Spain: De-Mystifying The Rules On Residence For Spanish Taxation Purposes

What has changed?

No fundamental or major sea change – the rules remain essentially the same


Greater fiscal pressure and generally more joined-up approach by Spanish Tax Authorities on taxation matters

Much greater fiscal pressure on Spanish tax residents as a result of the recession and the economic crisis and the need for the Government to raise additional revenues, evidenced by e.g. a general increase in income tax rates – up to 52% in Andalucia. Other recent measures:

  • Re-introduction of Wealth Tax
  • Capital Gains Tax increased to 52% in respect of disposals within one year of ownership (otherwise up to 27% for residents and 21% for non-residents)
  • Concentrated drive to deal with tax fraud – largely as a result of greater collaboration between countries and exchange of information
  • New reporting obligations on Spanish residents – duty to disclose foreign assets (essentially, three categories of assets: foreign bank accounts, investments and shareholdings in foreign companies and held through trusts and overseas owned property, e.g. house/flat in the UK) in excess of €50,000 per category of asset. New deadline of 31 March 2014 in respect of relevant foreign assets held as at 31 December 2013.

Who is "Resident" in Spain

  • Residence is the KEY driver of liability to Spanish taxation
  • Common misconceptions (which do not by themselves constitute residence for tax purposes):
  • Certificate of registration as an EU citizen with the Spanish Registry for Foreigners

    • NIE
    • Driving Spanish plated cars
    • Ownership or renting of property in Spain (but Non Resident Income Tax may be payable on the deemed income arising from the ownership of a Spanish property)

Definition of "Residence" for Spanish tax purposes

  • Double Test (either will suffice):

    • More than 183 days residence in Spain during the calendar year (January to December) or
    • Main centre of activity or economic interests is based in Spain whether directly or indirectly
  • Sporadic or temporary absences will not interrupt residence
  • Presumption – that an individual will be resident in Spain if his/her (non-legally separated) spouse and minor dependent children have their habitual residence in Spain, subject to proof to the contrary
  • Special rule applicable if claiming residence in a tax haven country (e.g. Gibraltar) – need to prove actual residence in that country for more than 183 days in the relevant tax year

Proof of Residence

How can residence be proven?

  • No hard and fast rules – each case treated on own merits based on totality of evidence available
  • No definitive "sleeping overnight" test – (as per new statutory definition of residence in the UK) but sleeping overnight will be an indicator of a connecting tie to Spain
  • No good to say 183 days away from Spain – without proving residence in another country for more than 183 days
  • Certificate issued by the Tax Authorities of the country where taxes are being paid will normally suffice (but by itself will not be sufficient if claiming residence in a tax haven country)
  • OECD Model –mere physical presence in Spain may suffice

Give-away signs

  • Spouse living in Spain and minor children at school in Spain
  • Permanent home in Spain
  • Home utility bills – consumption of normal utilities on a daily or regular basis
  • Spanish plated car(s)
  • Regular use of Spanish credit cards and Spanish resident bank accounts
  • Spanish mobile telephone
  • Use of Spanish public healthcare facilities
  • Empadronamiento – registration with the local authority that you are living in the area

Implications of Spanish residency for tax purposes

  • Spanish Income and Capital Gains Tax on worldwide income and gains (including possible liability to Spanish CGT where there may be no liability to CGT in the country where the relevant asset is situated, e.g. disposal of main residence in the UK), subject to Double Taxation Treaty relief
  • Spanish Wealth Tax on net worldwide assets
  • Spanish Inheritance Tax (SIT) on net worldwide assets inherited by a resident beneficiary, regardless of where the assets are situated – SIT will be payable by the beneficiary and not by the estate. There is no "surviving spouse" exemption on inherited assets as per English law
  • Annual reporting obligation on certain overseas assets held or owned by the resident person in excess of €50,000 Euros per category of asset, essentially: bank accounts, shares and other investments held in foreign companies and real estate held outside Spain - new deadline date of 31 March 2014 in respect of relevant assets held as at 31 December 2013
  • The reporting obligation by itself does not trigger a liability to tax but any declared asset may be liable to Spanish taxation in the future
  • Required to file a Resident Income Tax Return by 30 June in respect of the preceding tax year

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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