Tag Archives: resident

European court rules Spain must soften penalties on Spanish residents who fail to declare assets held abroad

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In a recent decision, the Court of Justice of the European Union ruled that the fines imposed on Spanish residents for not declaring assets held abroad were “disproportionate”. As a result, last February, the Spanish parliament approved new, less discriminatory penalties.

Last year on this blog, we wrote about the obligation of Spanish tax residents to declare in Spain the assets they held abroad when the total value of these assets exceeded €50,000. This declaration had to be updated for changes in value of over €20,000.

Not filing this declaration meant facing fines of up to 150% of the undeclared assets, really amounting to a confiscation. And if you filed the declaration but made a mistake on it, you could be fined up to €5,000 for every error or omitted detail.

This regulation was imposed at a time of deep financial crisis when the government feared the freezing of bank accounts and offshore tax evasion. But these penalties have not held up to EU scrutiny for being clearly discriminatory against overseas investors. The new regulation adopted owing to the decision of the Luxembourg court brings the penalties in line with general tax regulations, without any discrimination for these assets being held abroad.

The time limits for these offences have also been brought into line with general tax regulations. Previously, there was no time limit on facing prosecution for offshore tax evasion.

Carlos Prieto Cid – Your legal adviser in Spain

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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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Spanish residents required to declare foreign assets

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For some time now, residents in Spain have been required by law to declare the assets they hold abroad to the Spanish Treasury. This includes everything from real estate and bank accounts to shares and insurance held or managed outside of Spain.

This declaration must be made online with an electronic signature. You have from 1 January to 31 March to make a declaration for the previous year. In the case of bank accounts, this declaration must include:

  • Full name of the bank or credit entity
  • Full details of your accounts
  • Dates accounts opened or closed, or, if applicable, dates the authorisation that gives rise to your obligation to declare was granted or revoked
  • Account balances as of 31 December and the average balance for the last quarter of the year

You do not have to make a declaration when the total of the account balances does not exceed €50,000 on 31 December. And you only need to make a declaration in following years when the total balance of all your accounts (as of 31 December and the average for the last quarter) goes up by over €20,000 compared to the balance reported in a previous declaration.
Similar rules apply for securities, stock-market shares, investment fund shares, life and disability insurance, and life and term annuities.

What is the purpose of this declaration? It allows the Spanish Treasury to check if the annual income and property tax declarations that you must file as a resident before 30 June take into account foreign assets and income. Because, as a resident in Spain, you must declare your income worldwide.

This obligation to declare foreign assets came about when the tax authorities of EU countries started working more closely together and assisting each other, as we have mentioned in other blog articles.

Carlos Prieto Cid – Your legal adviser in Spain

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Remote working from Spain

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Remote working is not a passing fad caused by the coronavirus pandemic. It’s a way of working that has so many advantages that it will become entrenched in society. I have clients who visit Spain on a regular basis for holidays or to enjoy their retirement. Now more and more of them are considering living here permanently, working and enjoying life by the beach at same time.

Over a year ago, before we’d even had a hint of the coming pandemic and the social changes it would bring, we published an article on our blog on the possibilities and legal risks of remote working. In this article, we concentrate more on the international aspects of this work situation. We’re specifically going to look at the legal problem arising when someone works remotely in one country, Spain, for example, when the recipient benefiting from their services is located in another country. Germany, for instance. This is an increasingly common scenario. There are even local councils and companies in Spanish tourist areas promoting the idea of “holidays all year round”, where the worker is offered the opportunity to enjoy their holiday paradise while meeting their work obligations during part of the day.

But when we provide our services remotely as an employee or a self-employed person and our habitual residence is in one country while the client or employer we are providing our services to is in another, what labour legislation and social security system are applicable? To answer these questions, which always depend on the timeframe, several agreements have been reached in the European Economic Area that essentially require workers to be able to demonstrate via an internationally valid document which national social security system is responsible for their situation and the payment of their contributions. When in this scenario, we must take into account the applicable situation and get expert advice to make sure that we are meeting our tax, labour and social security obligations at all times required by the legislation of the country in question. Cases can vary a lot, and you always need professional advice to make sure you are abiding by the law.

Carlos Prieto Cid – Your legal adviser in Spain

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Working in Spain for non-resident employers

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Providing services remotely is, thanks to today’s technology, increasingly common. You can live in one country and provide services to a person or company based in another. However, this scenario can be confusing with regard to taxation and social security.

Today’s technology allows you to provide someone with services without ever having to physically meet them. For instance, communications, consultancy work and the transfer of knowledge are all services that can be provided remotely via the Internet, with no physical or geographical barriers. If you are a Spanish resident, which, as a rule, means that you live here for more than 183 days a year, you are subject to Spanish labour, tax and social security regulations with regard to the services you provide.
But there are grey areas in the Spanish legislation when it comes to remote working. It is straightforward if you are self-employed. In this case, you are simply registered and treated as self-employed by social security and the tax office. You have the same obligations as any self-employed resident.
However, you may not technically be self-employed if:

  • You only provide services for one person or company.
  • The receiver of your services trained you or provided you with or paid for the tools required to carry out the work commissioned.
  • You carry out the work according to the instructions of the service receiver, and the resulting products are sold on by them.

If these cases, the service receiver is actually your employer, and they are required to register you with the social security as an employee and meet their tax and employer obligations in Spain. It doesn’t matter if the company or person receiving your services does not have a permanent premises in Spain. Their obligations are clear, and you can report them for not meeting them.

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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Spain condemned to end the tax discrimination in the inheritance of non-residents

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On November 16, 2011 we published an article on this blog about the accusation presented by the European Commission to the European Court against the Kingdom of Spain of discrimination against non-resident at the time of inheritance. After a long process, the judges in Luxembourg finally gave the reason to the Commission.

On September 3, 2014 the Court of the European Union ruled in the case C127/12, concerning an appeal of the European Commission against the Kingdom of Spain for not complying with the founding treaties of the European Union. In its statement, the Commission requested the Court to declare the breach of obligations of the Kingdom of Spain as European partner because of the introduction of differences in the tax on inheritance and in the gift tax, depending on the place of residence of the participants, that is, whether or not they are resident in Spain. In practice, upon the acceptance of the inheritance or donation in Spain, non-residents generally pay much higher taxes than residents.

This requirement of the European Commission was the end result of a process initiated in 2007, in which the European government had already asked Spain to change its laws concerning the taxation of the gift or inheritance. A little change was made, but it did not satisfy the Commission of the European Union, who filed a lawsuit in the Court of the European Union against Spain. The state attempted to defend itself, but the court concluded that the state law in the application of inheritance and gift tax discriminates against non-residents, and this discrimination is an affront to the freedom of movement of capital, one of the fundamental freedoms, which should save the Union.

Carlos Prieto Cid – Lawyer

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Acquisition of property by non-residents: important issues that must be considered

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We take a lot of risks when deciding to buy a property in Spain. If
the seller is a non-resident owner, there are specific risks that are usually not taken into account by investors.

A big part of the real estate on the Spanish coast belongs to owners who do not reside in our country and it is usually a house or apartment for holiday. If we buy this real estate to owners who are not residents, we must not forget the need to
be cautious to avoid later unexpected problems with the administrations.

The most common risk is the obligation to pay the council tax on the increase in value of urban land (the so-called “plusvalía municipal”). The law provides that this tax should be paid by the seller, and so, the buyer does not usually care about this expense when calculating the total cost of the investment transaction. However, when the seller is not a resident, the law obliges to pay this council tax to the buyer as a substitute of the seller, the one who should be actually required to pay it. This exception to the rule has its own logic, as it tries to avoid that the administration has to prosecute abroad the non-resident sellers who did not pay their taxes voluntarily, because when they sell their property in Spain, they very often do not retain any other property in the country, and, therefore, they are technically insolvent. In this case, the municipality requires the payment of the tax to the party who is closer and this is the buyer.

That is why during the registration of the purchase contract we should require the seller the corresponding provision of funds (or withhold the foreseen amount of the tax from the money that is still owed ​​to the seller for the property). If this exception to the general rule is not considered and no precautions are taken, in the case that the municipality requests that we as buyers pay the tax on the increase in land value because the seller did not pay this tax freely, we will have no choice but to undertake this payment, because, before the Spanish administration, we would be the only one who is obliged to pay. Another thing is that we can claim ourselves afterwards from the seller what we have paid to the municipality, through a civil action against him.

Carlos Prieto Cid – Lawyer

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Setting up a business in Spain as a way to obtain a residence permit

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The conditions for non-EU foreign nationals who wish to set up a business in Spain and obtain a residence permit which includes permission to carry on an activity on their own account are a guarantee of the business owner’s solvency and the legality and viability of the business.

A residence permit for Spain (which also allows free movement within the Schengen area) can be obtained by setting up a business.  The legislation aims to prevent potential fraud by ensuring that the applicant for the residence permit with permission to carry on an activity on their own account is not planning to establish a dummy company, and that the business will generate jobs and contribute to the nation’s prosperity.

How can it be proved that the business has sufficient funds with which to implement the planned investment?  How high is the expected return on the investment?  How many jobs will be created?  Here, an opinion should be sought from a business association registered in Spain or an association for self-employed workers and freelancers.  The application for a residence permit with permission to carry on an activity on one’s own account, together with additional proof of the legality and viability of the business, must be submitted to the Spanish consulate in the respective country in which the applicant usually resides.  Only once the office approves the application will a visa be issued for travel to Spain and the establishment of a business.  For this reason, the process is usually undertaken in collaboration with Spanish partners, who will work on the setting-up of the business until a residence permit has been issued.

Carlos Prieto Cid – Lawyer

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