Earlier in the year we reported on the Spanish tax ‘amnesty’ and as we get closer to the deadline of 30th November, we thought it would be worthwhile to provide a recap of the main points. Many other countries have benefited from disclosure facilities and the Spanish government is hoping to recoup a sizeable amount of unpaid tax from this initiative.
Although it is generally referred to as a ‘tax amnesty’, the official term is “Voluntary Disclosure Procedure”. It forms part of government efforts to increase tax revenue, along with the higher taxes and a strengthening crackdown on tax evasion and fraud.
The amnesty was introduced in the Royal Decree-Law 12/2012 of 30th March 2012. A Ministerial Order released in June provided further details.
It is available to individuals and companies, whether resident or non-resident, who own assets which were acquired using undeclared income. This is provided they are the legal owners of the assets and no tax review or investigation process has already been initiated against them. The taxpayer must have acquired the assets before 31st December 2010 and still own them as at 30th March 2012.
The amnesty only covers income tax, non-residents income tax, and corporation tax. There is no mention of wealth tax, inheritance and gift tax, VAT, transfer tax and municipal taxes.
If you live in Spain or own property here, it is important to understand what the tax rules are and ensure you are paying tax correctly and only using approved tax planning arrangements. Professional advice from a firm like Blevins Franks which specialises in tax and wealth management for British expatriates will be invaluable.
Anyone opting to use this amnesty to regularise undeclared assets must submit a special return (Form 750) by 30th November 2012. They have to detail all their undeclared assets and income, and pay a one-off tax liability at the same time. There are no provisions for deferring payment or instalments.
The tax liability is 10% of the undeclared assets – it does not apply to undeclared income, but to the value of the assets connected to or acquired with the undeclared income.
As a general rule, the value to be declared is the acquisition cost of the asset (or the acquisition value corresponding to the undeclared income if the asset cost more).
In the case of bank accounts, the value to be reported is the amount on deposit at 31st December 2010. The cash needs to be deposited into an account in Spain or another EU country before Form 750 is filed. This will ensure that going forward Spain receives the full amount of tax due.
There is an option to declare higher bank balances prior to 31st December 2010.
Submitting Form 750 and paying the 10% tax regularises the undeclared income for income tax, corporation and non-resident income tax purposes. All tax on the undeclared income will be treated as having been paid; income or gains cannot be subject to further tax. The owner is also exonerated from any penalties, surcharges and interest on the overdue tax.
There is however a question mark over whether the amnesty really does provide protection against tax fraud as a criminal offence and money laundering crimes. In Spain tax evasion is a criminal offence when the undeclared tax exceeds €120,000 a year.
A special unit of the Spanish tax authorities has been set up to deal with the applications on a confidential basis. The amnesty is confidential in the sense that the Spanish tax authorities are not obliged to report information received through the facility to the courts or public prospector in the event of any criminal liability. However anyone submitting Form 750 cannot do so anonymously, they must reveal their name to the tax authorities.
Spain already had a standard procedure for voluntary disclosure in place, and it will remain available after the amnesty. The amnesty does not preclude the taxpayer from making a voluntary disclosure under this standard procedure, so he can choose which method to use to regularise his tax affairs. The amnesty may or may not be more favourable, depending on the particular case. The taxpayer may also believe that the standard procedure provides more certainty.
Either way, if you are resident in Spain or own Spanish property you should have been paying the full amount of tax due each year as per Spanish tax law. There are many people living here or who have Spanish property who have not established what their tax obligations are, but ignorance is not an excuse. Anyone who has not been declaring their offshore income and assets needs to make a full disclosure and regularise their affairs moving forward.
The Spanish government is cracking down on tax evasion and has expressly stated that it will implement tougher legislation against non-compliant taxpayers after the amnesty. A proposed anti-fraud law is expected to come into force which will increase penalties for tax fraud. One proposed measure that would affect most expatriates in Spain is a new reporting requirement for offshore assets, with hefty penalties for non-compliance.
No-one likes paying more tax than they have to, particularly with today’s higher taxes, but you should only ever use arrangements which are approved and compliant in Spain. There are legitimate opportunities available which could lower your income, savings, wealth and succession tax liabilities, depending on your situation. Speak to a wealth management firm like Blevins Franks which has decades of experience advising British expatriates in Spain on both their local and UK tax planning.
16th September 2012
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.