SPAIN Law and Practice Contributed by: Cristina Alba and José María Rodríguez Hernández, act legal
Transfers by Non–Residents (No PE) Spain applies a mechanism aimed at securing tax col - lection in the transfer of Spanish real estate by non- residents without a PE. Under this rule, the purchaser is required to withhold 3% of the acquisition price as an advance payment on account of the seller’s capital gains tax liability (Form 211). 3.2 Business Profits The taxation of business profits in Spain is mainly based on the residence status and whether or not a permanent establishment exists. • Residents: generally, individual entrepreneurs are taxed under the PIT on their net business income. Revenues are reduced by deductible expenses, and the resulting margin becomes part of the indi - vidual’s taxable base. Corporate entities resident in Spain fall under the CIT, generally at a flat rate of 25%, although the law provides certain reduced rates or special regimes in specific cases (eg, newly created entities or specific sectors). • Non–residents with a Spanish PE: business profits attributable to a Spanish PE are generally deter - mined using principles broadly aligned with CIT rules, including arm’s length attribution of income and expenses. The applicable tax rate mirrors the corporate tax rate. A branch remittance tax of 19% may apply to profits transferred abroad, although exemptions exist for EU-resident entities and where reduced or eliminated under applicable tax treaties. • Non–residents without a PE: business income sourced in Spain without creating a PE is generally taxed under NRIT rules at a rate of 24% (reduced to 19% for qualifying EU/EEA residents). 3.3 Passive Income Residents Spanish tax resident individuals are taxed on their worldwide passive income (including dividends, inter - est and royalties) under PIT. As a general rule, these items are taxed as investment income within the sav - ings tax base (subject to progressive savings rates). A 19% domestic withholding tax generally applies as a payment on account (eg, on dividends and inter - est), and any foreign withholding tax may usually be
out, the taxpayer needs to declare “imputed income,” which is 2% of the cadastral value (or 1.1% if the cadastral values have been recently changed). Spanish corporate taxpayers are taxed under CIT on real estate income as part of their ordinary taxable base, which is generally determined by reference to accounting profit, subject to the tax adjustments provided by law. However, Spain provides a special CIT regime for entities mainly engaged in residential letting, which may grant a partial tax credit/relief on qualifying rental income, subject to statutory condi - tions (including asset/use requirements and minimum holding periods). Under CIT rules, real estate letting qualifies as an economic activity only if it is managed with at least one full-time employee under an employment con - tract. Where the taxpayer is part of a group (Article 42 Commercial Code), this test is applied at group level, regardless of residence or consolidation requirements. Non–Residents (No PE) Income from Spanish real estate is considered Span - ish-source income and is subject to taxation under the NRIT framework. Relevant situations include the following. • Rental income is typically taxed on a gross basis, without the deduction of expenses. However, resi - dents of EU or EEA jurisdictions that benefit from the effective exchange of information may deduct expenses directly connected to the rental income. • Recent case law (third-country residents): a national court judgment (28 July 2025) has estab - lished that non-EU/EEA residents may also deduct expenses directly linked to Spanish rental income (in that case, a US resident), on the basis of the free movement of capital. This is a notable devel - opment, but it should be treated with caution pending possible Supreme Court review and/or a change in administrative practice. • Imputed income on urban property held for per - sonal use, calculated using the same 2%/1.1% methodology as for residents. Compliance is usually carried out through Form 210 filings.
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