door Gabriella Trussler | nov 25, 2016 | Tax
The determining factor regarding what kind of Income Tax a natural o legal person pays in Spain is residence. Residents pay regular Income Tax (IRPF) or Corporation Tax (IS), and non-residents, both natural and legal persons, must pay Non-resident Income Tax (IRNR).
Who is a resident?
The first question to answer is who is considered a resident for tax purposes. This consideration must not be confused with the legal status of resident, which I have explained in detail y my previous post “Living and working in Spain”.
Natural persons (private individuals) are considered resident in Spain for tax purposes if they remain in Spain for more than 183 days of the calendar year.
Anyone who does not find themselves in this situation will be considered a Non-Resident Income Tax payer insofar as they obtain income or own real-estate in Spanish territory.
Income to be declared on real-estate in Spain
According to Spanish law, non-resident natural persons who own urban real-estate assets in Spanish territory, for their own personal use, rather than for economic activity or which are vacant, are subject to Non-Resident Income Tax for the income obtained from these buildings. To clarify, although there is no actual income received in these cases, a “fictional” income is calculated based on the value of the said property. This is not to be confused with the local Property Tax (I.B.I.), the payment of which does not exempt you from Non-Resident Income Tax.
If you are renting out your property you will have to declare the income you obtain from said rental.
Will I be notified I have to pay?
The system for collecting taxes in Spain is different to that in many other countries. Under the Spanish system you will not necessarily be reminded that you owe tax, it is your responsibility to make sure you are up to date on your tax payments.
However, this does not mean you won’t be caught for not paying your Non-Resident Income Tax. The Spanish Tax Authority is increasingly cross-referencing information to identify where there are irregularities (including monitoring electricity consumption and Land Registry records, among other measures).
A letter may be sent to your Spanish address notifying you of your obligation to pay Non-Resident Income Tax, though this is not necessarily the case and not receiving such a letter does not exempt you from your tax obligation. Even in the event that this letter is sent out, if you are not there to receive it at the time it is issued, as many who are not residing permanently in Spain may not be, then the letter will be returned to the Spanish Tax Authority.
When do I have to pay?
The 31st December is the deadline every year, by which time non-residents must have filed their annual Non-Resident Income Tax return for the previous year (e.g. deadline for 2019 tax return is 31st December 2020).
Consequences of failing to pay
The main consequence of non-payment is that the debt with the Spanish Tax Authority will be held against your property and, as a result, will have to be settled before you are able to sell your property, or before your heirs are able to inherit it.
In addition, you may have to pay late payment interest, as well as the appropriate tax sanctions, the funds in your bank account could be seized, or you could become the subject of one of the Spanish Tax Authority’s anti-fraud campaigns.
It is for all of these reasons that it is essential that non-residents seek a professional and experienced fiscal representative who is in a position to make sure your taxes are paid on time, receive notifications on your behalf, represent you to the Spanish Tax Authority, inform you of changes to Spanish tax law and answer all your queries on the matter.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
door Gabriella Trussler | nov 5, 2016 | Inheritance, Tax
Finally, a much needed change to Inheritance Tax in Andalucia has arrived and will be coming into effect on the 1st January 2017. With Andalucia being one of the poorest regions of Spain it was becoming increasingly difficult to justify it being the region with the highest level of Inheritance Tax, forcing many inheritors to renounce their inheritance because of the unaffordable tax bill that came with it. Consequently, a restructuring of the tax had long been a matter of debate and negotiation, on a regional as well as a national scale.
Higher threshold
The main change brought about by the new Inheritance Tax reform is the increase of the general threshold from 175,000 € to 250,000 € for each individual beneficiary. This means that as long as the value of the part of the entire estate being inherited is under this amount, no Inheritance Tax will be owed by said heir.
In addition, to inheritances of between 250,000 € and 350,000 € a 200,000 € reduction is applied (e.g. if an inheritor’s share is valued in 270,000 € tax will only be due on 70,000 €). The effect of this change is to correct the leap that currently exists where, the moment the inheritance is even a euro over the threshold, Inheritance Tax is owed on the entire amount. This circumstance quite clearly placed inheritors at a comparative disadvantage, and was one of the main criticisms made of Inheritance Tax regulation in Andalucia.
Main residence
Another important change is the introduction of increased
allowances for the inheritance of the deceased’s main residence by spouses, ascendants or descendants, or collateral relations over 65 years-old. Specifically, a 100 % allowance is applied when the value of the property is under 123,000 €, which reduces 1 % each time as the property value band increases, with the minimum allowance being 95 % when the property is valued at anywhere over 242,000 €.
Furthermore, as of the 1st January the beneficiary will now only be required to maintain ownership of the property for 3 years, as opposed to 10 years as it stands at the moment.
How is the tax rate calculated?
The above allowance, together with any other allowance the heir may be entitled to, is applied to the amount above the general threshold to determine the taxable amount.
Once we have the taxable amount the Inheritance Tax scale is applied, as well as a coefficient that depends on the relation to the deceased and the inheritor’s existing assets, to determine the tax rate that applies. All of these aspects remain unaltered by the tax reform.
Will this apply to UK residents post Brexit?
The regional allowances for Andalucia in the event that both the deceased and the beneficiary are EU residents. When this is not the case, only state allowances may be applied, which are far fewer.
Therefore, depending on the result of the negotiations between the UK and the EU, these regional allowances will continue to be applied to UK residents post Brexit, or not.
It is important that all of these circumstances and potential costs are taken into account when preparing your will, so as to organise your will and manage your wealth in a way that will be most beneficial to yourself and your inheritors. All of which makes seeking professional assistance in these matters essential, to avoid any unexpected and costly surprises when it’s too late.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
door Gabriella Trussler | nov 5, 2016 | Property
The negative effects of the financial crisis on Spanish society are well known, with the high number of bank
repossessions being the most widely publicised side-effect. Whilst this has created a social problem, it has also given way to a huge opportunity for property buyers and investors in Spain thanks to the incredibly low prices these repossessed properties are being offered at, with an estimated increase of 15% in property sales for this year.
Spanish banks have become inundated with repossessed properties in the last few years and their urgency to offload them so as not to incur in further losses puts the buyers of these types of properties in an extremely powerful negotiating position.
Furthermore, accepting one of the bank’s products (e.g. deposit account, home insurance, life insurance, credit card, etc.), some of which the buyer is already considering anyway, can bring down the purchase price even further.
Although repossessed properties in Spain are particularly appealing to cash
buyers because of their low prices, they
can also be very interesting for those considering a financed purchase, as some banks are currently offering 100% mortgages for these properties.
This change to the Spanish real estate market makes it the best time to buy in Spain in recent years. However, locating these properties and negotiating with the banks can prove complex and challenging, and specific legal checks are required. It is therefore important that potential buyers seek proper legal advice before engaging in the purchase of repossessed, or any other kind of properties in Spain.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
door Gabriella Trussler | nov 5, 2016 | Property
As you may already be aware, Spain’s Law of Urban Rentals (Ley de Arrendamientos Urbanos) was reformed in June 2013. Included in that reform was a key decision to transfer from the central government, to the autonomous regions of Spain, the responsibility of regulating holiday rentals agreements (holiday rentals are considered to be those which are of a period of two months or less).
This transfer of responsibility lead to an absence of legislation across the board, as many regional governments (including that of Andalucia) did not previously have in place their own independent regulation regarding holiday rentals. This led to a considerable number of fines being levied on owners for non-compliance, who found themselves unable to comply as a result of this conflict between central and regional legislation on the subject.
Following a considerable delay, (caused largely as a result of the temporary suspension of the Junta de Andalucía in 2013) the regulation of holiday rentals in Andalucía was finally approved in February of this year and came into effect on 11th May 2016.
Registration as a holiday rental
The regulation introduces, among many other obligations, the obligation of all owners of properties offered for holiday rentals to register said property with the Tourism Registry of Andalucia, as it is now considered that holiday rentals constitute a tourism service.
Registration of a holiday rental property with the Tourism Registry is compulsory in order to advertise your property in any way (e.g. estate agencies, accommodation websites, etc.) and the breach of this obligation, or any of the other extensive number of obligations contained in the new regulation, may result in an owner being liable for a fine of up to 18,000 €.
Additional obligations
In addition to the principal obligation to register the property, owners are required to make sure that their property and the service being provided meet certain standards and other conditions, as demanded by the regional government of Andalucia, all of which are subject to inspection by its Department of Tourism.
These are similar to those imposed on other forms of tourist accommodation, and relate to matters such as:
- Legal licences and technical requirements of the property, including cooling and heating systems.
- Safety and first aid equipment.
- Standard and condition of bedding.
- Hygiene and cleanliness.
- Tenants logbook.
- Tourist information and literature.
- Provision of complaint forms.
It has, therefore, now become essential that property owners offering their property for holiday rentals are fully aware of all their obligations in order to avoid the risk of substantial fines being imposed in the event of any breach of the new regulations.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
door Gabriella Trussler | nov 5, 2016 | Residence
As we all know, citizens of EU and EEA member states are allowed free movement throughout the Spanish territory. This is in theory. In reality, since 11th July 2012, the conditions for residence in Spain for more than 3 months have become much stricter.
Workers’ rights in the EU
Workers originating from another EU member state have the following rights:
- Freely enter, exit, travel and reside in Spanish territory with the exception of the exclusions made on the basis of public order, security or health.
- Perform any activity, as an employed or self-employed worker, to provide or receive services or to permanently reside after having carried out a work activity on the same terms as Spanish nationals, as well as to have access to public employment offers and be employed at the service of the public administrations.
- Match the Spanish workers in terms of: salaries, advancement, professional training, social security, working conditions, union affiliation, etc.
- Aggregation of insurance periods fulfilled in member states, for the purposes of social security benefits.
New conditions introduced for residence in Spain of EU citizens and their families (since 11th July 2012)
In 2007 the contents of a European Directive referring to the right of EU citizens and the family members to move and reside freely within the territory of the member states, was incorporated into Spanish Law (Directive 2004/38/CE).
Although the incorporation included some of the conditions placed upon the rights of free movement and residence within the member states, it did not include all of the requirements under the Directive. This has caused a great deal of financial loss for Spain, especially where the inability to ensure the reimbursement of the costs incurred in the provision of health and social services to European citizens is concerned.
It is for this reason that in 2012 Spain established new conditions to govern the right to residence of EU citizens for a period of more than 3 months.
STAY OF UP TO 3 MONTHS
In the cases of EU and EEA citizens whose stay in Spain does not exceed 3 months, whatever the nature of their stay may be, it will be sufficient to be in possession of a valid passport or ID card, which must be the one used for entry into Spain. These 3 months will not count towards the minimum stay required for the purposes of residency.
RESIDENCE BEYOND 3 MONTHS
The main requirement that must be met by EU citizens who intend to reside in Spain for more than 3 months is that they must be registered in the Central Register of Foreign Nationals. You can complete this registration process, if you are in possession of a valid passport or ID card, at the Foreigners’ Office of the province in which you intend to reside and you will be issued with a certificate on the spot as long as the conditions are met. This certificate will include, amongst other details, your NIE number (Identification Number for Foreigners).
Additionally, since 2012 the following documentation is also required, depending on the situation of the applicant:
a) Employed workers must submit a statement from the employer or certificate of employment, which must include certain details of the employer. Employment contracts registered with the Public Employment Service or certificate of registration in the social security system will always be admitted, although these will not be necessary if the applicant consents to the verification of these details from the social security records.
b) Self-employed workers also have to submit evidence of their situation. Registration in the Economic Activities Census, registration of your establishment in the Company Registry or certificate of registration in the social security system will always be admitted, although, yet again, these will not be necessary if the applicant consents to the verification of these details from the social security or tax records.
c) Those not engaged in work in Spain must submit documentation that attests to the following conditions being met:
- Health insurance, public or private, taken out in Spain or any other country, as long as it provides cover in
Spain, equal to that which is provided by the Spanish National Health System, during the period of residence. Pensioners will be considered to have met this requirement as long as they submit the appropriate certificate to show that they are entitled to healthcare from the state where they receive their pension.
- Be in possession of sufficient funds, for oneself and family members, so as not to become a burden on the Spanish welfare system during the period of residence. Proof of the existence of sufficient funds, whether they consist of a regular income or capital assets, may be provided by whatever means the law allows. The assessment of this self-sufficiency will be made on the merit of each case, always keeping in mind the personal and family situation of the applicant.
d) Students, including those on vocational training courses, must present evidence to certify the following:
- Registration in an educational establishment, public or private, approved or financed by the educational administration.
- Health insurance, public or private, taken out in Spain or any other country as long as it provides complete cover within Spain. However, this will not be necessary if the student possesses a European Health Insurance Card and its validity covers the entire period of residence.
- Affidavit stating you are in possession of sufficient funds for yourself and family members, so as not to become a burden on the Spanish welfare system during your stay.
In the case of EU exchange programmes, evidence of this fact will be sufficient to meet the criteria.
RESIDENCE FOR FAMILY MEMBERS
These rights will be extended to family members who accompany, or will be joining, an EU or EEA citizen:
- If the family members are citizens of a member state they must register in the Central Register of Foreign Nationals.
- If the family members are not citizens of a member state they must apply for an EU citizen’s family member residency card, which will be valid for 5 years from the date of its issue.
Furthermore, all of these procedures could be affected if the UK votes to leave the EU in the upcoming Brexit referendum, so it is important to stay informed on this matter. If these processes are not carried out properly it can cause serious delays in your application, which is why we recommend that you seek the appropriate legal advice from professionals specialised in this area before proceeding.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
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