Capital Gains Tax CGT. Reinvestment in another habitual main residence ( home) in the European Union EU.

I am fiscal tax Resident in Spain and I have sold my habitual residence here; with the monies from this sale I intend to acquire another property but outside of Spain. I understand that if I was to reinvest the monies on a property in Spain I would not have to pay Capital Gain Tax but where do I stand by purchasing outside of Spain? Will I still have to pay taxes?

Dear reader, thank you for your E-mail.

First of all I would I like to confirm that the Income Tax Law 35/2066 (applicable to tax residents in Spain) in its article number 38 foresees the possibility of being exempt from paying Capital Gain Tax derived from the sale of a habitual residence as long as the total amount received from this sale is reinvested in the purchase of another habitual residence.

We understand that since Spanish Law does not expressly state that the application of this exemption is conditioned to reinvestment the funds in another property only in Spain, it should be possible for you to qualify for the exemption even if you buy a property in another country of the European Union and not in Spain.

In any case and in this sense it is interesting to note the Order granted by the European Court of Justice on the 26 October 2006 ruling on Procedure number C.345.05 initiated by the European Commission against Portugal

We could briefly summarize it as follows:

Portuguese Law stated, in a very similar way to Spanish Law, the existence of an exemption for reinvestment in habitual residence but indicated that it would only be applicable if the new residence was located in Portugal.

The European Court of Justice indicated, in the previously mentioned Court Order, that Portugal breached the obligations under the European Union Treaty especially the articles 18CE, 39CE, and 43CE as well as articles 28 and 31 of the European Economic Agreement (EEA) since the benefit of the exemption was conditioned to reinvestment in Portugal which is contrary to the principles of freedom of establishment, free movement of workers etc.

So, as per the above and independently of what the Tax Laws of Spain or any other EU country may state, we understand that it should be possible for you to benefit from the exemption when reinvesting on a habitual residence regardless of where you purchase your new residence as long as it is located in a country member of the European Union.
The information provided on this article is not intended to be legal advice, but merely conveys general information related to legal issues.

White & Baos
Carlos Baos (Lawyer)
Tel: 966 426 185
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