ARE YOU A RESIDENT IN SPAIN? IF SO BEWARE OF YOUR TAX OBLIGATIONS
The Spanish government has passed new legislation designed to prevent tax fraud which means that any person, residing in Spain, who owns assets abroad on the 31st of December of each year, must present a tax declaration and give detailed information about these assets to the Spanish tax office. Spanish residents have to fulfil this obligation before 31st of March corresponding to the previous tax year. In event of non-compliance, the fines and consequences can be very serious indeed.
What information has to be provided to the tax office?
The information that must be provided to the tax office relates to three different groups of assets, located abroad, if the total value of those assets exceeds 50.000 Euros.
1) Accounts in financial institutions must be thoroughly identified; indicating the opening and closing date, the balance on the 31st of December and the average balance over the previous three months.
2) Any form of securities or shares in foreign companies, bonds, loans, life or disability insurance and any annuity paid overseas. Detailed information of such assets must be provided, in particular the value of said assets, as of 31st of December.
3) Real estate and any rights you may have to a property – such as a mortgage or a life interest in a property – anywhere in the world must be declared.
This information will have to include assets owned at any time during the course of the year, even if they have been disposed of or transferred before 31st December.
Who has to present the tax declaration?
The declaration must be made by any resident company or individual who owns assets abroad, or is the ultimate beneficiary. This is the case even though they may be registered in the name of someone else, for example, a trustee has to present a declaration.
With regard to the first group of assets, i.e., bank accounts, etc, information must also be provided by a representative, authorised persons or indeed anyone who has power of attorney to operate the accounts.
No declaration has to be made with regard to assets which have been previously identified in officially filed accounts in Spain.
How can I lodge the assessment?
The assessment (Form 720) must be made online by the tax payer, to do so they must have a digital certificate granted by the Revenue. Alternatively, it can be done through a representative who has such certificate.
When is the deadline to present the tax declaration?
The tax declaration has to be presented between 1st of January and 31st of March of each year.
Is this an annual tax declaration?
If the information has been declared in a previous tax year -because they exceed 50.000€- the Spanish resident will ONLY have to present the declaration in the following years, if the previously declared assets have increased in value by more than 20.000€.
What are the consequences if those who are required to do so, not lodge the information now?
Initially there were punitive fines if a Spanish resident failed to comply with these requirements, i.e. by not presenting the declaration, or by presenting it in an incomplete or inaccurate manner. This was considered a very serious offence, which was subject to a fine of 5.000 Euros for each group of data missing, with an overall minimum fine of 10.000 Euros.
Moreover, if some assets located abroad, were not declared, and were later discovered by the Spanish Inland Revenue, they were treating this as an undeclared capital gain and backdate the tax due. Which means they will apply the tax to the four years prior to when they discovered the “non reported foreign assets.” The tax office could therefore at any time, enforce payment of tax for non-declared assets with no statute of limitation. In addition to this, a fine amounting to 150% of the resulting tax bill had to paid.
Nowadays since 2022 after a resolution of the Court of Justice of the European Union the regulations has changed and the fines are those established generally in the Tax Act for any assessment not presented on time where no payment has been made. Also, as result of the said European Court resolution, the same statute of limitation of 4 years is applicable as for any tax other assessment.
Conclusion
It is still important that persons resident in Spain for tax purposes, declare assets located abroad. The new rules on the exchange of information and the collection of taxes, operated in the European Union, the United States and other countries such as Switzerland, is now working very efficiently and the Spanish tax office will have an ever increasing ability to investigate the ownership of assets held in other countries.
This information that the Spanish Authorities are receiving from the tax authorities in other countries will make it much easier for them to identify a false declaration.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution.
Rafael Berdaguer
Lawyer within the firm
Rafael Berdaguer Abogados based in Marbella, Spain.
www.berdaguerabogados.com
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