Marta Echevarría and Iñigo Zubiri, from Bilbao, have agreed to buy a flat in Nerja for 318,000 €. The seller is Graham Pike, a retired Briton going back to Yorkshire. When their lawyer tells them about the 3 % withholding, Iñigo does a quick sum: 9,540 € they had not budgeted for, on top of the purchase taxes, the notary and the land registry. Marta suspects that is not how it works, but she cannot explain why either. Graham, for his part, thinks he will receive 318,000 € clear.
They are both wrong, and it is worth everyone understanding it before the arras contract (the deposit agreement signed before the deed) is signed.
Withholding means paying part of the price to Hacienda instead of to the seller
Article 25.2 of the Law on IRNR (Spanish non-resident income tax) obliges the buyer "to withhold and pay in 3 per cent" of the agreed consideration, and specifies that this is done "as a payment on account of the corresponding tax" of the seller. The key word is withhold: the buyer keeps part of the price and hands it to the Agencia Tributaria, the Spanish tax agency, on behalf of the person selling.
For Marta and Iñigo, the total cost of the home is still 318,000 €. What changes is who receives part of it: 308,460 € go to Graham and 9,540 € go to Hacienda, as the Spanish tax office is commonly called, through Modelo 211. Graham, in turn, will deduct those 9,540 € from the tax due on his gain when he files his Modelo 210, and if there is money left over, he will ask for a refund.
The confusion arises because in other parts of a purchase (ITP, the transfer tax, the notary, the registry) everything paid is an extra cost for the buyer. The withholding is not.
Marta and Iñigo's figures, from the arras to the deed
The arras contract is signed in September with a 10 % payment, and the deed in November:
| Moment | Item | Amount | Recipient |
|---|---|---|---|
| Arras | Deposit on account of the price | 31,800 € | Graham |
| Deed | 3 % withholding on 318,000 € | 9,540 € | Agencia Tributaria (Modelo 211) |
| Deed | Rest of the price | 276,660 € | Graham |
| Total | 318,000 € |
Step by step:
- Agreed price: 318,000 €.
- Withholding: 318,000 × 3 % = 9,540 €. It is calculated on the total price, not on what is left to pay after the arras.
- Already paid in the arras: 31,800 €.
- Outstanding at the notary's office: 318,000 − 31,800 − 9,540 = 276,660 €.
- Graham receives in total 31,800 + 276,660 = 308,460 €.
The 9,540 € stay in Marta and Iñigo's account until they pay them in with Modelo 211, whose deadline is one month from the transfer (article 14.3 of the IRNR Regulations). The simplest thing is not to mix them with the rest of their savings and to file the form as soon as possible.
Why it has to be written into the arras
On the day of signing, Graham will see in the deed a cheque or a transfer for 276,660 €, not for 286,200 €. If nobody has warned him, the notary's office turns into a negotiation at the wrong moment. A clear arras contract avoids the problem with a clause along these lines:
"Since the selling party is not tax resident in Spain, the buying party shall withhold from the price 3 % of the total agreed consideration (9,540 €), in accordance with article 25.2 of the consolidated text of the Law on Non-Resident Income Tax, and shall pay it to the Agencia Tributaria through Modelo 211 within the period laid down in the regulations. That amount shall be regarded as part of the price paid. The buying party shall hand the selling party the copy of the form intended for it once the payment has been made."
And it is worth adding the opposite proviso: if before the deed the seller provides a certificate from the Agencia Tributaria proving that he is taxed in Spain under IRPF (Spanish personal income tax), there will be no withholding. It is the exception in article 14.2.a of the Regulations, which we develop in how do I know whether the seller is non-resident. The guide on the 3 % in the arras contract sets out other useful clauses.
You can send us the draft arras contract so that we review the wording through the Modelo 211 form.
If at the notary's office you pay the full price to the seller, the obligation to pay in the 3 % does not disappear: you are still the withholder and will have to pay it in with your own money. You could then claim it from the seller, but that is a civil claim against someone who may live in another country and no longer has any incentive to cooperate.
The mistake that turns the withholding into a cost
Imagine that at the notary's office, in a hurry and with an annoyed seller, Iñigo transfers 286,200 € to Graham, that is, the full price less the arras. Three weeks later he remembers Modelo 211.
- Hacienda is still waiting for 9,540 € from Iñigo and Marta, because article 25.2 places the obligation on them.
- Graham, who has had nothing withheld, has nothing to deduct in his Modelo 210, and might well not file it at all.
- To recover the money, the buyers would have to claim it from Graham outside Spain.
In that scenario the withholding does become a real cost of the purchase. That is why the notary's statement of accounts must be settled in writing, with the withholding figure shown separately, before signing.
Who puts up the money when the buyer has a mortgage
If Marta and Iñigo finance part of the purchase with a loan, nothing changes in the calculation. The bank provides its share and the buyers put in the rest; the withholding is set aside from the total paid to the seller. What is advisable is to tell the bank and the notary's office that the cheque or transfer to the seller will be reduced by 9,540 €, so that the provision of funds adds up. If the seller also has a mortgage that is cancelled at the signing, the split becomes a little more complicated, and we deal with it in mortgage and subrogation.
What is not deducted from the 3 %
The withholding is calculated on the agreed consideration. It is not reduced because Graham pays the estate agency's commission, the plusvalía municipal (the local tax on the increase in land value) or the cancellation of his mortgage at the registry. Those costs reduce his gain in his Modelo 210, but not the base of the withholding. The detail is in on what amount the 3 % is calculated.
What the seller gains from your withholding correctly
Graham, who now sees 9,540 € less, has an interest in the payment being made on time and in receiving his copy of Modelo 211. With it he supports the payment on account in his Modelo 210 (article 14.4 of the Regulations) and, if his actual tax is lower, he applies for a refund of the excess. We describe the process in when the excess 3 % comes back. If you do not give it to him, he is the one who loses out, as we explain in what I have to give the seller.
Anyone buying from a non-resident has, besides this one, other questions about deadlines and calculation, and we gather them together on the Salama Tax page devoted to the 3 % withholding.