Your Tax Obligations In Spain. It Is More Important Than Ever To Get It Right

In our experience, many British expatriates living in Spain do not understand where they have to pay tax. They either mistakenly believe they have a choice, or they decide not to dec

In our experience, many British expatriates living in Spain do not understand where they have to pay tax. They either mistakenly believe they have a choice, or they decide not to declare themselves for tax in Spain. The irony is, it is often more beneficial to pay tax in Spain than in the UK.

If you live or own property in Spain, it is your responsibility to establish what your tax obligations are and then file returns and pay tax correctly each year. The tax authorities will not be very sympathetic if you use ignorance as a defence.

You are tax resident in Spain if any of the following apply:

1) You spend more than 183 in Spain in a calendar year. The days do not have to be consecutive.

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

3) Spain is your ?centre of vital interests?.

There is no choice; you either are, or are not, resident under the rules. If you meet the tax residence criteria of both Spain and the UK, tie breaker rules will determine where you pay tax.

As a resident in Spain, you are liable to Spanish tax on all your income and gains wherever in the world they arise. You currently also need to declare your worldwide assets for wealth tax purposes. Some UK source income is also taxable in the UK, although the double tax treaty between the UK and Spain determines how double tax relief is applied.

Anyone not applying the rules correctly is now likely to be caught out. The consequences could be costly. The Spanish government desperately needs to increase revenue and is intensifying its crackdown on tax fraud. It is targeting residents who have not declared all their income, particularly overseas income, and foreign nationals who live here but do not declare themselves for tax.

The tax office, the Agencia Tributaria, now uses land registry and utility company records to establish who owns property in Spain and how long the property is occupied, and compares it with tax return records. It has written to hundreds of property owners warning them it is aware they have not submitted tax returns, and giving them an opportunity to regularise their affairs. It wants to ensure that everyone who lives in Spain pays tax in Spain.

We are also hearing more and more reports about the authorities contacting resident expatriates who it believes have not correctly declared their offshore bank accounts and investments. The tax office is believed to be using information supplied by the offshore jurisdictions.

Until 30th November 2012, anyone with undeclared income and gains can take advantage of a tax ?amnesty?. They will pay a 10% ?special levy? to regularise their income. No penalties, interest or surcharges will be imposed, but they will need to reveal their name to the authorities.

The government has promised to get much tougher on tax evasion once the amnesty is over, and a new tax fraud prevention law will come into effect. Taxpayers will be obliged to report all bank accounts and assets owned outside Spain, with stiff penalties for those failing to comply.

Blevins Franks specialises in understanding the interaction of Spanish and UK tax, and the implications for British expatriates. We will clarify your tax position and advise on legitimate tax mitigation opportunities in Spain.

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.