Residency Issues And Spain?s Form 720

Spain’s asset reporting law applies to anyone who is tax resident in Spain and owns assets outside the country worth €50,000 or more. The deadline is for submitting Form 720 is 31st March.

Spain’s asset reporting law applies to anyone who is tax resident in Spain and owns assets outside the country worth €50,000 or more. The deadline is 31st March each year.

We receive many queries from people who are not sure if they need to file a report or not. Residency is an important starting point. The obligation to report your overseas assets on Modelo 720 is only imposed on Spanish tax residents. If you own property here but are not resident, it does not apply to you. However, you need to be 100% sure that you do not fulfil any of the residency criteria.

Tax residency in Spain can be more complex than people realise. Many people believe they are not resident but actually are, and so should be paying tax. Others choose not to declare themselves for tax, believing that they can remain undetected. This issue is even more critical with the reporting law, since the consequences for failing to report are much higher than ever before – you can lose more than the value of the asset.

The government is aware that some people who meet the Spanish residency criteria do not declare themselves as such. The tax agency has been cracking down on this, for example by looking through utility bills and lists of foreign children registered in local schools. It can also use information received from abroad under exchange of financial information agreements.

If you own property and spend much time here each year, you need to know where you stand, tax wise, so you can establish the best way forward. With specialist advice you could structure your assets to be tax efficient in Spain, and so that you need not worry about Form 720.

If you were resident in Spain in 2013, you should have submitted Form 720 last year. In this case, you need to report again if the value of an asset increased by €20,000 or more (you may need to take exchange rate movements into account), or if you bought or sold an asset.

If you became resident in 2014, then you need to make your first declaration now.

You report the value of assets as at 31st December 2014. With bank accounts you also need to include the average balance over the last three months of 2014, and with property the acquisition value.

If you moved to Spain in January, February or March this year, you do not need to file a report this year. You will need to report assets as at 31st December 2015, so your first deadline is 31st March 2016.

If you left Spain before the end of 2014, your residence condition is still assessed during the tax year ending 31st December 2014 (as with wealth tax returns), and you may have to file a report if you met the residency criteria. It is best to check with your accountant if a return is required in your particular circumstances.

Tax residency in Spain

You are resident for tax purposes – and so liable for income, capital gains and wealth taxes on your worldwide assets and subject to Spanish succession tax rules – if any of the following apply.

• You spend more than 183 days (not necessarily consecutive) here in one calendar year.
• Your “centre of economic interests” is in Spain.
• Your “centre of vital interests” is in Spain – i.e. your spouse and/or your dependent minor children live here. In this case you are presumed Spanish resident, unless proven otherwise, even if you spend under 183 days here per year.

There is no split year treatment in Spain. You are either resident or not resident for the whole year.

The consequences of not reporting

If you are resident in Spain, then you have no choice but to report your overseas assets. The Spanish tax authorities mean business and can use information received from abroad to check whether people have declared all their overseas assets. With automatic exchange of information increasing – around 100 countries have signed up for it so far – there is no hiding place.

If you are found to not have declared an asset, the fines and penalties can be devastating, so you need to make sure you get it right.

The only way to be certain that you understand all the implications of the asset reporting law, residency issues and how to legitimately structure your assets tax efficiently in Spain, is to take professional advice from an established tax and wealth manager.

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.

3 March 2015