I’m grateful to Paul Montague for the following, which is a summary of the most significant tax news in Spain at the beginning of the New Year. Blevins Franks says that they are aware of different tax changes that could affect British nationals in the Canaries in different ways.
Spanish 2019 general budget
As expected, due to the lack of support of the Spanish Socialist government, the 2019 Spanish general budget has not been approved yet. Therefore, the 2018 budget has been automatically extended until the new one is approved.
There are rumours that they would like to present it for approval at the end of January 2019, but this will depend on how the negotiations with the different political parties progress. There will be updates in due course with further news in this regard.
Spanish wealth tax has been extended, once again, for tax year 2019.
Currently, the only Spanish region in which there is no wealth tax applicable at all, due to a regional relief of 100%, is Madrid.
The Canary Islands’ 2019 budget has been approved and it includes the following tax news:
§ Income Tax: The lowest two regional income tax brackets have been reduced from 9.5% to 9% and from 12% to 11.5%. The rest of the regional brackets remain the same (up to 24%) and they all need to be added to the state rates to arrive at the final applicable income tax rates in the region.
§ Succession and Gift Tax: The current 99.9% relief applicable for inheritances to Group II beneficiaries in the Canary Islands has been extended to Group III beneficiaries (i.e. siblings, aunts & uncles, etc.) for tax year 2019. This does not apply to lifetime gifts.
§ IGIC: The special Canary Islands’ VAT known as IGIC has been reduced from 7% to 6.5%.
Recently, the Spanish Ministry of Treasury has been forced by the Audencia Nacional Court to make public the report that the European Commission (EC) issued back in February 2017 with their comments and recommendations with regards to the controversial Modelo 720 in Spain.
According to the report that was signed by Pierre Moscovici, the Spanish Modelo 720 violates five fundamental rights contained in the Treaty on the Functioning of the European Union (TFEU). In particular, the fundamental European rights that it infringes according to the EC are the free movement of people and workers, freedom of establishment, the freedom to provide services and the free movement of capital.
The report also states that the declaration regime under the Modelo 720 seems discriminatory and disproportionate, particularly due to its high penalty regime.
Therefore, the EC invited the Kingdom of Spain to adopt the required measures to comply with its reasoned opinion within two months of receiving it. However, we know that since the report was issued in February 2017 the Spanish Government has not changed the Modelo 720 at all and it does not seem to be on its agenda for the next months. Thus, it is very likely that it will remain as it is until the EC decides to take the case to the European Court of Justice (ECJ).
As a conclusion, there are no further developments, but as almost six years have passed since the Modelo 720 case was taken to the European Commission by a group of Spanish lawyers, we may see some progress in the next months. In the meantime, we should recommend our clients and prospects to submit their Modelo 720 annually and voluntarily regularise their situations in case we find out that someone has not previously disclosed his/her overseas assets as Spanish resident.
It is important to remember that the Spanish Succession and Gift Tax discrimination for non-residents case which followed a similar route some years ago, took the Spanish Government ten years to finally change the wording of the law, after it was brought to the EC.
I have a copy of the EC report (in Spanish) in case anyone is interested in having a look at it.
New section within the Spanish Tax Office to control HNWIs (high-net-worth individuals)
The Spanish Tax Office has just created a new section to control HNWIs, called ‘Unidad de Control de Patrimonios Relevantes’.
Consisting of 200 civil servants, this unit will take advantage of new technologies and Big Data to analyse and process all the available information from different sources related to HNWIs, their businesses and family circumstances.
They have not specified a minimum level of wealth as to who would be considered as a HNWI but they have included everyone who has ‘significant assets’ within the scope of this new section. However, special attention will be paid to taxpayers with assets over €10 million.
Inspections about tax residency
We have been informed by different tax lawyers in Spain that recently they have seen an increase of inspections on tax residency, particularly for HNWIs.
In some cases, the individuals were only spending very few days in Spain but the Spanish Tax Office was arguing the centre of economic interests as their tie with the country to make them Spanish tax resident.
This is just a reminder that not only the 183 days rule is important to determine an individual’s tax residency in Spain. Other factors may have a substantial relevance, depending on the circumstances. In case of any doubt, please contact us to discuss the case.
Spanish Succession and Gift Tax harmonisation rumours (again)
Despite the fact that some Spanish regions are making efforts to reduce the taxation on death taxes, the Spanish Minister of Treasury, Ms María Jesús Montero, has publically mentioned several times that the Socialist Government would like to harmonise upwards the Spanish Succession and Gift Tax to avoid the discrepancies between the different Spanish regions.
It is important to mention that in the past, this Minister was part of the Andalusian Socialist Government that has always been in favour of retaining this tax and they accused regions like Madrid of tax dumping and unfair competition.
It is still too early to know if this will ever happen, but we will keep an eye on further developments in this regard.
Holiday Rentals – Information to be provided to the Spanish Tax Office
All the holiday rentals platforms like Airbnb, Homeaway, etc. are now required by law to provide some information to the Spanish Tax Office on a quarterly basis due to the introduction of the new Modelo 179‘Declaración informativa trimestral del arrendamiento de viviendas con fines turísticos’.
The information to be disclosed, includes data about the property (i.e. address and catastral reference), the hosts (i.e. owners of the property), the rental price, number of days rented out, etc.
This will provide another source of information to the Spanish Tax Office.
This will provide another source of information to the Spanish Tax Office.
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