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If you live or own property in Spain, it is your responsibility to establish what your tax liabilities are and submit tax returns correctly each year.
Residents now have the added responsibility of declaring the assets you own outside Spain. This includes bank accounts, investments and property, where the value of each category is ?50,000 or more. This is extra to your income and wealth tax returns, and needs to be done each year if the assets in a category have increased by over ?20,000 since the previous declaration.
The deadline will normally be 31st March, but this year it is extended to 30th April. You need to file a report if you were resident here the previous year, so anyone resident in Spain in 2012 needs to report by 30th April 2013. If you become resident this year, your first reporting deadline is 31st March 2014.
Besides the 183 days-a-year rule, there are other circumstances that can make you tax resident in Spain, so you need to be sure about your situation.
There are many property owners in Spain who for one reason or another have failed to declare themselves for tax. This was always a risky stance, with the authorities getting better at finding them, but it is even riskier now with the new reporting obligation. The penalties for failing to report an asset under this new regime are much higher than under normal tax law.
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, any undeclared income, regardless of when it was actually received, is deemed to arise in the last tax year that is not statute barred. 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? and 56% in Catalu?), 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.
When you add the tax due with the penalties, plus late payment interest, plus the extra fine, many people could find the amount they owe the Hacienda (Spanish tax office) is more than the value of the asset.
The unpaid tax could give rise to the criminal offence of ?tax fraud? if it exceeds ?120,000.
If you do not consider yourself resident here, or have not been declaring yourself, you need to reconsider your position now, before it is too late. Make 2013 the year you get your tax residency in Spain sorted if necessary, so that you do not need to fear the taxman and can confidently declare everything you are obliged to under both the tax and new reporting rules.
There are compliant arrangements available in Spain which can lower your tax liabilities on your investable assets if you take professional advice from a specialist firm like Blevins Franks.
The tax authorities have an increasing number of tools to find people who are not declaring themselves for tax.
They have linked up with the land registry office and have records of everyone owning property in Spain.
Electricity companies also now provide information to the Hacienda each year on the electricity usage of each property, as well the names on the invoice and bank account payments are made from.
The authorities can establish when a property has been lived in and catch out people who have been living here permanently but have not registered as such and have not been paying tax.
Do not bury your head in the sand. The Spanish tax authorities mean business. You should seek advice from an expert tax adviser like Blevins Franks which keeps fully up to date with Spanish tax regulations and the compliant tax planning arrangements in Spain.
When combined with suitable tax planning, there are benefits to being tax resident in Spain. It is often possible to use legitimate arrangements to significantly lower your tax liabilities on your savings, investments, wealth and estate. You may end up paying much less tax than you expect.
23 January 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.