Modelo 720 – or Form 720 – is an online declaration Spanish residents may need to complete each year.
Submitted in addition to income and wealth tax returns, the general rule is that you need to declare the assets you own outside Spain when the total foreign assets within a category exceed €50,000.
Long-term residents of Spain will be familiar with Modelo 720 (Form 720), but newer residents may be unclear on what they have to do. Penalties are imposed for late or incorrect filing (though now less draconian than they used to be), so you need to get it right. The deadline, as every year, is 31 March.
If you were a tax resident in Spain in 2023, you are legally obliged to submit a Modelo 720 (always done online) declaring the assets you own outside Spain worth over €50,000. This is not a tax return as such; you need to complete it over and above your income and wealth tax returns.
Besides confirming what you need to declare this year, this is a good time to consider whether you are holding your assets in the most tax-efficient vehicles for Spain. If you have investments that were set up with UK taxation in mind, you may be paying more tax in Spain than you need be.
Tax residence rules
You are considered a resident in Spain for tax purposes if any of these apply to you:
- You spend more than 183 days in Spain in a calendar year, or
- Your ‘centre of economic interests’ is in Spain, or
- Your ‘centre of vital interests’ is in Spain (i.e. if your spouse lives here).
There is no split year treatment, you are either resident or not resident for the whole tax year.
Summary of Modelo 720 rules
You have to report all assets in a particular category if the value of your total assets in it amounts to over €50,000. This only applies to assets located outside Spain. The three reporting categories are:
- Accounts held with financial institutions (banks)
- Immovable property
With joint assets, each owner needs to declare the full value (even if your share is less than €50,000) and indicate your percentage of ownership.
In general, you are obliged to report assets if you are the owner, a settlor of a trust, an effective beneficiary from a trust, authorised signatory, or you have the authority to dispose of the asset. This includes assets held by a company, trust or fiduciary.
Assets are valued using the wealth tax rules as of 31 December each year. For bank accounts, you also need to declare the average balance over the last three months of the year. Investments held in other currencies need to be converted to Euros using the official exchange rate.
Your 2024 declaration
For your 2024 form, you declare the assets owned as of the end of 2023.
If you have already submitted Modelo 720 in recent years, you only need to report again if:
- The value of an existing asset grew by more than €20,000, or
- You sold an asset/closed an account, or
- You obtained new assets.
Modelo 720 penalties
Since the Modelo 720 was introduced in 2012, the penalties for late, incomplete, or incorrect filing have been disproportionate and very harsh. However, after a 2022 ruling by the European Court of Justice, Spain finally amended this penalty regime and this form is now subject to the general penalty regime established in the Spanish General Tax Law.
The fixed pecuniary fine is €20 for each piece/set of information that should have been included in the individual’s declaration. There is a minimum penalty of €300 and a maximum of €20,000.
These penalties and the minimum and maximum limits will be reduced to 50% if the Modelo 720 is filed after the deadline but before receipt of notification of non-compliance by the Spanish tax authorities.
Note however that the penalties will be doubled if the undeclared assets or rights are located outside the European Union.
The four-year statute of limitations now also applies to Modelo 720, which means the tax authorities cannot fine you for more than the last four tax years.
Guided by expertise
For guidance on how to submit your Modelo 720, you need to speak to your tax accountant. For guidance on how to make Spain a more tax-efficient place to live, and on how to hold your assets to make completing form 720 easier, speak to a cross-border tax and wealth management specialist like Blevins Franks.
While many British retired expatriates are wary of Spain’s tax regime, it can be a tax-efficient country if you take expert advice. Talk to your local Blevins Franks advisers to establish if you could use other, legitimate arrangements to provide you with tax advantages you are missing out on now.
Using compliant tax planning structures can save you tax and provide peace of mind. We can review your assets to make sure they are in the best structures going forward – it’s fair to say that many Blevins Franks clients who have restructured their assets to improve their position from a Spanish tax point of view, invariably end up with much simpler affairs, so completing Modelo 720 normally becomes a much simpler process for them.
Get in touch with Blevins Franks today for tax planning advice in Spain.