Investment approach
Double tax treaties: how to avoid paying tax twice on Spanish property
Spain has dozens of double tax treaties. They do not cancel Spanish tax, but they determine how it is taken into account in your country of residence.
A double tax treaty does not exempt you from Spanish tax when you sell property in Spain. A non-resident seller pays IRNR on the capital gain in Spain, where the property is located, wherever they live. What the treaty settles is something else: how the tax already paid is taken into account in your country of residence, so that the same profit is not taxed a second time.
What a treaty does and does not do
A Convenio para evitar la doble imposición between Spain and the investor's country of residence does not affect the obligation to pay in Spain – that arises simply because the property is here. What the treaty does is set the mechanism by which the country of residence takes the Spanish tax into account in its own calculation.
The usual mechanism: a tax credit
The typical model is the credit method. The country of residence taxes the investor's worldwide income, including the profit on the Spanish sale, but deducts the tax already paid in Spain from its own bill. How much more you pay at home depends on the gap between the rate in your country of residence and the Spanish rate you have already paid.
Why there is no single answer for every country
The terms depend on the specific treaty. Not every country DNPI Capital's investors come from has a treaty in force with Spain, and where there is one, the wording on real estate and capital gains differs. There is no simple rule of 'just subtract one from the other': you need to read the treaty itself and take advice from a tax specialist in your country of residence.
A practical step for the investor
Before you put a final after-tax figure into your own return calculations, ask your tax adviser two questions: is there a treaty in force between Spain and your country of residence, and how does it apply to capital gains on real estate? The answer can make a noticeable difference to the net result of the deal.
Questions and answers
What happens if there is no treaty at all?
Then there may be no credit, and the investor risks paying tax twice: in Spain and in their country of residence. The overall burden ends up higher than with a treaty in force, and this needs to be established before the deal, not after it.
Does a treaty reduce the Spanish 19% rate on the gain from a property sale?
As a rule, no. Treaties usually leave the right to tax gains on real estate with the country where the property is located, and only govern how that tax is credited in the country of residence. Some treaties contain special provisions, so check the one that applies to you.