Will The Taxman Give You An Electric Shock?

06.07.11

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

It is the responsibility of everyone living in Spain or owning property here to establish exactly what the tax rules are and how they apply to them, and then to complete their tax return correctly

It is the responsibility of everyone living in Spain or owning property here to establish exactly what the tax rules are and how they apply to them, and then to complete their tax return correctly and fully each year.

The Spanish government has become much more vigilant about enforcing its taxation laws and increasingly successful at uncovering tax evasion. Property tax fraud has cost the government significant revenue in the past ? in 2009 it estimated that around 70% of rentals were not declared – but the authorities keep coming up with new ideas to expose tax evaders and now have another effective tool to use.

A new obligation has been imposed on Spanish electricity providers whereby every year they must provide the Hacienda (Spanish tax authority) with information on the electricity consumption of every single property in Spain.

The first declarations, with information relating to 2010, were submitted in February 2011. Details given to the Hacienda include:

? Name of the person or organisation on the electricity invoice.

? Name of the holder of the bank account from which payments are made.

? Catastral reference and address of the property.

? Amount of electricity used.

This information enables the tax authorities to know exactly when a property has been lived in or used for business and they can compare this with information provided by the property owner. They will be able to detect whether a property which is declared as empty is in fact being rented out, or whether a property supposedly owned by non-residents and only used as a holiday home is actually being lived in for most of the year.

It is important that anyone renting out property in Spain fully declares the income on their annual tax return.

This new measure will catch out people who are living in Spain permanently but who have not registered as such and have not been paying tax in Spain each year.

If they have not submitted a tax return for 2010, or they declared themselves as non-resident for the year and the authorities suspect otherwise, they could investigate further and look back over the previous four years and impose penalties on those found guilty of tax evasion.

Under Spanish law, you are resident in Spain for tax purposes if you meet any of the criteria below, regardless of whether you take out a formal residence permit –

1) You spend more than 183 days (not necessarily consecutive) in Spain in one calendar year. Temporary absences are ignored unless you can prove you were habitually resident in another country for over 183 days that year.

2) Your ?centre of economic interests? is in Spain.

3) Your ?centre of vital interests? is in Spain, for example your spouse or minor children live here.

When combined with suitable financial planning, there are actually benefits to being tax resident in Spain. Besides the Spanish succession tax issue (see separate article), when it comes to income and capital gains tax on your investments, savings and pensions, it is often possible to use legitimate tax planning arrangements to significantly lower your tax liabilities in Spain. You may end up paying less tax than you expect, quite possibly less than you would in countries like the UK. Ask your Blevins Franks Partner for more information.

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 must take personalised advice.

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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