Foreign Spanish Residents

There are some limits below for which it is not necessary to submit the declaration. Those limits are subjects to changes, for this reason is convenient to check it yearly.

It is a complicated tax refund where you have to declare separately each category of income classified by its source:

• Income from work:  wages, pensions, etc
• Income from investments:  interest, dividend, etc
• Income from property: property owner´s imputed income tax, rental income, etc
• Income from business: income coming from economic activities.
• Gains and losses: capital profit and loss

Each category has its own regulation to work out the taxable base and, some of them, its particular tax rate.

Except for the capital gains, the tax is the result of applying the percentage of the tax scale to the taxable base. The scale could change yearly and final tax could also be different depending on the particular regulation of each autonomous region. In consequence it is important to check it every year (as a general reference the tax scale could be from 18% up to 45%).

Regarding capital gains, the tax rate ranges in 2021 from 19 % to 26%.

The Income Tax Law regulates different allowances and deductions that could also change depending on the year and the autonomous region, the most important:

• The personal minimum exemption: depending on age, from 5.550,00 euros up to 8.100,00 euros – older than 75 -.
• The family minimum exemption: depending on the family members, starts at 2.400,00 euros for the first child.
• Others: disability conditions, elderly parents and grand-parent over 65 living in the family unit, one-parent families, etc.
• Spouses joint declaration:  3.400,00 euros.
• The wage earner´s deduction: valid for salaries and pensions, from 2.000 euros, depending on the amount received.
• No imputed income tax on principal residence
• Special deductions for annuities, depending on the age at which the payment starts (the amount exempt may range from 60 % up to the 92 %).
• Mortgage interest & capital deduction (habitual residence bought before 01-01-2013 ).
• Exemption of capital gains arising from the sale of the habitual home made for people aged over 65.
• Foreign tax deduction to avoid double taxation.

To avoid double taxation, depending on the country of origin, there are different forms to be completed, copies of which must be submitted to both the Spanish and foreign tax authorities.

If a will, Spanish or foreign, is not made, the Spanish estate will be distributed applying the rules of Spanish law, which may mean you can freely dispose of only one-third of your assets in Spain (children are compulsory heirs of the rest two-thirds). If a foreign will is made, it is not absolutely necessary to make a Spanish one to dispose of assets in Spain, but it is convenient in order to save time and money to the heirs.

Since 2015, Inheritance taxes over Spanish estate will not depend any more on whether the deceased, or the heir, is, or not, resident. The regional rules will be also applied for residents in the European Union, so better tax breaks can be found, even the exemption.

This is a tax charged by local Councils and paid by property owners.
 
All property within the Council’s area is included on a tax register (Catastro) and is assigned a value (Rateable Value – Valor catastral ). The amount of tax to be paid is calculated by applying the tax rate set by the Council to this Rateable Value.
 
A bill is sent out for payment of this tax every year for every property on the tax register. Usually, Councils accept payment of the tax by direct debit from a bank account, which facilitates payment within the time period set and thus avoids any possible surcharges.
 
The payment deadline depends on the Council, although it is normally around the months of September, October or November each year.

OUTSIDE ASSETS REPORTING LAW FOR SPANISH RESIDENTS
Ley 7/2012, on 29th October for the prevention and fight against fraud

Through the anti-fraud law, Ley 7/2012, on 29th October, came into force, since 2012, the obligation for Spanish tax residents to report assets located outside Spain.

• WHO IS REQUIRED TO REPORT?

Both individuals and legal entities living in Spain over 183 days in the previous calendar year.

Reporting assets abroad is obligatory, not only for the owner but also for a beneficiary, an authorized signatory, or any one with the authority to dispose of the asset.

This includes assets held in a trust.

• TERM AND PROCEDURE

The reporting must be submitted from 1st January to 31st March for the previous calendar year.

It will be mandatory to file out it online with an electronic certificate. If you do not have the facility yourself, an accountant can do it for you.

• ASSETS OUTSIDE SPAIN CATEGORIES & INFORMATION TO BE REPORTED

ACCOUNTS HELD WITH FINANCIAL INSTITUTIONS (all types of accounts and deposits, including credit accounts, in all currencies, regardless of whether you have the right to withdraw the funds or not).

It is obliged to be reported: the bank account identification, the country where the financial institution is located, the end of year value and the last quarter average balance. It is mandatory to include the date the account was opened and, if cancelled, that date too.

INSURANCE POLICIES, UNIT-LINKED, PENSION SCHEMES, ANNUITY INCOME, INCOMES GENERATED FROM LOANS, RIGHTS OR OTHER ASSETS TO FOREING ENTITIES.

It is obliged to be reported: the entity full identification and the end of year value.

If you are not sure about the nature of your investment, please check it.

INMOVABLE PROPERTY AND RIGHTS OVER SUCH PROPERTY

It is obliged to be reported: the asset location, the acquisition value & date, and the current value as per the wealth tax rules.

If the asset has been sold during the year, it is also obliged to provide the sale price.

• EXCLUSIONS

– Assets in a particular category if the added value of the total assets in that set is below € 50.000,00.

– After submitted the first report, when the set of assets in each particular category increased by less than € 20.000,00 of the declared value on the last report, it will be not obliged to report this category until the value will exceed this limit.

If no asset category exceeds this limit, there is no obligation to submit any report until it will exceed it.

– In any case, independent of the referred limits, when a previously declared asset is sold properties, shares …) or a previously declared bank account is cancelled, it is obliged to report of its value at the date of disposal.

• PENALTIES AND FINES

Any unreported asset, even accidental, may be considered as an “unjustified increase in wealth” and taxed as general income at the scale rates (could be up to 52%).

In addition to the above, the failure in reporting the asset could be fined with penalties up to 150 % of the tax payable plus late payment interest for the last four years.

Besides this, you could be fined for non-compliance: € 5.000,00 for each reportable asset, with a minimum fine of € 10.000,00.

The entitlement of the Tax Agency to check back past years to assess the unpaid tax on the unreported asset, never expires.

If the tax defrauded exceeds € 120.000,00 it would be considered a criminal offence.

Currently, there is a great deal of exchange of information between countries, that will increase in the following years, so it is very likely that the Tax Agency will find out the unreported assets, or any mistake on the report, with the heavy consequences exposed.

As Spanish tax experts, we are fully qualified to advise you on this matter.