Residency Issues And Spain?s Reporting Law

Spain’s asset reporting law applies to anyone who is resident in Spain and owns assets outside the country worth €50,000 or more. The deadline is 31st March each year. Tax residency in Spain can be more complex than people realise. Many people believe they are not resident but actually are.

Spain’s asset reporting law applies to anyone who is 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 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 2012, 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, or if you bought or sold an asset or an account.

If you became resident in 2013, then you need to make your first declaration now.

You report the value of assets as at 31st December 2013. With bank accounts you also need to include the average balance over the last three months of 2013, and with property the acquisition value.

If you were not resident in Spain in 2012 or 2013, but become resident this year, you do not need to file a report this year. You will need to report assets as at 31st December 2014, so your first deadline is 31st March 2015. This applies even if you arrive here before 31st March.

If you left Spain before the end of 2013, your residence condition is still assessed during the tax year ending 31st December 2013 (as with wealth tax returns), and you should file a report if you met the residency criteria.

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.

1. You spend more than 183 days (not necessarily consecutive) here in one calendar year.
2. Your “centre of economic interests” is in Spain.
3. 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. If you arrive, with the intention of staying indefinitely, during the first six months, you are likely to be regarded as resident for the full calendar year. If you moved directly from the UK you would also be regarded as UK resident up to your leaving date, so you need to look at the UK/Spain Tax Treaty rules.

If you move to Spain in the latter half of the year you will probably be regarded as non-resident that year. However this would depend previous visits made to Spain that year, so seek advice.

The same principles apply if you leave Spain part way through a tax year.

The only way to be certain that you understand all the implications of the complicated asset reporting law, the 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.

31 January 2014

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.