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Tax planning is a key step for people moving to or recently arrived in Spain, particularly for your investment capital, pensions and estate. Without a personalised, effective tax mitigation strategy in place you could easily end up paying more tax than necessary.

Before you can start your tax planning, you need to be aware of Spain’s domestic rules for tax residency. This also applies for those who have not necessarily moved here, but spend much time or have a home here. You may be liable for Spanish tax without realising it.

If you fulfil Spain’s resident rules, you are liable to Spanish income, capital gains and wealth taxes on your worldwide assets, as well as subject to Spanish succession tax (inheritance and gifts tax) rules. You are also liable for incidental tax liabilities such as IVA (VAT) and local taxes.

You are resident in Spain for tax purposes if any of the following apply:

  1. You spend more than 183 days in Spain in one calendar year. This is whether or not you take out a formal residence permit. These days do not have to be consecutive. Temporary absences from Spain are ignored for the purpose of the 183-day rule unless it can be proved that you are habitually resident in another country for more than 183 days a calendar year,
  2. Your “centre of economic interests” is in Spain, i.e. the base for your economic or professional activities is in Spain.
  3. Your “centre of vital interests” is in Spain – i.e. your spouse lives here (and you are not legally separated), and/or your dependent minor children do. In this case you are presumed Spanish resident, unless proven otherwise, even though you may spend less than 183 days per year in Spain.

There is no split year treatment in Spain. You are either resident or not resident for the whole tax year (1st January to 31st December), though this is subject to any period of residence in another tax treaty country before or after your Spanish residence commences or ends.

So, if you move to Spain part way through the tax year, the date from which you become resident in Spain largely depends on when you arrive. If in the first half of the year, and you intend to stay indefinitely, you are likely to be regarded as resident in Spain for the full year. However, if you moved directly from the UK, then it is likely that, under the UK/Spain Tax Treaty rules, you will be regarded as UK resident up to the date you leave the UK and resident in Spain thereafter.

If you move to Spain in the latter half of the calendar year, you will probably find you are regarded as non-Spanish resident during that year, assuming you have not spent 183 days there. However, this depends on previous visits made to Spain, and if these have been significant or frequent, the Spanish authorities could deem you to be resident in Spain from an earlier date.

If you leave Spain part way through a tax year, the same principles will apply.

Spanish non-tax residents are only taxable for their Spanish source income. Should the Spanish tax authorities challenge your non-resident status in Spain, you should be able to obtain a tax residency certificate from your country of residence.

Double tax treaties

As a general rule you can only be treated as tax resident in one country or another. However, it is possible to fulfil the domestic criteria of two countries, in which case your tax residence status is determined by the double tax treaty.

For example, under the UK Statutory Residence Test residence in the UK is determined not only by the number of days, but also what ‘ties’ you have with the UK that tax year. I will look at this test in a later article, but if you are resident in both Spain and UK under each country’s domestic rules, then ‘tie breaker’ rules come into effect. If none determine your residence status, it comes down to nationality. British nationals would have to pay income and capital gains taxes in the UK rather than Spain.

If you meet any of the residence criteria, it is your responsibility to declare yourself to the tax authorities and submit an income tax return each year. If you do not, you risk being the subject of a tax investigation. If in any doubt seek professional advice.

Cross-border taxation can be very complicated. Your tax planning needs to take the rules of all the related countries into account and the interaction between them. Take specialist advice to establish the most tax efficient solutions for your personal situation.

Any questions? Ask our financial advisers for help.

16 June 2015

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 is advised to seek personalised advice.