Tag Archives: pension

Tax headaches from receiving a foreign pension

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Many Europeans spend much of their holidays in Spain throughout their working life. Therefore, it’s understandable that once retired they want to have holidays all year round by becoming residents in Spain. What obligations do these retirees have with the Spanish tax authorities?

If you spend more than 183 days in Spain, you are considered a resident for tax purposes. In this case, you must declare all your income to the Spanish tax authorities, both income generated in Spain and any coming from abroad. However, even though the Spanish tax agency must be informed of all your income, this does not mean that you have to pay tax in Spain on all your earnings.

The international agreements between Spain and other countries to avoid double taxation aim to make sure that the tax you pay is legitimate and fair, and you can deduct tax paid abroad previously from tax owed in Spain.

Retirement pensions receive a special treatment that has caused much controversy in recent years because the double taxation rules were not given the same interpretation in different countries. For instance, public pensions can only be taxed in the country in which they are generated. But in recent years, public pensions have come to be interpreted to be only pensions received by retired civil servants.

Another problem is caused by pensions paid as a lump sum without any kind of withholding, typical in Germany. In this case, when the paying country wants to collect the tax it is legally owed, the lump sum may have already been taxed in Spain, without there having been any deduction of the foreign tax due because it had yet to be paid.

Given such complexities, you should always seek the advice of a tax specialist for clearing up any doubt surrounding your situation to avoid unpleasant surprises from the tax authorities in Spain or your home country.

Carlos Prieto Cid – Your legal adviser in Spain

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Professional services for pensioners residing abroad

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When you stop working, it’s time to enjoy your pension. But what happens to your pension if you decide to retire abroad? To receive a pension in Spain as a foreign resident, you need to take into account a range of matters that can turn out to be quite complex.

Spanish pension laws are extremely complex, although this legislation is not applicable to Spanish residents receiving a foreign pension. In this case, you are covered by bilateral social security agreements. In Spain, the Social Security (“Seguridad Social”) takes care of social welfare matters.

One typical situation is migrating when you’re already receiving a pension in your home country. In this case, you need to know what to do to make sure you keep receiving your pension abroad. To start with, you need to submit a number of documents to the social welfare authority in your home country.

You may also need to demonstrate that you are still alive and entitled to receive the pension. Any hitch regarding this matter can result in a stoppage of the payments and can cause serious problems for you as an overseas pensioner.

Another complex situation entails when you have worked most of your life in your home country but now work abroad and plan to stay and live in this foreign country during your retirement. In this case, you need to calculate the most beneficial option according to the applicable international agreements for the periods worked in the two countries.

This situation can vary greatly and can give rise to very complex scenarios because of differences between the legislations of the different countries regarding the minimum retirement age, the minimum amount of years worked required, requirements regarding non-contributory pensions, etc. Ideally, you need to get professional advice when making decisions about such important matters regarding your working life.

Carlos Prieto Cid – Lawyer

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European tax offices strengthen their ties

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Over the years, we have observed from our law firm how the Spanish Tax Office has improved its channels of cooperation with other European tax offices to the point that they are now sharing all types of information on taxpayers.
 
Until now, this cooperation was limited to chasing real estate assets located in Spain owned by taxpayers of other countries who had outstanding tax bills with their home tax office. The Spanish Tax Office collected the debt that a taxpayer had abroad by claiming against real property owned in Spain, regardless of whether the person was a resident.
 
Now the cooperation is even stronger. Administration and inspection proceedings are triggered via the data provided by foreign tax offices. Recently we’ve seen the German and British tax offices inform their Spanish counterpart of known income of nationals of these countries who apparently reside or have their domicile in Spain. Based on this information, the Spanish tax agency sends a claim demanding payment of the undeclared tax and the corresponding penalties, which can reach 50% of the sum owed plus interest on the debt from the deadline for paying the tax. If you have received one of these claim letters in recent weeks, don’t hesitate to get in touch with your tax advisor.

Carlos Prieto Cid – Lawyer

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Tax Amnesty for Pensioners

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Reminder from the Spanish Tax Agency on the tax rules for foreign pensioners living in Spain.

In recent weeks, many recipients of foreign pensions residing in Spain have received letters from the Spanish tax authorities reminding them of the obligation to pay tax on their foreign pensions, which are no longer exempt following recent changes to the “Treaties for the Avoidance of Double Taxation”. The letter is as follows:

On becoming aware of the existence of taxpayers liable to pay income tax on undeclared overseas pensions, the Spanish Tax Agency has had to take control actions.

Given the socially vulnerable nature of the group affected, i.e., pensioners, the Sole Additional Provision to Spanish Law 26/2014 of 27 November (published in the BOE Official Gazette on 28 November) introduces two exceptional measures of which you, the pensioner, are informed so you may determine whether you can take advantage of them.

The first measure entails the waiver of all penalties, surcharges or interest arising from a regularisation, regardless of whether the regularisation results from action taken by the Tax Agency or on the taxpayer’s initiative.

The second measure, aimed at encouraging the voluntary regularisation of these cases, entails granting a special deadline of 30 June 2015, before which income tax declarations that correctly declare all the pensions received for all non-expired periods up until 1 January 2015 may be presented.

Presenting declarations before the deadline requires paying all tax due but not the payment of any penalties, interest or surcharges.

After this special deadline, all regularisation procedures will be subject to general tax rules without exception.

Carlos Prieto Cid – Lawyer

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The Spanish Tax Office has declared a tax amnesty for pensioners

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The Spanish government is granting a special deadline for income tax declarations to all foreign nationals who are resident in Spain, as well as to any Spanish pensioners who have returned to the country after emigrating. These persons can now pay the whole amount of tax owed to the tax authorities with any penalties or fines for late payment waived.

If you reside in Spain for more than 183 days in a year, you are automatically classed as a resident for tax purposes, and as a consequence your worldwide income must be taxed in Spain. This also includes your pension. If you are retired and you do not have presented a tax declaration in Spain yet, you have until the middle of next year to submit a declaration and pay the tax, free from any penalties or interest.

There are now minimum amounts below which no income tax needs to be declared. For 2013, this minimum annual income for foreign pensions stood normally at €11,200. This amount is irrespective of whether you want to be assessed on your own or together with your spouse. However, this does not apply to government pensions (for civil servants), as these must always be taxed in your country of origin.

The increasingly closer exchange of information and data between the various Eropean tax authorities had made the Spanish Treasury aware of how many foreign pensioners, and emigrants who have returned from abroad, do not pay tax at all on their foreign pensions here or at least do not do it according to the rules. Pensioners are often elder and have greater difficulties understanding the legal situation in Spain, as they have been living abroad for many years. On the other hand they generally do not have many assets. That is why the Spanish government has set a special deadline of 6 months, beginning on 01.01.2015 to give such persons an opportunity to clear their debts with the tax office by paying 100% of their tax spar­ing themselves any interest and penalties for late pay­ment.

Carlos Prieto Cid – Lawyer

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Residents in Spain are required to declare their assets abroad

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Spanish Royal Decree 1558/ 2012, published on 15 November 2012 introduces new reporting requirements for taxpayers residing in Spain: they should declare to the Spanish State tax authority rights and property, such as real estate, bank accounts, stocks, bonds and insurances, held or managed abroad.

This statement should be made exclusively by means of telematics through the Internet, transmitting it with an electronic signature produced when selecting a personal certificate installed in advance in the browser for this purpose. Application deadline is from 1st January to 31st March of the year following that to which the information relates, although the declaration for 2012 will take place during March and April 2013.

The information to be reported to the tax authorities on accounts in financial institutions located abroad includes the following items:
1. Company name or full name of the bank or savings bank and location
2. Full identification of accounts
3. Date of opening or cancellation, or, where appropriate, date of issuance and withdrawal of the permit leading to the liability of the concerned reporter.
4. And, logically, the balance of the accounts at 31 December, and the average balance for the last quarter of the year.

Anyway, no one is obliged to report on the status of the account, if the final balance on 31st December does not exceed, in total, EUR 50.000. The submission of this declaration in the following years will be only required when either of the joint balances of the accounts (the one at 31st December or the average one of the last quarter of the year) experiences an increase exceeding 20.000 euros.

A similar provision is established when the foreign assets are such as securities, stocks, mutual funds, life insurances or disability insurances and temporary or lifelong rents.

For real property located abroad, the information statement will contain the following data:
a. Identification of the property with a brief specification of its typology, as  will be defined by a future order of the competent Ministry.
b. Location of the real estate: country or territory in which it is situated, city, street and number.
c. Date of acquisition.
d. Cost of acquisition.

In the case of timesharing contracts or similar arrangements and in case of usufruct rights the reporter should also indicate the value of the property on the 31st December. The applicable quantitative liability limits are the same as in the previous cases.
This obligation to declare assets is accompanied by a closer cooperation and a increased mutual assistance between tax authorities. We are going to discuss about that in a future article.

Carlos Prieto Cid, Lawyer

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Buying property in Spain: a way to get a residence permit to non-EU citizens

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This announcement made by the government of Spain in mid-November has been widely reported in the media. This legal measure is under consideration and we really do not know how it will be finally configured.

The government’s intention is to give a new argument to attract prospective buyers of property in Spain, especially from countries such as Russia or China. For sellers of property in Spain, who have not been able to find a buyer for years, despite the constant reductions of the sale price, the measure can also be a new opportunity.

Carlos Prieto Cid, Lawyer

For more information read the following article (2011)

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Income Tax for foreign property owners

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Foreign nationals who are not registered for tax in Spain but own property in the country must submit a tax declaration for their income tax to the state tax office every year. This involves the so-called Impuesto de la Renta de No Residentes (Income Tax for Non-residents).

Many property owners do not understand why they must declare and pay tax in Spain even though they earn no income here because they only come here for holidays and therefore neither work nor are involved in any economic activities or receive interest from banks on financial investments. There is usually no rental income from property either. Despite this, in Spain (much like in other European countries), simply owning a property is regarded as income, even when the property is not let or leased out. The state tax system assumes that a profit is made from the property even if it is not rented out, it is not the own home or if the property is not dedicated to economic activity, which for non-residents can never be the case.

How is this fictitious return calculated? Spanish law stipulates that income earned from the simple possession of a property equates to a certain percentage of its cadastral value. This percentage is either 2% or 1.1%, depending on the year in which the Spanish Land Registry (or rather, the respective municipality), updated its property values. The Land Registry (Catastro) is a national register of properties, answerable to the Spanish tax office, which gives the authorities information about these properties (owners, size, use, year of construction, boundaries, etc.). The information stored at the Land Registry can be submitted by Land Registry officials themselves, the municipalities or the owners of the property. One of the most important pieces of information on every property is in fact the cadastral value. This value is dependent on many other objective details and here on the coast can generally be a lot lower than the market price that we would set for the property.

Despite this, this objective value is decisive for almost all authorities and provides the basis for many taxes, including income tax for non-residents. This percentage of the cadastral value is therefore the basis for income tax for non-residents, which is currently 24%. Every year, the owners must pay the resulting sum by 31 December the following year. This means that foreigners who own a property in 2011 must submit their tax declaration to the tax office and pay the tax by 31 December, 2012. In 2008, the tax office changed the forms for this declaration, which caused problems for many foreigners who did not hear about this amendment in time. Until then, Form 214 was used, but now Form 210 must be completed. The change was a consequence of recent tax reforms, which saw the abolition of property tax. However, the tax for non-residents was retained because it is regarded as a form of income tax rather than a property tax.

Otherwise, for non-residents there are only the local rates, the so-called IBI, which are paid as a municipal tax that every municipality demands from property owners each year and which is calculated and demanded by the local authority itself.

Carlos Prieto Cid, Lawyer

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