New Exemption for Capital Gains Obtained by Non Residents

27/08/2015

So far 2015 has been an exciting year (from a tax point of view) due to the major reforms we have seen in the past few months. Among other changes, we would now like to draw our readers´ attention to the recent amendments made to the Non-Resident Income Tax Law (NRIT Law) and, in particular, to the tax treatment of capital gains obtained by non-residents on the transfer of shares of Spanish (non-real estate) companies.

The domestic NRIT Law in force until December 31 2014 stated that capital gains obtained by EU residents on the transfer of shares of Spanish entities could only be taxed in Spain if a) the underlying assets were mainly real state located in Spain; or b) when the EU shareholder owned at least 25% of the share capital or equity of the Spanish company during the 12 months period preceding the sale. Please, be aware that capital gains obtained by non-EU residents on the sale of Spanish non-listed entities were always taxed in Spain unless a tax treaty provided otherwise.

As of January 1 2015, the substantial participation clause included in the NRIT Law is limited to private EU individuals only, without applying to EU entities. Thus, EU resident corporates obtaining capital gains from Spanish shares, even if not listed, are now tax exempt in Spain, based on Spanish domestic law.

Capital gains realized from real estate sales.

The underlying real estate assets clause, however, remains in place in the NRIT Law. Said that, we must note that there is an issue as to whether this clause might have become discriminatory under EU law, as the gain obtained by a Spanish-resident entity on the sale of a similar Spanish real estate company might now enjoy a domestic CIT exemption.

When talking about selling a property in Spain (being a non-resident), it is worth taking into account that they buyer is obliged to retain 3% of the price and pay it to the tax authorities to cover the vendor’s tax liabilities (e.g. if a British citizen living in London sells a holiday home in Spain for 200,000 Euros, the vendor will retain 6,000 Euros and pay it to the tax office).