Will Spain’s 2021 tax enforcement plan affect you?


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Spain’s new tax control plan outlines how the authorities will investigate individuals’ tax residence, tax avoidance structures, and wealth and succession tax returns in 2021.

It’s easy to understand why so many people want to live in Spain, particularly to enjoy their retirement years. The lifestyle and climate provide many benefits and the wide variety of locations and properties suits all tastes and budgets.

While there are a few pros and cons to weigh up, we find the biggest concern for many is taxation.

Yes, the Spanish tax regime is complex, with different income tax rules, a whole new additional wealth tax and unfamiliar inheritance tax regime. And on paper the tax burden does look high for wealthier people. But specialist advice and a good understanding of the rules and available tax planning opportunities can make all the difference.

With strategic – and compliant – wealth management, many people have significantly reduced their tax liabilities on investment capital and assets to much lower levels than expected.

However, you do need to be vigilant with your tax planning and ensure you fulfil all your tax obligations in Spain – starting with registering for tax if you meet the residence criteria – and use approved arrangements. The Spanish tax authorities have become adept at preventing tax fraud and their tax control plan for 2021 goes even further.

Spain’s 2021 tax control plan

The Agencia Estatal de Administración Tributaria (AEAT) has published details of its latest tax control plan, which covers all direct taxes, corporation tax, personal income tax, wealth tax and succession tax. Its aim is to be transparent and allow taxpayers to voluntarily regularise their tax situation where necessary and avoid a formal tax enquiry.

When it comes to individual taxpayers, including expatriates, its main areas of focus are:

  • Personal income tax
  • Wealth tax
  • Succession and gift tax

Tax residence in Spain

As part of their income and wealth tax audits, the authorities are reviewing individuals’ tax residence position in Spain – particularly where they have indications that individuals claiming to be non-resident do in fact meet one of the residence criteria.

Generally speaking, with the exception of Spain’s ‘Golden Visa’, if you have applied for legal residence you are likely to be tax resident.

You are resident for tax purposes if you:

  • spend over 183 days in Spain in a calendar year; or
  • your centre of economic interests is in Spain; or
  • your centre of vital interests (spouse/dependent children) is here.

If you meet any of the criteria and cannot prove you are tax resident elsewhere, you are legally obliged to register for tax and submit income tax returns as well as wealth tax returns and Modelo 720 (where applicable), declaring worldwide income and assets.

Where necessary, the Spanish tax authority will collect plenty of evidence to determine if you are Spanish tax resident – so make absolutely sure you get this right.

New IT tools, big data and international exchange of information

The tax authority is using new technologies and big data to achieve its goals and uncover and prevent tax fraud. It can profile taxpayers and determine who to investigate further, using all the data now available to them from a myriad of sources.

Their audits will incorporate data received from international automatic exchange of information mechanisms, such as the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) – it is impossible these days to hide anything from the taxman.

See more about today’s global tax scrutiny

If you have failed to declare income or assets in the past, you need to voluntarily regularise your tax situation to avoid the worst sanctions. A tax accountant should be able to help you get your affairs in order.

Many people make genuine mistakes. They may not realise they are tax resident in Spain or not understand where income earned in another country should be declared and taxed – for example, inadvertently paying tax in the UK rather than Spain. But this would still open you up to a tax investigation which could prove very stressful and costly.

Also make sure you correctly apply tax reliefs, particularly for wealth tax. And take advice on how the authorities could view the intermediate entities and holding structures you use.

Effective tax planning for Spain

Many people worry about the tax implications of becoming resident in Spain. But with expert planning, it’s possible to structure investments and assets to be tax-efficient – and potentially pay less tax in Spain than you did in the UK, depending on your circumstances.

It is certainly worth asking Blevins Franks to review your investment portfolio, pensions and other assets. We can also evaluate your current tax liabilities, consider your personal situation and objectives, and look at what Spanish compliant arrangements would work for you and how much tax you could save.

Contact your local Blevins Franks adviser

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.