Spanish Tax obligations you need to know about if your economic interests are in various jurisdictions

A proper tax treaty will help establish residency status and more important avoid double taxation.

In regards to the Residency Status, you would normally be treated as a tax resident in the country where you spend most of your time, or you have your economic interests. Specifically, you may be treated as a tax resident of Spain, if:

• You spend in Spanish territory more than 183 days during the calendar year.
• The majority of your economic interests are in Spain.
• Your spouse and children are living in Spain, and you cannot prove tax residency in another country.

If you are also treated as a tax resident of Gibraltar, the final status would need to be resolved through the tax treaty rules. You cannot be treated as a tax resident subject to taxes on your worldwide income in both countries. This would also need to be revised with any other country which may treat you as a tax resident.

And, what about your Obligations as a Tax Resident?

There are three main tax figures that you really need to check:

• Personal Income Tax: you will need to report your worldwide income and capital gains on an annual basis. Deadline for this tax is normally by June following the end of the corresponding tax year.

Bear in mind that financial and property capital gains, as well as other financial income such as dividends, interests, etc., are subject to taxes at a reduced progressive tax rate up to 26%.

Top tax rate of 26% is applied to capital gains and income over 200.000 euros, if you have taxable capital gains and incomes between 50.000 euros and 200.000 euros your top tax rate would be 23% and if lower that 50.000 euros, the top tax rate would be 21% (between 6.000 euros and 50.000 euros) or 19% (up to 6.000 euros).

• Net Wealth Tax: as a tax resident of Spain, taxes on goods, assets, rights, etc., will arise if the net value is over 700.000 euros (per taxpayer). This is applicable within the region of Andalusia. If you live in another region, other thresholds may be applicable. Deadline for this tax is normally by June following the end of the corresponding tax year.

Habitually all assets need to be considered, however bear in mind that pension plans, similar to a Spanish one, are not considered part of the estate for wealth tax purposes. Other financial assets will be added to the value of your taxable wealth.

The top rate of this tax is 3,5% to be applied to the net value of the wealth. This top rate is only applicable when the net wealth value is over 10.000.000 euros (approx.).

• Informative form of assets and rights located outside of Spain (Model 720): although it is completely informative and has no taxes due, this form is very important as the related penalties are high, being the minimum one of 1.500 euros for filing late and the worse, to pay taxes for the value of the assets as income (up to 47%), with late penalties and sanctions for the lack of reporting.

In general terms, this form needs to be filed when the value of one of the regulated groups of assets and rights is over 50.000 euros. The three regulated groups of assets are: properties, bank accounts and other financial assets.

Deadline for this form is normally by March following the end of the corresponding tax year.

If you consider and comply with these three major tax obligations, you will be good with the Spanish tax authorities, however bear in mind that there may be other minor statistical obligations with the Bank of Spain and the Ministry of Commerce for being a tax resident of Spain and having financial assets and operations outside of Spain.

And what happens if you are a Tax Resident of Gibraltar or another country?

In this case, the Spanish tax authorities will only look to your Spanish income and capital gains, and this are normally subject to exemptions and tax reductions.

However, you need to consider two important things:

• Personal Income tax will apply to properties located in Spain, even if this are not rented out. This is not exactly a property tax, as that would be the IBI.

This tax figure is called “imputed income” and will apply to properties which are not the habitual and principal residence.

For tax estimation purposes, the tax will be more or less, 19% or 24% of the 1,1% of 50% of the acquisition value.

Taxes are paid through form 210 and deadline is normally by December following the end of the corresponding tax year.

• Wealth tax in Spain may still be applicable to the goods and assets located in Spain if the value is over 700.000 euros (per taxpayer). Deadline is the same for tax residents in Spain.

Finally, but not least, being tax resident in Spain or having assets and goods located here, may require paying additional taxes at death (inheritance tax) or donations. Complex rules apply and  it is recommended that you check them, if you expect any taxable event of this type.

Published in https://www.fiduciarywealth.gi/ June 28, 2021.