FORM 720: DECLARATION OF ASSETS AND RIGHTS HELD ABROAD

Since January 1st is open the term to file Spanish Tax Form 720 related to the obligation of Spanish tax residents to file an informative declaration of the assets and rights hold abroad.

We are referring in this blog to the main aspects to be considered in relation to this informative obligation, as well as the novelties introduced in the same for this period

Obligation to submit the Form 72

Initial obligation

There will be an obligation to make this informative Form when it is the first year in which you acquire tax residence in Spain and the value of any of the blocks indicated below exceeds – on December 31st of the year to be declared- the amount of €50,000.

The blocks into which the informative obligation is divided are as follows:

  • Bank accounts located abroad.
  • Securities, rights, insurance policies, and income deposited, managed or obtained abroad.
  • Foreign real estate or rights over real estate.
  • Cryptocurrencies (Form 721, different to Form 720)

The obligation to declare the balances in cryptocurrencies is established for the first time for the tax return corresponding to Fiscal Year 2023, and it will be carried out through Form 721.

Those tax residents in Spain who are holders, co-owners, beneficiaries, authorized or who in any other way have the power of disposal in relation to the assets and rights indicated will be obliged to file the Form, provided that the circumstances mentioned above were met.

This obligation will be extended to those who have the beneficial ownership.

Particularities related to certain USA assets:

According to statements made by the Spanish tax authorities, positions held in all US Retirement Plans (401k, Traditional IRA, Roth IRA, 403(b), etc.), among others, must be declared in Form 720, since they are not considered Pension Plans commercialized by Spanish or European entities.

Likewise, there will also be the obligation to declare the participations held in relation to LLCs or any other business entities located abroad.

Finally, in case of a TRUST, the following tax residents will have the obligation to file Form 720:

a) The settlor

b) The trustee

c) The real or effective beneficiaries.

d) Any other natural person who ultimately exercises control of the Trust through direct or indirect ownership or through other means.

Obligation in subsequent years

Once an initial Form has been filed (Forms 720 or 721), there will be no obligation to make a new Form the following year – in relation to the elements already declared – unless there has been an increase in the value of any of the blocks for an amount greater than €20,000; or the ownership of some of the assets declared were extinguished.

Deadline for filing the Form 720

The term for filing Form 720 (or Form 721 for crypto) runs from January 1st to March 31st of the following year to which the return relates.

Therefore, the last day to submit the tax declaration is March 31.

At Spanish Lawyer NYC we will be pleased to assist you with your tax obligations in relation to your foreign assets and rights.

For more information about Form 720 (or 721 for crypto), as well as to start the procedures for its filing, do not hesitate to contact us through our contact form.

News regarding the Wealth Tax for Non-Resident in Spain 

Recently, the High Court of Justice of Baleares has ruled on the different tax treatment received in the Wealth Tax by taxpayers who are Non-Residents in Spain. 

To whom does Wealth Tax apply? 

The Spanish Law distinguishes two types of taxpayers in the Wealth Tax: 

  • Taxpayers by “personal obligation”. These are individuals who reside for tax purposes in Spain. They are taxed on their worldwide assets, regardless of the place where they are held. 
  • Taxpayers by “real obligation”. These are individuals who do not have their tax residence in Spain. They are taxed exclusively on the assets and rights located or exercised in Spain. 

The previous distinction is important because if the taxpayer is subject to personal obligation is allowed to apply certain reductions in the tax debt, among which is included the reduction called as “Income-Wealth limit”. 

This reduction operates as a limit to the amount to be paid in the Wealth Tax by the taxpayer since it can determine a reduction of up to 80% in the Wealth Tax debt depending on the income subject to the Personal Income Tax obtained by the taxpayer. 

The Spanish Law contemplates the possibility of applying this limitation on the Wealth Tax only for individuals taxed on personal obligation (tax residents in Spain). This means that according to the literal meaning of the Law, Non-Residents are taxed without applying this limit.  

What new features have been introduced in Wealth Tax? 

The High Court of Baleares has understood that this different tax treatment received by Non-resident is not in accordance with the European Law. The Court determines this treatment constitutes a situation comparable to the illegal treatment received by Non-residents in the Inheritance and Gift Tax. That difference of treatment was resolved with the famous 2014 CJEU Judgment declaring contrary to the European principle of free movement of capital the Inheritance and Gift laws that prevented Non-Residents from applying the reductions and deductions approved by the regions. 

Applying the same legal grounds contained in this 2014 CJEU Judgment, the High Court of Baleares declares that there is identity between both taxes (Wealth Tax and Inheritance and Gift Tax), as both distinguish between two types of taxpayers (personal or real obligation). Consequently, the High Court of Baleares determines that the possibility of applying the “Income-Wealth limit” exclusively by taxpayers with a personal obligation constitutes a discriminatory measure that violates the free movement of capital

It is foreseeable that the content of this Judgement will be subject to analysis by other Courts in Spain, although it constitutes a precedent insofar as it differs from previous rulings that the Spanish Courts had been upholding on this issue.  

The legal grounds contained in this Judgement may constitute a reason for challenging the Wealth Tax paid by Non-Resident taxpayers in Spain, who have been prevented from applying this “Income-Wealth limit” in their tax returns. 

At SLNYC we closely follow all the new developments in the legal-tax field that may affect our foreign clients in relation to their tax obligations in Spain. 

Taxation of real property in Spain: everything you need to know

Individuals who are Non-resident taxpayers in Spain and own a property have to pay the following taxes to the Spanish IRS (called AEAT or Hacienda):

1. Unrented property taxation

If the property is at their disposal, meaning the property is not leased to third parties, the Non-resident will pay an amount equal to the result of applying the 24% tax rate to the imputed taxable basis. This imputed taxable basis is calculated applying 1.1% of the cadastral value of the property (or 2% if the cadastral value is not revised).

If the taxpayer has not been the owner for the whole year -or if the property has been rented part of the year – this imputed income will be reduced in proportion to the number of days the property has actually been at the disposal of the owner.

If there is no cadastral value of the property, 50% of the higher of the following two values is taken into consideration for the calculation of the taxable basis: the acquisition value or the value reviewed by the tax authorities.

This imputation is mandatory for urban properties and for rustic constructions not used for economic exploitation. It does not apply to land, plots or buildings under construction.

The deadline to declare and pay for imputation when the property is not leased is the whole calendar year following the fiscal year to be declared. That is, for 2022 imputations the tax form must be filed before December 31, 2023, and so on.

2. Taxation of real property in Spain for leased

Non-resident individuals who have rented real estate in Spain are enforced to pay an amount equal to 24% of the gross rental income received for the lessor.

Spanish tax law does not allow non-EU residents to deduct the expenses incurred during the rental period. On the other hand, this deduction of expenses is allowed if the non-residents are living in another EU country.

Currently is being discussed in Courts that this discrimination infringes European Union Law, as it goes against the European principle of free movement of capital. Non-residents who so wish can try to claim the deduction of expenses, and even the 60% reduction of the net yield allowed for tax residents. The most advisable is to pay, and then appeal to avoid the statute of limitations on the refund of the excess paid.

The deadline for declaring and paying the income from properties that are leased is quarterly.

We remind that if the property has been rented for only part of the year, two types of income need to be declared: the income derived from the lease, and the imputed income for use and enjoyment of the owner.

3. Ownership of the property

The ownership of the property determines the following taxes must also be paid:

– Property tax: In Spanish this tax is called Impuesto de Bienes Inmuebles, but everyone call it with the acronym IBI. The IBI is an annual tax, and the City Hall is in charge of issuing its receipt. The amount to be pay depends on the characteristics and location of the property. It is convenient to have the payment of this receipt domiciled in the bank to avoid penalties.

– Wealth tax: In case the value of the property exceeds the thresholds of exemption of this tax that is established for each region, the non-resident could be enforced to declare for Wealth Tax in Spain for the value of the property they have in Spain on December 31. If the region has not established its own exemption threshold, the established by the Spanish government of €700,000 applies. Recently tax authorities have indicated this tax is also payable if the non-resident has interposed ownership of the property through a foreign business entity.

4. Transfer of real estate

In the transfer of real estate there are taxes for both the buyer and the seller.

The buyer -whether she is a tax resident in Span or not- has to pay a tax on the acquisition. This tax will be the Value Added Tax (VAT) in case the seller is a developer, or the Transfer Tax established by each region, in case the seller is a private individual or a second delivery of that property.

On the other hand, if the seller of the property is a non-resident taxpayer in Spain, the taxes to which she will be involved for the sale will be: (i) the Non-Resident Tax, for the capital gain or loss obtained from the sale of the property; and (ii) the Municipal capital Gain Tax, depending on the gain or time of ownership in the non-resident’s estate. Both taxes have a series of particularities since the seller is a non-resident taxpayer in Spain. That is why specialized advice is required to confirm that the taxation is correct.

At Spanish Lawyer NYC we will be pleased to assist you with the submission of your tax obligations for the ownership of properties in Spain.

NEW SPECIAL TAX REGIME IN SPAIN: MODIFICATIONS OF THE BECKHAM LAW

From January 2023 the reform of the special tax regime for workers posted to Spain came into force. This special tax regime is better known as the “Beckham Law”.

What is the Beckham Law?

Beckham law is a special tax regime that allow people who move from abroad to Spain and acquire the tax residence in Spain to opt to be taxed as if they were Non-Residents during the year in which the movement takes place and the following five years. That is, this regime allows them to be taxed at a fixed tax rate of 24%, instead of the general progressive tax rate (which can go up to 47%).

Main requirements for the Beckham Law

To qualify for this tax regime, the following requirements must be met:

a) That the displacement occurs due to any of the circumstances indicated in the Law.

b) Not to have been a tax resident in Spain in the five years prior to the movement to Spain.

Modifications of the Beckham Law

As new features of the reform are the following:

i. Possibility of applying the tax regime for the remote workers, commonly known as “digital nomads” (worker who works remotely, through the exclusive use of computer, telematic, and telecommunication means and systems).

ii. The suppression of the previous maximum percentage of 25% of the stake in the cases in which the displacement to Spain takes place due to the appointment as director of an Spanish entity that develops an economic activity.

iii. The extension of the application of the tax regime to the applicant’s family members.

When you can opt for the Beckham Law

Currently the situations that allow to opt for the special tax regime are the following:

1. Beginning of an employment relationship with a Spanish employer, or when the posting is authorized by the employer of origin by means of a transfer letter. This is the same situation that already existed before the reform.

2. Existence of an employment relationship by a remote worker. New assumption. We remind that non-EU citizens must previously obtain the new Digital Nomad Visa (DNV).

3. Appointment as director of a Spanish entity. Now is indifferent of the percentage of the stake (except for patrimonial entities -non -activity entities- in which they will not be able to have more than 25% of the stake).

4. Development in Spain of an economic activity qualified as entrepreneurial activity. New assumption.

5. Highly qualified professionals who carry out an economic activity in favor of a Spanish company qualified as an emerging company and/or, who carry out training, research, development or innovation activities that represent more than 40% of their income. New assumption.

Benefits for those who opt for this tax regime

The new situations introduced in this special tax regime make it an interesting incentive for those persons who, fulfilling the requirements, have recently moved to Spain or are planning to do so in the future.

The persons who apply for this special tax regime will be able to benefit from the following aspects:

1. Tax rates: They will be taxed at 24% for the income from work and business or professional activities obtained worldwide, with some particularities.

2. Only financial income and capital gains deemed to have been obtained in Spanish territory are taxed in Spain, excluding those from foreign sources.

3. Wealth tax: Only assets and rights located in Spain are taxed, not wealth located outside Spain.

4. Form 720: There will be no obligation to file the informative declaration for assets and rights held abroad.

5. Family unit: With effect from 2023, the extension of the special regime to the spouse and minor children of the taxpayer who travel with her is allowed, under the terms and with the requirements contained in the Law.

Due to the recent and novel nature of this Law there are certain points that require a detailed analysis. We recommend the assistance of tax professionals throughout this process.

At Spanish Lawyer NYC we have closely followed the legislative process of this Law, paying special attention to all those aspects that may be of interest to our US clients, and adapting the possible scenarios to provide them with individualized and quality advice.

How to inherit assets in Spain from the USA. Cross-border Estates

While in the USA, in most of the occasions the process known as Probate is avoided through the use of the so-called “Will Substitutes” (trust, insurance policies, TOD accounts, etc.), in the Spanish system is required – in almost all the occasions – to have the authorization of a Spanish Notary who will validate the legality of the succession rights according to the Spanish Law. Additionally, this control will be endorsed by a Commercial or Land registrar when the assets to be acquired are shares or real estate.

The necessity to obtain the authorization of a Spanish Notary to receive the assets located in Spain will require to have adequate documentation to prove the succession rights under Spanish Law. And this is where the problems begin given the enormous differences between the U.S and Spanish successions rules.

In the first place, if the Estate is not subject to the Spanish succession rules, and there is no Spanish will to regulate the destination of the assets located in Spain, we will find ourselves with the need to have an U.S succession title that is adequate in view of the Spanish Law. In these cases it will be truly important to know whether there is a foreign will or the succession is intestate; if the will has passed through the Probate; if a copy of the will has been deposited in the courts; or if additional figures as Trust have been used.

On the other hand, in a great number of occasions additional documentation will have to be produced to adapt the U.S rules to the Spanish Law. Here the relationship between advisors of both countries, as well as the previous conversations with the Spanish Notary who will intervene in the inheritance, will be of special relevance.

Additionally the residence abroad of the intervening people will require an effort in time and money to go to the Spanish Notary, or the need for them to grant the corresponding Power Of Attorney (POA) with sufficient faculties of representation.

Finally all documentation issued by foreign authorities and the drafting in a language other than Spanish will require the obligation to obtain the Apostille of The Hague -to recognize the foreign authority- and the corresponding translation of the document.

Regarding taxes involved in the Estate, there are recent Spanish court rulings that have allowed non-resident heirs to benefit from the same tax allowances that apply to resident heirs. The taxation of non-resident heirs will depend on where the residence of the deceased is located, and if the deceased is not a tax resident in Spain, the applicable regulations will be those approved by the region where the highest value of the assets of the Estate is located. That is why a previous Estate tax planning, when possible, is more than justified in order to try to attract the Estate to more efficient tax legislations.

Regarding the assessment of the assets to be declared in the Spanish Estate Tax it will depend on the applicable regional legislation, the relationship with the deceased, and the final destination to be given to the acquired assets.

Spanish Lawyer NYC can assist you with your Estates in Spain. Contact us through our website or by email at fgs@SpanishLawyerNYC.com

Spanish Tax Authority confirms how remote workers are taxed in Spain

Note: This blog is not considering the taxation of digital nomads when they have applied to the special tax regime or Beckham Law. Please, see the blog for special tax regime (Beckham Law), in case you think you can apply for it.

Following the guidelines contained in the Personal Income Tax Act, the AEAT considers remote workers will be tax resident in Spain, as general rule, if they work from Spain for more than 183 days in the calendar year. Also, they will be tax resident if they have in Spain the core or the base of their activities or economic interests.

In addition to qualifying as a tax resident in Spain remote workers may be also considered a tax resident in another country in accordance with the internal tax rules of that country.

What would happen in this case? We would look at the tie-breaker rules established in the applicable Double Tax Treaty.

In the case that has been analyzed by Spanish Tax Authority, the worker was living in Spain most of the year but she was also obliged to reside three months in the UK to qualify as “ordinary resident” in UK.

Spanish Tax Authority indicates that if the remote worker turns out to be a tax resident in Spain – after applying the tie-breaker rules of the Agreement – the income obtained for the days that she is physically in UK may be taxed both in Spain (place of residence) and UK (where work is done), unless the special rule of article 14.2 of the Treaty applies. In that specific case those income will be taxed only in Spain.

If both countries could tax this income, Spain would eliminate double taxation by deducting the amount paid in the UK.

Additionally the income received by the worker for his services performed “remotely” from his home in Spain will only be taxed in Spain.

But in the event that the remote worker is considered a tax resident in the UK – after applying the tie-breaker rules of the Treaty – the income obtained for the work performed on the days that he is in England would not be subject to tax in Spain, since that the work is not carried out in Spain. And for the income received for work carried out “remotely” from the home in Spain, she will always be taxed in the United Kingdom (place of residence), but could also be taxed in Spain (place where the work is carried out on those days) in some cases, unless all the special circumstances of article 14.2 of the Convention apply, in which case she will only be taxed in the United Kingdom.

The special rules that have to be given, in their entirety, so that Spain does not tax this income obtained by the worker remotely from his home in Spain, are (i) that the worker spends in Spain less than 183 days in any period of twelve months beginning or ending in the fiscal year considered; (ii) that the remuneration is paid by a company that is not Spanish; and (iii) that the remuneration is not supported by a Spanish permanent establishment.

In the event that Spain also taxes that income of the British resident, it will be in the United Kingdom where double taxation must be eliminated, by deducting the amount previously paid in Spain.

In conclusion, Spanish Tax Authority determines that the state in which the work is physically carried out may, in some cases, tax the income obtained during those days.

Workers who are displaced from their usual places of work must take into account the implications that a prolonged displacement to Spain could have in their tax obligations in Spain.

In Spanish Lawyer NYC we can advise foreign companies and entrepreneurs in all their tax and legal obligations in Spain.

News on Modelo 720: Cancellation of penalties and declaration of cryptocurrencies

Court of Justice of the European Union (CJEU) has ruled that the Spanish sanction regime of the foreign asset declaration (Modelo 720) is contrary to European law.

In a judgement dated on January 27th, 2022, the Court has considered that this sanction regime is null and void since it goes beyond the statute of limitations, and also because the fines imposed on taxpayers who do not declare or declare incorrectly or extemporaneously are disproportionate.

This judgement opens the door to recover all fines imposed in Spain for application of this sanction regime.

Likewise the judgement may contribute to regularize the situation of those foreigners who – due to lack of knowledge- did not declare, in due time, the assets they have in their respective countries of origin.

As summary, we remind you since 2012 it has been established in Spain the obligation to inform about the assets and rights that a Spanish tax resident has abroad. This informative tax form is known as “Modelo 720”. And the obligation to declare this model remains intact, despite the elimination of the special sanction regime.

This tax form report is the same that is already mandatory in other countries. For example in the US there is a mandatory obligation to report assets and rights hold abroad when the value exceed $10,000.

The reporting established in Spain incorporated the necessity to report about three blocks of assets located abroad (bank accounts, securities, and real estate), when any of these blocks exceeded the amount of €50,000.

Besides, the recent Law 11/2021 about measures to prevent fraud has established a fourth block of information. Since 2021 it is necessary to report about cryptocurrencies located abroad of which a Spanish tax resident is the holder, or in respect of which she is the beneficiary or authorized.

Foreigners arriving in Spain for the first time will have the obligation to file Tax Form 720 before March 31th of the first year in which they are qualified as tax residents in Spain. In other words, they must file this Modelo 720 even before filing their first Personal Income Tax return.

Once the Modelo 720 has been filed with respect to one or more of the blocks of information, this Modelo 720 must only be filed again when in relation to each declared block there is an increase of more than €20,000 with respect to the one that determined the filing of the last declaration.

Spanish Lawyer NYC is able to assist you with this reporting obligation. Please contact us through our email fgs@SpanishLawyerNYC.com

Spanish Constitutional Court allows to recover the Plusvalia Municipal

Additionally, on November 10th a new Law -in form of Royal Decree- has entered into force. This new Law establishes a new way of calculating the basis of this tax, due when someone sales or receives by inheritance or gift a real property in Spain.

This memo try to summarize that practically all the situations that are not affected by the statute of limitations are susceptible to be appealed in order to obtain the refund of the money paid to the City Hall.

It is possible to distinguish between the following situations:

A) Situations produced between October 26th and November 9th.

There is no obligation to pay the tax since between these dates there was no formula for calculating the tax.

B) Situations carried out after November 10th

We agree with the majority of the tax advisors in indicating that it is very controversial how this new Law was created (Royal Decree), since the Constitutional Court has been considering unconstitutional the use of Royal Decrees to regulate essential elements of a tax.

Therefore, we guess that appeals will be filed against situations calculated since the entry into force of this new Royal Decree.

C) Situations occurring prior to the Sentence on October 26th

The Constitutional Court considers that situations prior to October 26th that are not final will be null and void, but only in the event that they have been appealed before this date.

In our opinion, this limitation to retroactivity infringes several articles of the Spanish Constitution and the rest of the legal system.

However we understand that all situations that are not final would be subject to appeal. These situations are those in which less than 1 month has passed since the notification of the liquidation or less than 4 years passed since the presentation of the self-declaration.

Therefore, although it will not be an easy path, and it will probably be necessary to wait for the pronouncements of the European Court of Justice, we understand that all non-firm situations prior to October 26th would be subject to appeal.

D) Situations in which the transfer has been made at a loss or with little gain.

These situations are still fully appealable since the previous unconstitutional Judgements dated on 2017 and 2019 are still fully in force, so it will be possible to request the full refund in case of transmission with losses or if more tax was paid than the gain obtained. This would be the first issue that should be analyzed prior to the rest of situations described before.

If you have transferred a property in Spain in recent years you should contact a specialist to verify if you are entitled to a refund of the tax paid to the City Hall.

Spanish Lawyer NYC can help you to recover quickly and easily the amount paid for the Plusvalía Municipal.

You can contact us by e-mail at fgs@SpanishLawyerNYC.com or through the contact form at www.SpanishLawyerNYC.com

Are you a foreigner living in Spain? Have you paid Estate Tax in Spain? We recover your money

Therefore, foreigners living in Spain are taxed in their cross-border Estates in the same way as heirs of Spanish or European Union Estates.

More important foreigners living in Spain who paid the Estate Tax in Spain without applying the benefits of the Comunidades Autónomas may request the return of mostly the whole tax paid to the Spanish Tax Authorities.

If you have received a cross border Estate you must check if you have the right to a refund of the amount paid to the Spanish Tax Authorities.

Additionally, the Supreme Court has recently resolved that residents in Spain who have not applied the regional benefits may claim the excess paid to the Spanish Treasury, regardless of when they received the inheritance (including beyond the 4-year statute of limitations), if there has been an audit of the tax form at any time.

Spanish Lawyer NYC can help you get your money back from the Spanish Tax Authorities at no cost until you get your money back in your bank account.

Many of our clients have already received their money back.

For more information, do not hesitate to contact us at the email fgs@SpanishLawyerNYC.com