The 30th April deadline for submitting your first declaration of offshore assets is now just one month away. If you are resident in Spain and own assets worth over ?50,000 in a singl
The 30th April deadline for submitting your first declaration of offshore assets is now just one month away. If you are resident in Spain and own assets worth over ?50,000 in a single category, you cannot ignore this deadline. The consequences for failing to report are very high, and the authorities have an increasing number of tools to find hidden assets and those not declaring themselves for tax.
If you were resident in Spain in 2012, then you need to report the assets you own outside Spain as at 31st December 2012.
The deadline this year is 30th April, though in future years it will be 31st March. The Form you need to submit is Modelo 720, which must be completed online. It is not in standard format and has a series of drop down menus, many of which require you to select a particular code depending on what you are reporting. There is little room for descriptions or clarifications. It is recommended that you use an accountant to help you fill in the form, but you do first need to acquaint yourself with what needs to be reported.
This is not actually a tax, but simply a requirement to report information on assets. You still need to submit your annual income tax and wealth tax returns under the usual Spanish tax rules, and pay tax accordingly.
There are three reporting categories, and you have to report all assets in a particular category if the value of your total assets in that category amounts to over ?50,000. This only applies to assets located outside Spain. You should not include Spanish property and bank accounts.
You are obliged to report assets if you are the owner, a beneficiary, an authorised signatory, or if you have the authority to dispose of the asset. This includes assets held by a company, a trust or fiduciary.
You need to submit a report even if your personal share of assets in a category is less than ?50,000. In the case of joint assets, each account holder/owner needs to declare the full value (not pro-rated), and indicate the percentage they hold.
Once you have made a report, if you do not acquire any new assets or dispose of existing assets, and the existing ones increase in value by less than ?20,000, you do not need to report in subsequent years.
In most cases the values to be declared are the same as those used on wealth tax returns. In other words, assets are valued using the wealth tax rules as at 31st December each year.
In the case of assets held within financial institutions, besides the end of year value you also need to declare the average balance over the last three months of the year. You will need to provide full details of the bank account (bank, account number, sort code, date opened etc).
When it comes to property, you need to declare the cost and date of acquisition, and the current value, plus the sale proceeds if you sold it during the year. This way, the tax office will be able to calculate the gain on sale. You also need to provide details about the property.
When declaring shares, unit trusts etc, you need to use the value as at 31st December and provide details of the investment company, number of shares, ISIN number where available, date of acquisition etc.
With regards to pension plans, there is no obligation to report overseas funds provided they do not give rise to a temporary or lifetime annuity. Where there is an annuity, the capitalised value should be declared.
If you sold an asset, be it a property, shares etc during 2012, or closed a bank account, you need to report the value at the date of disposal.
The consequences of not reporting
Do not bury your head in the sand. The Spanish tax authorities mean business. If you are found to not have declared an asset, the fines and penalties could amount to more than the asset itself.
Under Spain?s normal tax rules, the taxman can only go back four years from the date a tax return should have been submitted to review how much tax should have been paid.
Under the new asset reporting law, if you do not make a report, the asset will be deemed to have been acquired with undeclared income, which is deemed to arise in the last tax year that is not statute barred, unless you can prove that the income arose when you were not Spanish resident or tax has been paid on such income accordingly. This effectively eliminates the application of the statute of limitations, so instead of just being able to go back four years to review unpaid tax on an asset, there is now no limit.
When a Spanish resident is found to have an undeclared asset under this new obligation, they may have to pay all of the following:
- Income tax on the undeclared income at the income tax scale rates, with a top rate of 52% (54% in Andaluc?), rather than as savings income with a top rate of 27%.
- Penalties, which can be as high as 150% of the total tax due on the asset.
- A fine of ?5,000 per each unreported asset, with a minimum fine of ?10,000.
The unpaid tax could give rise to the criminal offence of ?tax fraud? if it exceeds ?120,000.
Looking ahead, this is the time to review if your assets are in the right place to be as tax efficient as they can be. You could be paying more tax than you need to. Ask expert advisory firm Blevins Franks to review your current arrangements and discuss the most tax efficient vehicles available in Spain. This is a specialised area, and you do need professional advice to make sure you avoid any of the consequences of getting it wrong.
14 March 2013
The 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 should take personalised advice.