Introduction

Law Change

The new law 35/2006 issued the 28th November 2006 that came in force on the 1st January 2007 rules capital gains tax applicable from the sale of a property at the tax rate of 18% based on the profit arising from this sale.

Prior to the Change

As you may remember, previously the said capital gain was taxed at the tax rate of 35 %, according to The Spanish Non Residents Income Tax Act. Firstly, the purchaser withheld 5 % of the price and paid it to the Treasury on account of the vendor (Tax Form 211).

Subsequently, the definitive tax return (Tax Form 212) was filed in which you calculated 35 % of the capital gain and deducted the withholding already paid by the purchaser on your behalf (Form 211) paying the difference (or applying for the refund if the withholding tax was greater than the final tax to be paid). In any case you paid 35 % on the capital gain.

However it should be noted that a Spanish resident in the same circumstances would have only paid a tax of 15 % on that capital gain.

The European Union

After a long period of research, the European Union has come to the conclusion that taxing other European Community citizens at a higher rate than the one applied to Spanish residents implies a discrimination prohibited by the European Community Treaty relating to the freedom of movement of capitals within the European Community Member States.

The practical conclusion is that you may be entitled to get the refund of the surplus tax paid (20 percent) plus the corresponding interest.

Our View

We are quite optimistic about the final outcome of this issue; and remember that in the meantime, while the case is decided, you would be earning interest if the application succeeds.

Thus, you will only pay fees when and only if you get the (partial) refund of the tax paid.

The only fixed cost of the application would be the proxy you have to grant to the lawyers to act on your behalf.

We think that this is an interesting opportunity for you. You have nothing to lose but a lot to win. If you are interested in the offer, please complete the NO WIN - NO FEE Application Form to start the process.