The tax landscape in Spain has changed drastically over the last year, with the new obligation to declare your offshore assets. Your tax planning needs to be fully up to date and forward looking.
Earlier this year, for the first time, Spanish residents had to declare all their overseas assets worth over €50,000. You had to submit Form 720 by 30th April, reporting on assets owned outside Spain as at 31st December 2012.
The next reporting deadline is scheduled to be 31st March 2014, for assets as at 31st December 2013, so this is the time to ensure all your assets are tax efficient.
There are three reporting categories, and you had to report all assets in a particular category if the value of your total assets in that category amounted to over €50,000. 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.
Once you have made your first 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.
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 have been declaring all your worldwide income and wealth for tax purposes correctly, and use legitimate and effective tax planning solutions in Spain, you should have nothing to worry about. This reporting obligation does not change your tax position. However tax rates are likely to remain high for longer than expected, so if you are not already using compliant arrangements to lower your tax liabilities, you should look into this now to protect your wealth.
With all the information the government now has to hand about your assets from Form 720, it will be able to monitor your wealth, income, gains, disposals of assets etc in future. You need to ensure you declare everything correctly on your annual tax returns, and that your tax planning is fully legitimate.
Form 720 will have a bigger impact on those who reported assets or income for the first time. They must now be declared and taxed each year, making for a much higher tax bill. It does not have to be as high as you fear, though. Expatriates in Spain who have taken professional advice have found that taxes can be minimised by placing funds into legitimate tax efficient vehicles that allow them to mitigate tax in Spain, sometimes significantly. You should seek specialist and personalised tax planning advice for your savings, investments and wealth.
The tax authorities are likely to investigate why assets were not included in previous tax returns, particularly for wealthier taxpayers. They would be advised to use Spain’s regularisation process to regularise their past tax obligations as this usually results in lower penalties.
Spain is also part of a move to automatic exchange of information on financial assets, taking place across Europe and globally. This will enable the government to check information related to assets and rights held overseas. Attempting to hide assets is very risky, because at some point they will be discovered.
There has also been a case this year where the European Court of Justice obliged a bank in Gibraltar to share financial information with Spain, even though there is currently no tax information exchange agreement. This means that any Spanish residents who are concealing assets in Gibraltar, especially by use of corporate wrappers, are now likely to be exposed to the Spanish tax authorities.
This demonstrates how risky it is to rely on banking secrecy.
Under the 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 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% (56% in Andalucía and Cataluña), rather than as savings income with a top rate of 27%.
Late payment interest.
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 also give rise to the criminal offence of 'tax fraud' if it exceeds €120,000.
The tax landscape in Spain has changed drastically over the last year. Your tax planning needs to be fully up to date and forward looking, and for peace of mind you should seek professional, expert advice.
7 August 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.