Bruno Carrasco, a businessman from Madrid, is going to buy a villa in Sotogrande for 540,000 €. The owner is not a person but Zonnehuis Vastgoed BV, a Dutch company based in Rotterdam whose director, a Dutchman who spends his summers in the house, will sign under an apostilled power of attorney. The seller's lawyer has sent him a draft deed with no mention at all of the withholding. "This is a sale between companies, the 3 % thing does not apply here," he tells him. Bruno is buying as a private individual.
Companies are also IRNR taxpayers
Article 5 of the Law on IRNR (Spanish non-resident income tax) includes among its taxpayers "individuals and entities not resident in Spanish territory" that obtain income there. A Dutch company selling a property located in Spain obtains a gain here and, unless it operates through a permanent establishment, it is a taxpayer under that tax.
Article 25.2 makes no distinction: the obligation to withhold 3 % applies to transfers of property "by taxpayers acting without a permanent establishment". If Zonnehuis is non-resident and has no permanent establishment in Spain, Bruno must withhold.
Whether the buyer is an individual or a company does not change anything either. The obligation falls on the acquirer, whoever that is.
First: is it really a non-resident company?
For entities, article 6 of the law refers to article 8.1 of the Corporation Tax Law, under which entities are resident in Spain if they were incorporated under Spanish law, have their registered office here or have their place of effective management in Spain.
| Type of seller | 3 % withholding? | What to ask for |
|---|---|---|
| Spanish SL or SA (private or public limited company), even if its shareholders are foreign | No | Nothing special; it is resident by incorporation |
| Foreign company with no activity or office in Spain | Yes | Corporate documents and powers of attorney |
| Foreign company actually run from Spain | It depends on where its effective management lies | A certificate from the Agencia Tributaria proving that it is subject to Corporation Tax, if it has one |
| Foreign company with a permanent establishment in Spain to which the property belongs | No, if proved | Proof of the establishment and of the property belonging to it |
The third row is rare in practice but it exists: a company incorporated abroad whose directors take all the decisions from Marbella may be resident in Spain because its place of effective management is here. In that case, article 14.2.a of the IRNR Regulations releases the buyer from withholding if the seller proves that it is subject to Corporation Tax "by means of a certificate issued by the competent body of the Tax Administration". Without that certificate, Bruno has no safe way of relying on it.
The permanent establishment, in concrete terms
Article 13.1.a of the law defines a permanent establishment as facilities or workplaces available in Spain on a continuous or habitual basis in which all or part of the activity is carried on, or acting through an agent authorised to enter into contracts who habitually exercises those powers. It expressly mentions places of management, branches, offices and construction works lasting more than six months.
A company whose only link with Spain is owning a villa its shareholder uses in the summer does not usually fit that definition. A foreign developer with a building site, a sales office and staff on the coast, on the other hand, may have one. If the seller claims to act through a permanent establishment, the burden of convincing the buyer is on it: the establishment's tax identification number, the returns filed and evidence that the property forms part of its assets. If there is no clear documentation, the prudent course is to withhold.
Bruno's figures
- Price: 540,000 €.
- Withholding: 540,000 × 3 % = 16,200 €.
- Payment to Zonnehuis at the notary's office: 523,800 €.
- Paid in with Modelo 211 in the month following the deed: 16,200 €.
- The company will deduct those 16,200 € in its return on the gain as a non-resident, which is also filed on Modelo 210.
If Bruno did not withhold, the risk would be the same as with a private seller: he would have to pay in the 16,200 € himself and the villa would be charged with the payment, as we explain in what can happen if I do not pay it in. With a foreign company there is an added factor: recovering the money from a BV that has just sold its only asset may be practically impossible.
Many foreign companies that own a single home are wound up shortly after selling it. If the withholding was not made, the buyer will have nobody to claim from. The moment to sort it out is before the deed, with the appropriate clause and the money withheld.
If you are buying from a company and would like us to review the seller's documents, send them through the Modelo 211 form.
If what you buy is the shares and not the villa
Sometimes the seller proposes another formula: instead of selling the house, selling the company. Bruno would buy the shares in Zonnehuis and, with them, indirectly, the villa. Article 25.2 refers to transfers of real estate, and in a purchase of shares the property does not change owner, so the Modelo 211 scheme does not apply as such.
That does not mean it is simpler or cheaper. The gain of the selling shareholder may be taxed in Spain depending on the type of company and on what the applicable treaty says, and the buyer inherits the company's entire tax history: debts, outstanding obligations and the tax value of the villa, which is usually far below its real value. It is a different transaction that requires its own analysis, and the part that depends on Dutch law has to be confirmed by an adviser there.
Documents worth gathering
- A recent, apostilled extract from the commercial register of the country of origin, proving that the company exists and who represents it.
- The signatory's powers of attorney, apostilled and, if they are not in Spanish, translated.
- The company's Spanish tax identification number. Article 254.2 of the Mortgage Law (Ley Hipotecaria) prevents the sale from being registered if the tax identification numbers of everyone appearing and of the entities represented are not stated.
- A statement by the seller about its residence and the absence of a permanent establishment, which does not release the buyer from withholding but records what was declared.
- If the company claims to be resident in Spain, the Agencia Tributaria certificate.
In certain cases the owning entity is also subject to a special levy: article 40 of the law imposes it on entities resident in countries or territories regarded as tax havens that own property in Spain. That is not the case of a Dutch BV, but if the seller were based in one of those jurisdictions, it is worth asking whether it has complied with that levy.
The rest of the transaction follows the general rules: the base is the agreed consideration, as we explain in on what amount the 3 % is calculated, and the seller must receive its copy of the form, as set out in what I have to give the seller. The guide on who is non-resident for the purposes of Modelo 211 adds other cases involving entities.
All the questions about withholding on purchases from non-residents, individuals or companies, are gathered on the Salama Tax page devoted to Modelo 211.