In late 2012, as we reported, the Spanish tax agency announced a tax amnesty allowing Spanish residents to declare any assets held in their name, and to pay tax at 10% of the amount declared. The end result was that less than half of the government estimate of 2.5 billion Euros was raised. On 31 October 2012 new legislation came into force in Spain with the specific aim of combatting tax fraud.
The new legislation facilitates communication between the Spanish tax agency and tax authorities throughout the world. It also requires all companies and individuals considered to be tax resident in Spain to declare all moveable and immoveable assets either owned by them, or within their control, situated either within or outside of Spain.
Once assets have been declared, they will attract tax annually, although at a modest rate.
Spanish residents have an ongoing tax liability in respect of their pre-existing wealth. Although in certain autonomous regions of Spain no wealth tax has been payable for some time, such as in Madrid, other regions, notably the Balearic Islands, are now beginning to demand payment. An individual resident in Spain for tax purposes will benefit from a nil rate band, which takes into consideration a family home in Spain and other property up to a maximum value. The value of real property situated outside of Spain is based exclusively on its market value.
Some British nationals are likely to be affected by the new rules. Perhaps the only benevolent aspect of this law reform is that those with assets of no more than 50,000 Euros in each category are not subject to the reporting requirements, and neither are those whose assets outside of Spain do not increase by more than 20,000 Euros year on year. This will be a relief to many retirees who may have bank accounts in the UK with modest balances, as well as perhaps a small share portfolio.
That said, there will be many others who are subject to Spanish taxation based on the length of time they spend in the country, but who to date may not have informed HMRC that they are not resident in the UK and, despite having lived in Spain for a few years, have not yet submitted a Spanish resident tax return. The new rules may be of most concern to those who have significant foreign holdings, particularly important business interests, and those who are beneficiaries of Trusts and who, according to the legislation, may be bound to submit information regarding their interest to the Spanish tax agency, despite not having been resident in Spain when the property was settled.
Find out more about Spanish inheritance tax.
The reporting requirements relate to five main categories of assets:
First category: Funds available in banks outside of Spain, including funds deposited in current accounts, deposit accounts, and longer term deposits, as well as credit facilities and any other type of account or deposit. The information to be provided in each case will be the date on which the account was opened or closed, the balance as at 31 December in the year in question, as well as the average account balance during the last quarter, and, where relevant, the date on which the declarant was authorised to deal with the funds, or on which that authorisation was withdrawn.
In relation to the following four categories, the relevant date will be 31 December in the tax year in question.
Second category: Share capital in foreign companies (private or public), the value of any transfer of share capital in those companies to a third party, and the value of any funds transferred to a foreign Trust or other pool of assets outside of Spain.
Third category: Life insurance policies, and income received from life insurance companies registered abroad.
Fourth Category: Interests in Collective Investment Schemes situated outside of Spain.
Fifth Category: Interests in real property situated outside of Spain, including timeshare and similar interests.
In terms of the first category, those subject to the reporting requirement are individuals and companies permanently resident in Spain, as well as companies resident abroad but with a permanent presence in Spain. That said, the obligation to report is far reaching, so that not only do the account holders have to make the declaration, but so does anyone who represents the account holder, benefits from the account, or has at any time during the tax year had power of attorney in respect of those accounts. The requirement that anyone with power of attorney over funds in bank accounts will be relevant to those with authority further to a Lasting Power of Attorney.
In terms of the other categories, the legal title holder is responsible for making the declaration. Legal title holder is defined in Spanish law to include those who control directly or indirectly 25% or more of any legal entity, or of the assets of any such entity, as well as the members of a class of beneficiaries when the beneficiaries of such an entity are yet to be determined. Clearly this broad definition is designed to include beneficiaries of discretionary Trusts.
Each person or organisation subject to the reporting requirement must submit a declaration by 31 March following the end of the tax year in question, which in Spain ends on 31 December. As set out above, those whose assets have not increased by more than 20,000 Euros in any one category will not need to make a subsequent declaration.
A return must be submitted to the Spanish Tax Agency electronically via the Internet. If the return is not made in the correct form, that will be considered to be a complete failure to provide information, even if all relevant details are provided in writing. There are strict rules for access to the website and often it will be more straightforward to instruct an accountant to handle the matter on your behalf.
If you think you may be affected by these rules, please contact Jonathan Eshkeri to discuss your situation.
This is an amended version of an article first published in the March 2013 issue of Private Client Adviser.
