation to withhold the total price, since the transmission has already occurred (article 14-1-c of Law 35/2006 on Personal Income Tax (hereinafter, IRPF); and this, even if the transferor opts for the proportional allocation of the gain to the period in which each collection is due (article 14-2-of the IRPF).

Likewise, we understand that, in the event that the transitory exemption of 50% of the profit of the 3rd additional provision is applicable, there is an obligation to withhold on the total price.

What is the deadline for your admission?
The term for its entry, in the AEAT Delegation corresponding to the place of residence of the property, is 1 month from the transmission (article 14-3 of the Regulation), through Model 211 (Order EHA 3316/2010, modified by the HAP Order 2487/2014). To download model 211 see HERE

What happens if the withholding is not made?
This will determine the registration condition of the property upon payment of the lesser amount between withholding or payment on account and the corresponding tax, which will be cancelable due to expiration or by presenting the corresponding payment letter (article 25-2 of the IRNR and article 14- 5 of the Regulations), although failure to comply with such obligation to withhold does not prevent registration (Resolution of the General Directorate of Registries and Notaries of May 24, 1995).

For the same reason, if the acquirer refuses to make the withholding, the Notary Public complies with warning the grantors of the existing legal obligation, and this, without prejudice to the sanctions that may apply for the infringement incurred, if the withholding or payment to account is not received.