Below you can find some of the most common questions you’ve asked us. We hope the answers will help you.
You asked us
In Spain, there is no specific regulation about cryptocurrencies such as bitcoin. However, the “Dirección General de Tributos” (hereinafter, DGT), has ruled on the matter in some resolutions and has clearly established that cryptocurrency users must pay taxes in certain situations.
In relation to the Personal Income Tax, we can conclude, taking into account the resolutions from he DGT the following:
- The mining of cryptocurrencies is an economic activity, and therefore there will be an obligation for the “miner” to pay Personal Income Tax in respect of the income obtained through this activity, in addition to complying with the corresponding Social Security obligations.
- Operations carried out with cryptocurrencies give rise to capital gains and losses, which the taxpayer will have to integrate in the relevant Personal Income Tax Return, even if it has not been converted to fiat (that is, legal tender). For example, if we buy 100 btc at € 5,000 and exchange them for another cryptocurrency at a time when the valuation the 100 btc is € 7,000, we would have a capital gain of € 2,000, regardless of whether we have not made the change to “real” money.
- If no operation is carried out with cryptocurrencies, the mere increase in the valuation of the wallet will not give rise to any capital gain or loss. In other words, if a digital portfolio increases in value during the year, but it has not been operated with, there will be no capital gain to declare.
With regard to Net Wealth Tax, the valuation of the wallet on December 31 each year, must be taken into account to conclude whether, jointly with the with the value of the rest of the assets and rights, a person may be required to file a Net Wealth Tax Return.
This kind of situations require a detailed analysis to ensure compliance with all obligations. First of all it is necessary to determine if it is applicable the special tax regime for employees moving to Spanish territory. Depending on the conclusion, the tax obligations may be different.
In order to apply the exemption for work performed abroad, the fulfillment with certain requirements should be analyzed case by case.
The fact that the company has not applied the exemption does not imply that it cannot be requested by the taxpayer himself, although it can be a complex process for which it is necessary to provide specific documentation and prove compliance with each of the requirements.
This scenario can cause uncertainty in taxpayers and lead to the payment of fines and penalties.
The communication of the change of residence is an important procedure to be carried out by any person who moves to another country.
And, on the other hand, it is important to bear in mind that the fact of not being a tax resident in Spain does not imply that you do not have further tax obligation in Spain.
The capital gain from the sale of the habitual residence may benefit from a total or partial exemption as long as certain requirements are met.
Once the exemption has been determined, it will be necessary to analyze the offset with losses from previous years.
Special Tax Regime
Under this scenario you will continue under the Special Tax Regime.
You must provide your new employer with a copy of the Certificate issued by the Spanish Tax Authorities confirming the Special Tax Regime.
This is in order to ensure that your new employer can correctly report and pay the corresponding withholding taxes before the Spanish tax Authorities.
In respect of the obligation to report cryptocurrencies in the Informative Declaration of assets and rights located outside of Spain (Form 720), articles/studies that have been published conclude the following:
- Cryptocurrencies are based on cryptography and on the blockchain, which is a single record, agreed and distributed in several nodes of a network (that is, it would be like the accounting book in which transactions are recorded). Consequently it would be difficult to determine where the cryptocurrencies are located.
- Cryptocurrencies do not have a fit in any of the three blocks of assets/rights about which there could be a reporting obligation. Obviously they are not real estate.
- On the other hand, the wallet is not considered an account in a financial institution. And finally, even though there is a figure of exchange houses that can manage the exchange of cryptocurrencies, in no case is there a transfer of our funds to these exchangers.
Thus, in relation to Model 720, there will be no obligation to report on investments in cryptocurrencies.
One of the biggest issues around form 720 are the related sanctions that can be imposed by the Spanish tax authorities for failure to file or for late submission.
Despite being an informative return, as filing does not entail the payment of any amount, the penalties for failure to comply in case of being obliged can be 150% of the personal income tax and 5,000 Euros for each data or set of data, with a minimum of 10,000 Euros. In case of late filing, the penalties will be lower, but in any case, the taxpayer would be facing a minimum of 1,500 Euros.
RSU’s are considered a right to receive a number of shares of the Company, after a corresponding vesting period (in this case, the vesting period is 1/3 of the units every year).
There is no obligation to report RSU’s in the For 720 until shares are delivered and assuming this will be at a foreign bank.
Informative form of assets and rights located outside of Spain (Form 720)
This tax Form is an informative return that needs to be filed before the Spanish Tax Authorities and intends to control the assets located outside of Spain (properties, shares, insurances, bank accounts, etc), as having these assets may also have implications for personal income and net wealth tax obligations.
To determine the obligation to file or not this form, the assets and rights located outside of Spain are categorized into three groups:
- bank accounts and deposits in financial entities in entities located outside of Spain.
- securities, rights, insurances, or income, located, managed or obtained abroad.
- real estate located abroad or rights over that real estate.
The Foreign investments form (Ds Form) must be filed to the “Foreign Investment department of the Ministry of Economy” for administrative, statistical, or economic purposes.
In general, investments will be informed once they have been made, to provide the Spanish Administration with knowledge of foreign investments in Spain or Spanish investment outside for statistical and administrative purposes.
However, there will be an obligation to file a prior form in the cases of investments from/in tax havens, in which investments themselves are not declared but investment projects. This declaration will be necessary except in the cases certainly excluded.
Foreign investments are classified in two groups:
Foreign investment in Spain
The cases of filing may be the following:
- Individuals not resident in Spain (Spanish or foreigners, domiciled abroad or who have their main residence outside of Spain).
- Corporations domiciled abroad, as well as public entities.
- The investment will be informed by the non-resident holder. Additionally, when the operation has been managed by a Spanish public notary, the latter will also inform it.
Depending on how and in which asset the investment is done, there will be different parties obliged to declared and the forms will be different.
Spanish investments abroad
This obligation may affect to the following holders of Spanish investments abroad:
- Individuals residing in Spain, understood as Spanish or foreigners with domicile or main residence in Spain.
- Corporations located in Spain.
Spanish investments abroad can be made through any of the following operations:
- Participation in foreign companies.
- The creation outside of Spain of branches of Spanish companies.
- Securities of non-Spanish companies.
- Participation in foreign investment funds.
- The acquisition of real estate located abroad when exceeding certain values or under certain requirements.
- Any other investments in foreign entities, corporations or similar.
There are a lot of different forms which will be used each one depending on the type of investment.
In the Foreign Transactions Turvey (ETE Form) the Bank of Spain must be informed of economic transactions and balances of financial assets and liabilities abroad and which at the end of the year exceed the value of 1 million Euros.
The obligation to file the ETE form is for individual or corporations residing in Spain whose value of financial balances (initial and final) and the amount total transactions carried out (revenues and payments) in the period exceed one million euros. This form is not applicable to certain financial entities which are registered in the official records of the Bank of Spain,
The filing deadlines of the ETE form will be of different frequency (monthly, quarterly or annually) depending on the amount of the total transactions with non-residents carried out during the previous year, or the final amount of financial balances as of December 31st. In general terms, if the amount of the transactions does not exceed 1,000,000 Euros in the corresponding tax year, the statement will be filed before January 20 of the year following the end in which the investments are made.
The information must be sent to the Statistics Department of the Bank of Spain, by electronic means so a “personal digital certificate” will be needed.
Tax residents in Spain will be required to file a Form 720 in the following cases:
- If the form has never been filed before, if the value of any of the groups of assets previously described exceeds the value of 50,000 Euros.
- If the form has been previously filed and there has been an increase of 20,000 Euros in any of the groups already informed, or if any of the groups have not been yet informed, when it happens to have a value greater than 50,000 Euros.
- The ownership of goods, assets or rights informed in a previous form is extinguished.
Individuals who are considered non-tax residents in Spain, nor those who, even though they are tax residents in Spain, have opted for the Special Tax Regime (known as the Beckham Law) will not be required to submit form 720.
The obligation to file form 720 must be fulfilled between January 1 and March 31 of the year following the end of the tax year to which the return refers.
Other Services to individuals
This is a question often asked by those individuals who decide to move from Spain to other country. Normally, they understand that if they do not obtain any income in Spain, and have not rented out properties located in Spain they are not subject to Spanish Taxes. However, this is not correct.
Individuals who are non-tax resident in Spain will be subject to tax in respect to any property they may have in Spain, even when they are not rented out. Additionally as the Spanish Tax Authorities understand that it is not possible for an individual who is non-tax resident in Spain to have his/her principal residence in this country, this properties will be also considered for taxes. T
his is known as “imputed income” and the taxable base is calculated by applying the percentage of 1,1% or 2% to the correspondent cadastral value of the house (depending on whether or not the cadastral value has been revised by the Local Authorities in the last 10 preceding years). The tax rate applicable will be 19% (for resident in a EU countries) or 24%.
The Spanish Personal Income Tax Law provides with several requirements for the application of the exemption from the work performed abroad. One of these requirements, is that services must be rendered for the benefit of a non resident company or for a Permanent Establishment located outside of Spain.
To the extent that your role is looking for clients for the Spanish Company, the Spanish Tax Authorities would understand that the beneficiary of the work is neither a non-resident entity, nor a Permanent Establishment outside of Spain. Notwithstanding, this is a complex exemption, and a case by case analysis should be done.
In this case, the payment is made when the taxpayer is Spanish tax resident. However, taking into account that the bonus has been generated outside of Spain and for the benefit of a non-resident entity, the exemption for work performed outside of Spain (article 7.p) of the law) is applicable, with a maximum annual amount of 60,100 euros.
Same exemption is applicable to the part of income related to the stocks and which was generated before the move to Spain. If your employer has not applied this exemption or you have not considered it on your tax return, you will be paying more taxes. A claim of taxes could always be made, if necessary, during the following 4 years.
In the case of employees with international mobility, the employee can change his/her residence status and one tax or another may be applicable.
In these situations, procedures to be carried out before the Social Security or the Tax Authorities may also change.
The Company must be prepared and know how to regularize the withholdings of taxes and Social Security, as well as the possible procedures to fulfilled by the employee at departure/arrival.
Many employees need to travel for professional reasons and companies generally have a reimbursement expense policy.
The Spanish Tax Administration is focusing on the revisions regarding meal allowances, travel and accommodation expenses, mobility premiums etc. For this reason, it is important to have a well-defined travel expense policy and to know the tax treatment that such expenses.
The different categories of employees for tax purposes implies the need to consider different regulations at the time performing the tax withholdings and report them in the corresponding forms (111/190 or 216/296 – tax resident, non tax resident and the expat regime).
Additionally, in the case of international employees, it is necessary to know the regulations of the International Agreements and the internal legislation of other countries.
The payment made due to a incentive plan can be considered as different types of income,with different tax treatment and value when it is included in the employee’s payroll.
Correctly reporting of such payments in payroll will have a direct impact on the company’s withholding tax forms (190/296).
The move of an employee from one country to another does not necessarily imply the end of their tax and social security obligations.
On the contrary, it is very common that when long-term incentives are paid (stock options, bonuses, etc.), new obligations arise in the countries where the employee is no longer. At the same time, it is possible that the company in Spain is obliged to make withholdings for the entire incentive payment.
Therefore, each case must be analyzed individually, taking into account the periods in which each employee could have been in each country, bearing in mind the Spanish regulations and the provisions of the International Agreements.
One of the main issues we need to consider when implementing an incentive plan is the tax treatment under the Personal Income Tax.
Certain tax benefits will help to achieve a more tax efficient remuneration and a higher retention of talent.
The 30% tax reduction or the exemption of 12,000 euros are some of the tax advantages under the Personal Income Tax Law.
The implementation of this type of compensation plans must consider a wide range of aspects that include, among others, communication to employees, the implications for tax purposes (personal and corporate taxes), social security implications, etc.
International Social Security
It is not possible to transfer contributions paid to the Social Security of a foreign country to the Spanish System.
The foreign contributions will be kept in your records. Spain will not pay a pension for such contributions.
However, at retirement, in case there is a Totalisation Agreement signed between Spain and the foreign country, the contribution periods in both Social Security systems will be taken into account for the purpose of meet the minimum requirements to access for a pension in both countries.
Spain and The United States have signed a Bilateral Agreement on Social Security, which will allow to meet the minimum requirements to be eligible to a pension in both States, by totalising (joining) the contributions period in each country.
In case you meet with the minimum requirements to access for a pension in both countries, both the Spanish and the US Social Security Systems will pay the corresponding portion of the pension in accordance with the period you have been paying Social Security in each State.
On the contrary, if you don´t meet with the minimum requirements to access for a pension, the Totalisation Agreement will help each country to pay the part of the pension that may correspond to you, considering the period you had been working and paying Social Security in each country. In this case, you must request for your pension under the terms of the Totalisation Agreement.
As far as there is not an international assignment from Switzerland to Spain, Social Security payments will be required in Spain.
To the extent that there is no Spanish Subsidiary/no PE in Spain, the Swiss Company must registered within the Spanish Social Security System to proceed with social tax payments.
If you have any more questions, don’t hesitate to let us know.