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Taxation of capital gains in Spain for non residents

Big is not beatiful. Size is not synonymous with quality

EU judgement on Spain’s discriminatory treatment of taxation of non-resident’s capital gains


In a judgement dated 06-10-2009 (case C-562/07), the EU Court ruled that taxation of capital gains in Spain was contrary to EU law as it established a higher rate for non-residents (35%) than the rate applicable to residents (at 15% and then 18% if the capital gain was more than one year old).

The legal reasoning of the Court followed the criterion of its many rulings on the prohibition of covert discrimination in relation to direct taxation. It concludes that, in the case under consideration, both residents and non-residents are in a similar situation and, therefore, a non-resident cannot be taxed at a rate different from that required from a resident. The Court did not accept any of the justifications provided by the Spanish government to sustain this differential treatment, such as, for example, the aim of ensuring the so-called consistency of tax systems, among other reasons.

As a result of this judgement, Spain amended Art. 25 of the Law on Income Tax for Non-Residents (IRNR or Impuesto sobre la Renta de no Residentes) and, for the past few years, the tax rate applicable to capital gains earned by non-residents is the same as that applicable to residents. That said, today, the rate stands at 19% for non-residents following recent changes, and this is even more beneficial that the rate applicable to residents, which is up to 21% when the capital gains exceed 6,000 euros in one year.

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