Spain’s Exit Tax

29.12.15

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Spain introduced a new tax at the beginning of 2015, which could affect wealthy investors when they come to leave Spain.

Spain introduced a new tax at the beginning of 2015, which could affect wealthy investors when they come to leave Spain. If you have substantial investments and expect to stop being a Spanish resident over the coming years, you need to review the way you hold your investments.

The new Spanish Personal Income Tax Law, which came into force on January 1st 2015, introduced a new provision regarding the taxation of unrealised capital gains made by Spanish tax resident individuals when they stop being tax resident in Spain.

Commonly known as the “exit tax”, it was included in the law under Article 95 bis, as capital gains tax that arises on change of tax residency.

This means that from now on, loss of Spanish tax residency could result in the individual being taxed on all the unrealised gains they have arising from holdings in all types of companies and collective investment institutions. This is regardless of the location of the investments.

This exit tax is applicable to taxpayers who have been Spanish tax resident for at least 10 out of the 15 years prior to their departure from the country. However it only applies to those who own substantial shareholdings as follows –

  • The market value of the shares held exceeds €4,000,000 or
  • The total shareholdings exceed 25% and the market value of the shares exceeds €1,000,000.

For individuals who are taxed under the special tax regime for workers posted to Spanish territory (the “Beckham rule”), the 10 year deadline will start from the first tax year in which the special tax regime no longer applies.

The exit tax on the unrealised gain is calculated on the positive difference between the market value of the shares at the time and their acquisition cost.

Tax is then applied at the standard rates applied for savings income, and are allocated to the last tax year to be declared. The current rates are:

Tax band

2015

2016

€0 – 6,000

19.5%

19%

€ 6,000 – €50,000

21.5%

21%

Over €50,000

23.5%

23%

 

 

The taxpayer can request to defer their tax liability in the following circumstances –

  • When the change of residency is as consequence of a temporary work assignment to a non-blacklisted jurisdiction.
  • When the change of residency for any other reason is to a country which has a double taxation agreement signed with Spain and an information exchange clause.

In the event that the individual becomes Spanish tax resident again within the following five years without selling the shares, the deferred charge will be cancelled.

When the taxpayer moves, for any reason, to another EU/EEA country, the gain will only need to be declared, and thus taxed in Spain, if they either sell the shares within the 10 years after leaving Spain, or if they stop being resident in the EU or EEA.

So, for example, if you move from Spain to the UK and keep the shares, you will not have pay exit tax on them at the time (provided that you do not then move to a different country outside the EU/EEA). However, if you sell them in say five years’ time, you will have to pay the tax. Or if you move to Australia, for example, you will also have to pay the tax even if you have not sold the shares.

A share disposal as a UK tax resident, within ten years of leaving Spain, would mean that both UK capital gains tax and Spanish exit tax would seem to be due. However article 13 of the Spain-UK double tax treaty on capital gains should enable the taxpayer to avoid double taxation.

If you hold shares or investments worth close to or more than the values above, take specialist advice on how to structure the capital so that your investments fall outside this exit tax regime. This way you need not be concerned by the new tax should you leave Spain.

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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.
 
28 October 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; individuals should seek personalised advice.

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